Financing from Singapore Banks as investment &asset management co.

[catinheels]

Hello,

I have a business idea investing in properties where most of my careers related to, but not much experience in lending from banks. I would like to set-up a Ptd Ltd and get financing 50%-80% and invest in Malaysian properties and high yield stocks for diversification purposes.

Basically the classification of this company is investment and asset management of own wealth, and the purpose of the financing is to leverage the investments, not only to purchase properties. My question is, in general, would a bank lend to an investment company, unlike commercial companies such as manufacturing? I assume the banks will lend as long as my plan is credible as in getting the proceed back plus the interest, and the assets can be collateralized in case of default. Is this correct? I would like to leverage my investments using financing. Also I would like to use the low interest rate here in Singapore and invest in high return products such as Malaysian properties or Malaysian REIT where the average return is 6%+. I am also looking at high yield stocks. I went into CIMB to ask for the financing if I were to buy a residential property in KL for personal, and they said they dont do lending in Singapore CIMB if the property is in Malaysia, but Malaysian CIMB will. I assume this was because the asset cannot be collaterized in Singapore since the location of the property is in Malaysia. But the interest rate for financing in Malaysia is too high the banks said currently 4.2%. So my question is whether a bank in Singapore will lend the investment company the money 50%-80% LTV, assuming that the asset can be collaterized? Please anyone has any idea, pls let me know. Thank you.

[taxico]

...set-up a Ptd Ltd and get financing 50%-80% and invest in Malaysian properties and high yield stocks for diversification purposes.

Basically the classification of this company is investment and asset management of own wealth, and the purpose of the financing is to leverage the investments, not only to purchase properties...

will your company come under the rules spelled out by the government?

(experienced investment managers, licensing requirements, etc...)

especially with MAS tightening the rules this year...

[taxico]

...My question is, in general, would a bank lend to an investment company, unlike commercial companies such as manufacturing?

I assume the banks will lend as long as my plan is credible as in getting the proceed back plus the interest, and the assets can be collateralized in case of default. Is this correct?

I would like to leverage my investments using financing.

Also I would like to use the low interest rate here in Singapore and invest in high return products such as Malaysian properties or Malaysian REIT where the average return is 6%+. I am also looking at high yield stocks.

I went into CIMB to ask for the financing if I were to buy a residential property in KL for personal, and they said they dont do lending in Singapore CIMB if the property is in Malaysia, but Malaysian CIMB will. I assume this was because the asset cannot be collaterized in Singapore since the location of the property is in Malaysia. But the interest rate for financing in Malaysia is too high the banks said currently 4.2%.

So my question is whether a bank in Singapore will lend the investment company the money 50%-80% LTV, assuming that the asset can be collaterized?

you want to borrow money (at low rates) to speculate in property and stocks? who bears the risk? assets don't count for squat when the scene goes belly up...

50% to 80% LTV is not specific. 50% is far from 80%.

financing personal property in your own name is different from doing so with a company - interest rates will always be higher for a commercial entity as the risks are also higher.

and i assume the risk goes up if your company is an "investment" company (as opposed to a "holding" company).

good luck "leveraging" your way to financial freedom! you've obviously not had your "business proposals" rejected often enough by banks.

[catinheels]

Hello Taxico, thanks for your input.

I am aware of the Gov't requirements n stuff but those were not my question so skip that topic - though I appreciate your pointing out.

So who bears the risk? I bear the risk up to the amount invested in equity and the rest stays with the lender. If it went bad, then the banks gets the property if I do not meet the covenants. If the bank think there is a high risk, then they can charge a higher interest rate. Then I will think about the high interest rate. these are negotiable.

I heard as a personal loan, an individual can borrow up to 80% when buying a property. I would like to do that with my company but I thought the banks wouldnt lend 80% given that the company does not have any history. so I thought they might do 50%, this is the max level of leverage most lenders are willing to take after the financial crisis. So the LTV is negotiable between the borrower and the lender. I prefer high, and I do not know how much the bank is willing to take the risk.

I have not had any rejection from banks because I havent applied for one before!

Let me know if anyone has similar idea or anyone who think this will be difficult to pursue and let me know the reason pls.

[JR8]

So who bears the risk? I bear the risk up to the amount invested in equity and the rest stays with the lender. If it went bad, then the banks gets the property if I do not meet the covenants.

Haha that's funny!

Sorry, but I stopped reading at that point.

Why not set out your business case here for your first property. I.e. the financials. You DO have one right?




JR8
[Professional landlord of losing count, something like 75 let-unit-years. I'm very happy to mentor, but you need to show you are up to speed first. Better still that you are ahead of what I might ask you for. Got it? This is a ruthless business, and if you are a fool, or think it is easy money then nothing I might say to try and assist you will. Banks will consider you thrice as harshly, so be aware of that].

[Strong Eagle]

I can't really see banks lending into this sort of business, at least not as a start up and even after that, only as interim lenders.

As JR8 alluded to, your assessment of risk is, at best, incomplete. On a small scale, such as you are speaking of, no bank has the resources to verify that the properties you want to buy with their money are being purchased at a fair market value, nor that they will return loan value should you go bankrupt.

On a larger scale, more than one crash has been created by real estate bubbles that were built upon easy bank money and lots of property flipping. The bubble bursts, the banks hold the title to a lot of property that isn't worth very much.

You need to line up investor financing in the form of a partnership or REIT. Then the banks might loan you bridge capital as you form your partnerships.

As for stocks, the US and world depressions were caused by allowing banks to loan money for stock purchases with virtually no limits. At most, you'll probably get 50 percent of your own outstanding stocks owned, and with the likelihood that you'll be asked to top up if your stock prices drop.

