Where to find sources of start-up capital?

If you are like most people, you have been working for several years (maybe more than you care to count) trying to save money for retirement. Then, someone convinces you that the bulk of your funds should be placed in real estate now when property prices are low in the recession time.

“That’s great,” you think, “but just where are my funds now?” The first thing you need to do is to refer to your personal financial statement. Without it, you really don’t know how much money you have or where it’s located.

Let’s look into the usual places where people keep money and then, consider some possible sources you may not have thought of.

Savings accounts
Banks are the “holders” of billions of dollars of investors’ excess capital. People invest in these institutions because it’s easy, safe and the interest the institutions pay is guaranteed. But, you already realise that the 1 to 3 percent interest you are receiving does not come close to keeping up with inflation. Each year, you are losing ground.

So, begin by making a list of how much cash you have tied up in savings accounts, fixed deposit accounts and any other similar type of investment.

Cash value life insurance: ideal if you have built up a substantial cash reserve
Your insurance policies that have a cash value are an excellent source of capital. Review your policies and determine how much loan value you have built up. Perhaps, you have an Endowment Policy for yourself, your family or your child’s education that you have been paying into for years.

Once you have determined how much cash or loan value you have in these policies, find out how much interest you will have to pay to borrow that money. Whatever it is, it will be at a much lower rate than current mortgage because you’re borrowing your own money. You can check with your insurance agency or ask expert like KCLau to find out more about this option.

Stocks: you don’t necessarily have to sell
Do you own stocks? They are a source of capital. You have two choices. You can sell the stock outright and invest the after-tax profit. There is another alternative. You do not have to sell and give up the fun and excitement. You can use your stock as collateral and borrow against it. Your local banker will tell you how much you can borrow and the interest rate. This facility is normally called share margin financing.

Refinancing real estate: a secure source of tax-free money in today’s economic climate
If you do have a lot of equity in your home, you may want to consider this source of investment capital. The same opportunity is available for any other real estate you may own. You can refinance a property that has considerable equity in order to obtain additional investment funds, especially when interest rate are expected to drop further during recession time. And that is tax-free money.

Friends and relations
Don’t overlook the opportunity of borrowing funds, on a secured basis, from people you know that have money. Talk to your rich aunt who has a bundle in a savings account. Show her how you will pay her 1 to 2 percent higher interest (which is still below your mortgage interest rate) than she is currently earning. Her investment will be secured by a mortgage on your property.

The husband and wife team
When both a husband and wife are working and the salary of just one is sufficient to cover living expenses, deposit the other spouse’s salary in an interest-bearing account each month and let it build up. Don’t touch it, except in an emergency. Everyone knows that if a cheque is cashed instead of just depositing it, all or most of it “mysteriously” seems to disappear. Instead of letting it disappear, make it works for you to build up your investment capital.

You know that the majority of investors who never take a risk will leave all of their investment funds in “secure” savings accounts or other fixed investments, end up practically broke when they retire. Waiting to build a substantial amount of investment capital may prevent you from ever getting a start in real estate investing, and the sooner you start, the more time you’ll have to secure your future.

Recommended article – Property: Investing in something tangible
– Embattled investors singed by the performance of the equity and financial markets in 2008 may want to look at more tangible assets to invest in going forward. So what will the property industry experts say about the property market in Kuala Lumpur? Click here to read this article.