As a Real Estate agent in one of the most affluent regions of Europe, I had the priority to meet a lot of very rich people.

Yes, they think different.  Talk about different things and have better financing options than most of us.

They can almost make money out of thin air.  (That is slightly exaggerated, but at least have a very high return on investment)

The thing is, most people don’t even know these kinds of financing opportunities exist.

But once you know what to look for, it is not really that hard to actually find these kinds of financing options.  Even with smaller budgets.

Enter Collateral Loans

Collateral loans are loans that take an asset as a collateral.

You may think, nothing new here…

That is what is a mortgage Loan right, the bank takes your house as a collateral for the loan.

Well, for a mortgage loan you do have to make a 30% downpayment to actually get your mortgage loan.

So your return on investment is based on that downpayment.

It’s all about Return on Investment

With a collateral loan, you can give an asset or a portfolio of assets as a collateral and get a 100% financing for your new investment.

If you can purchase a cashflow positive rental property with 0% downpayment, theoretically you create an infinite return on investment.

But… only Investors that already have a rental portfolio that is largely paid for are able to do this.

Having a big rental portfolio requires a large capital.  So if you are just starting out, you can’t get a collateral loan.

What a lot of people don’t know is that you can also get a collateral loan with a Dividend portfolio and create a similar structure in a mini-version.

Dividend portfolio as collateral for Real Estate

Especially if you are building up your wealth, a collateral loan structure with a Dividend portfolio is a great way to get that snowball rolling.

Here is why:

  • Avoiding dead capital.  If you do a downpayment for a mortgage, that money is gone and doesn’t earn you a dime. With a collateral loan on a dividend portfolio, you will not be able to sell the stocks, but you will still get those dividends in your bank account every single month.
  • Lower the risk of vacancy.  I have seen it happen over and over again. Real Estate investors getting in trouble because their house is vacant and they have to keep paying the bank loan. Because you will still get the dividends from your portfolio. You can cover a large part of the loan repayments.  You can even structure the loan so the dividend payments cover the repayments entirely.
  • Profit twice from low-interest rates.  We are in a low-interest rate period right now.  Two things happen then.  You can lend money cheaply.  Use that.  Lock that low-interest rate in by buying real estate.  But Low-interest rates also stimulates the economy, better economy, more profits for companies, more dividends for you.  With a collateral loan backed by a dividend portfolio, you profit twice from a low-interest period.
  • Cashflow machine. When you can purchase a good cashflow positive real estate deal + get the dividends of your portfolio in collateral, you can really boost your cashflow
  • Apply the Super Snowball Strategy.  Leverage that future cash flow with “cashflow covered put option writing”.

The downsides
Yes, there are downsides, although personally, I think they are limited.

  • The bank “blocks” the investment portfolio you give as collateral.  So you will not be able to trade.  You will still get the dividends every single month.  So be sure you build a buy-and-hold dividend portfolio for this purpose.
  • Depending on the bank and the type of stocks. Your dividend portfolio will have to represent 50 to 60% of the value of the Real Estate.
  • You will have to find a “business bank” or a bank that deals with more high net worth clients.  Most retail bank employees can only sell you a mortgage loan.