[taxico]

I am aware of the Gov't requirements n stuff but those were not my question so skip that topic - though I appreciate your pointing out...

I heard as a personal loan, an individual can borrow up to 80% when buying a property.

I would like to do that with my company but I thought the banks wouldnt lend 80% given that the company does not have any history.

so I thought they might do 50%, this is the max level of leverage most lenders are willing to take after the financial crisis...

I prefer high, and I do not know how much the bank is willing to take the risk.

you hear, think, prefer and would like lots of things you don't know. know this: banks don't like risk.

i'm not poo-pooing your idea, but if you want to start a company to do this, you have to do it right or you're better off "investing" in properties personally.

let me put it this way: if you are able to successfully form a legitimate fund/asset management company in singapore, it'll probably increase the likelihood of a bank lending some money to said company.

unfortunately you appear to be someone who is incapable of successfully forming such a company, so YES, i think this venture will be difficult to pursue in the form you want. (and i mean this in the nicest way possible!)

it's good times now, and everybody has the wacky idea that there's easy credit all around for them to use willy nilly, but they obviously have no real clue what the bank can (and will) do if it were left to hold the bag alone.

edit: 2nd last paragraph not typed with malice.

[taxico]

Why not set out your business case here for your first property. I.e. the financials.

i think this will be a very good exercise. at the very least least, the fear is not real.

[Cath C]

Hello,

I have a business idea investing in properties where most of my careers related to, but not much experience in lending from banks. I would like to set-up a Ptd Ltd and get financing 50%-80% and invest in Malaysian properties and high yield stocks for diversification purposes.

Basically the classification of this company is investment and asset management of own wealth, and the purpose of the financing is to leverage the investments, not only to purchase properties. My question is, in general, would a bank lend to an investment company, unlike commercial companies such as manufacturing? I assume the banks will lend as long as my plan is credible as in getting the proceed back plus the interest, and the assets can be collateralized in case of default. Is this correct? I would like to leverage my investments using financing. Also I would like to use the low interest rate here in Singapore and invest in high return products such as Malaysian properties or Malaysian REIT where the average return is 6%+. I am also looking at high yield stocks. I went into CIMB to ask for the financing if I were to buy a residential property in KL for personal, and they said they dont do lending in Singapore CIMB if the property is in Malaysia, but Malaysian CIMB will. I assume this was because the asset cannot be collaterized in Singapore since the location of the property is in Malaysia. But the interest rate for financing in Malaysia is too high the banks said currently 4.2%. So my question is whether a bank in Singapore will lend the investment company the money 50%-80% LTV, assuming that the asset can be collaterized? Please anyone has any idea, pls let me know. Thank you.

Ok, conceptually, I think your idea has legs. A bank may well lend you the money and you really need to talk to them or a broker to get a better idea.

If the property is in Malaysia, but you're borrowing in SGD, they may want to see that your company has some income in SGD. Also, as someone else said, banks don't like to take risks. So you would be taking the exchange rate risk, meaning that if the xrate goes against you, the bank might bump up your loan and you may have to come up with some extra cash.

I don't know how fully formed your idea is, but I think it's great that you're having a go. Even if you do make mistakes in the beginning, that will only make you a better investor. (Just start small so you can recover!)

[catinheels]

Hi all,

Thank you all for your contributions! I enjoy reading people's different opinions whether it is good or bad, it cannot hurt to know. Especially thanks JR8 for your offering in mentoring me, the reason why I want to do this is not because I think this would be easy money, but recently I realised that my passion is about real estate. I really love talking about real estate.

after doing more research, I have decided to pursue this at personal capacity first, buying one property with a personal loan and if it went well, I may expand more. This way I will gain better understanding. I have discovered that there are some tax implications that I have to consider, and this interest rates on the loan makes a big difference. so I will make phone calls to banks and will get the actual rates and see if my financial model will work! and will have to think about how to hedge in case i am to take the currently risk.

thank you all so much and I appreciate all your thoughts! I hope people enjoy reading this even afterwards...!

[JR8]

Good, this sounds like the right start.

When you have more of a feel for the financials come back and invite comment again...

Things you need to consider include:

Property cost:
Maximum loan:
Loan/Cost = [formula] x%*
Gross rent p/a:
Cost of loan p/a:
Gross rent/Cost of loan = [formula] x%*
Allowance for voids: [i.e maybe test the $'s assuming no tenant/rent for 2 months a year]
Estimated cost of repairs:
Est. cost of annual building management fees:
Est. cost of realtor:
Est. other costs...
Est. Net income
etc
etc


Best to do it in Excel (or similar) if you can, so you can tweak the #'s up and down and see immediately what it does to your bottom-line and hence your 'business case'...

You can take it further and calculate Return on Equity/ROCE, Net % margin over bank deposit, scenario planning, etc., but the above would be a fine start, and will really help focus your thoughts.

Good luck!


p.s. What kind of property do you intend to buy, and how will you gauge if you're getting fair or good value? Do you have the knowledge yourself, or friends or relatives... people you can rely on? As a rule of thumb: perhaps consider The Art of War, in that it is better to fight a battle on your home ground. The more distant to you and your knowledge/contacts the greater the challenge. My suggestion is not to buy off-plan for investment, and definitely not when you start out... we can discuss that more if needs be.

* These are the two most common limits that banks/lenders will impose on any property/loan mortgage. But you already know that right

[taxico]

...recently I realised that my passion is about real estate. I really love talking about real estate.

after doing more research, I have decided to pursue this at personal capacity first, buying one property with a personal loan...

please don't pay to attend those "I OWN 100000 PROPERTIES AND YOU CAN TOO!" seminars.

and since you like talking about it, may i ask why you think now is a good time to purchase an investment property (in the country you're interested in)?