How To Buy A Property By Using Existing Assets

Did you know you can leverage your existing assets to secure funding for your property? A car, jewellery, or even an investment portfolio can be used as collateral. Traditionally you could pawn existing assets at a dodgy pawn shop. Or you needed to sell your assets to raise the money. Today you have more options to raise the money you need.

Loans and asset-based lending offer alternative ways to access financing quickly and flexibly. You can tap into your resources without disrupting your financial plans. If you own e.g. shares, you can do so without incurring capital gains tax (CGT). Elon Musk originally planned to use Tesla shares as collateral for a $12.5 billion loan from banks, but he later abandoned this plan. He opted to sell his shares instead

Rich people using collateral loans

Using assets to buy assets happens more often than you think. Rupert Murdoch used shares in News Corporation as collateral to secure loans for expansion and acquisitions. He including the purchase of the Wall Street Journal and MySpace. These strategic moves helped grow his media empire significantly.

Elon Musk used Tesla shares as collateral to secure loans as part of the financing package to purchase Twitter. He pledged a portion of his Tesla holdings to banks for a $12.5 billion margin loan, though he later reduced this reliance by selling Tesla shares and bringing in co-investors.

What Is a Collateral Loan?

A collateral loan is a type of secured loan where you pledge an asset as security in exchange for funding. The loan amount is typically based on the asset’s current market value. The lender will hold the asset until repayment is complete. For example, you can use cars, luxury watches, or even art as collateral for a loan. The key is that these assets must have significant value and be fully owned by you. Unlike traditional loans, collateral loans don’t require credit checks or proof of income.

It’s a glorious permutation of a pawn shop.

What Can I Use As Collateral for a loan?

Collateral isn’t limited to physical assets. You can also use your share portfolio, bonds, or even cryptocurrency as security to secure property financing.

Here’s how it works: You pledge your investment portfolio to a bank or institution, which evaluates its value and stability. Based on the portfolio’s market value and diversification. The bank will offer a loan at an interest rate, and initiation fees may be payable. And the best part? You retain ownership of your investments while accessing funds. However, if you default, the bank can liquidate the portfolio to recover the loan.

Pros and Cons of Collateral Loans

Advantages

Fast Approval: With fewer requirements, loans can be approved in as little as 24 hours.
No Credit Checks: Your credit score isn’t a factor, as the loan is secured by your asset.
Retain Investments: For portfolio-based loans, you can keep your investments intact while using them as security.
Flexibility: Both individuals and businesses can use these loans for various needs, from buying property to starting a venture.
Taxes – you will not be liable for capital gains tax when selling investments such as

Risks of collateralised loans

Risk of Losing Investments. In case of default, the lender can sell your investments, potentially leading to significant financial loss, especially during market downturns.
Market Volatility: For investments, market dips can reduce the portfolio’s value, potentially requiring you to provide additional collateral.
Limited Access: Physical assets like cars or jewellery remain with the lender until the loan is repaid.
Higher Interest Rates. While secured loans typically have lower rates than unsecured options, they may still be higher compared to loans secured by physical assets like property. While cheaper than unsecured loans, rates like “prime + 3%” can still be costly.
Limited Loan Amount: Borrowers can only access a fraction of their asset’s value (e.g., 33% LTV).
Administrative Costs: Initiation fees and ongoing collateral monitoring may add up

Types of Assets Accepted for Collateral Loans

If something has value, it can be used as collateral. However, the quality of the institution providing the loan may vary. For example, if you need a loan against jewellery or cars, you might have to go through a pawn shop. On the other hand, if you want a loan against shares, a bank or an investment platform like EasyEquities would be a better option.

Can I buy a property with cryptocurrency?

Yes! Broll Auctions and Sales, Schindlers Attorneys and Schindlers Digital Assets has created an offering to buy property with cryptocurrency in South Africa.

If you want to Other companies also offer loans against your cryptocurrencies. However, this is not recommended, as most are scammy.

Banks and collateral loans

Banks such as ABSA, Standard Bank, Nedbank, and FNB all do collateral loans. Each one has a checklist (or calculation) on the loan-to-value (LTV) ratio and in determining the interest rate. This is dependent on risk, type of asset and diversification. Most banks will give preference to private clients with a net worth of R 2 million annual income or a R 9 million net worth.

How Banks Evaluate Collateral

Bank	Minimum Asset Value	Acceptable Asset Types	Loan-to-Value Ratio (LTV)	Documentation Required
ABSA	Assets must meet a minimum value requirement, typically around R500,000.	Shares and bonds are generally accepted.	Up to 70% of the asset value can be used as collateral.	Proof of ownership, asset valuation, and income verification.
Standard bank	The minimum value of assets should be R1,000,000.	Shares, bonds, unit trusts, and other liquid investments	Up to 75% of the asset value can be used as collateral.	Detailed portfolio statement, proof of income, and asset valuation.
Nedbank	Assets must be valued at a minimum of R750,000.	Shares, bonds, and other marketable securities.	Up to 65% of the asset value can be used as collateral.	Comprehensive asset statement, income proof, and valuation report.
FNB	The minimum asset value required is R800,000.	Shares, bonds, and mutual funds.	Up to 70% of the asset value can be used as collateral.	Asset ownership proof, detailed valuation, and income verification.

Other examples

EasyEquities and EasyCredit loan

EasyEquities provides accessible options for retail investors looking to leverage their investments. You can borrow up to 33% of the value of your investment portfolio, with qualifying assets from the top 100 companies or liquid ETFs. there is a 1% initiation fee and interest rates are prime + 3%.

Other financial institutions offering collateral loans

PSG Wealth Scritpfin Loan Facility

The PSG Wealth Scriptfin Loan Facility gives you simple access to a loan by using your local share portfolio as collateral. You can withdraw this amount as cash or can reinvest it into any of your trading or investment accounts. This means that you can add to your portfolio without adding cash to your account.

Sanlam Private Wealth

Sanlam Private Wealth allows clients to use their existing investment portfolios as collateral to access capital. This option provides a fast and flexible alternative to traditional mortgage loans, enabling clients to secure funds within 48 hours. The service includes competitive rates linked to the prime interest rate, no upfront costs, and flexible repayment terms. Clients can use up to 50% of their portfolio’s market value as collateral, making it an efficient way to seize investment opportunities without liquidating assets

Discovery Invest secured credit options

Discovery Invest offers a secured credit option that allows you to borrow against your investments without having to liquidate them or incur penalties and taxes. This benefit is available exclusively to Discovery Bank Black and Purple Suite account holders who have investments with Discovery Invest valued at over R500,000. This service provides a convenient way to access additional funds when needed, leveraging your existing assets as collateral.

How to Apply for Collateral-Based Loans

Choose a Reputable Lender: Work with NCR-registered lenders or banks.
Provide Asset Details: Submit ownership proof and valuation reports.
Portfolio Assessment: Banks review diversification and stability for investment portfolios.
Loan Approval: Once all checks are complete, funding is provided.

For property buyers, this approach is especially appealing, as it avoids selling assets and offers the potential for lower interest rates.

Conclusion

Collateral loans could be leveraged to buy a property or get quick money for something urgent that your emergency fund won’t cover. I do want to put a word of caution – please don’t take out loans because you can. Using tomorrow’s money to pay for today’s luxuries is a sure way to destroy your finances and your life.

The world of property buying is changing, and asset-based lending offers a new way to access financing without jumping through traditional hoops. By using your investments as collateral, you can get that dream home without selling off your hard-earned assets. However, it’s crucial to understand the ins and outs of how banks assess your portfolio and to be aware of the risks involved. With careful planning and a solid portfolio, you can unlock new opportunities in property ownership and secure the best possible terms for your next big purchase.

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