Hedland & Newman

Grow faster with Deposit Bonds

May 20th, 2013 • No comments

No Cash? Use deposit bonds and bank guarantees to buy property quicker

Deposit bonds and bank guarantees are useful financial tools that enable investors to secure property when a cash deposit is not readily available.

They can be particularly valuable and inexpensive strategies for investors wanting to rapidly expand their property portfolios, act quickly on opportunities, and/or maintain capital during a lengthy settlement period, such as an off the plan purchase.

Deposit bonds are offered by most lenders and underwritten by an insurance company and can be used for all or part of the deposit. To be accepted for a deposit bond, buyers who have not already been approved for finance, need to demonstrate financial capacity to settle at the agreed settlement date.

The bond acts as a guarantee to the seller that the full purchase will be paid on settlement.  The only immediate cost to the purchaser is the deposit bond fee which is payable to the lender.

As guarantor, the insurance company will pay out the deposit to the vendor if the purchaser reneges on the contract and, in turn, recover the funds from the purchaser.

Deposit bonds can be issued, usually in very short timeframes, for varying settlement periods ranging from a few weeks to a few years (depending on the provider), for investors purchasing off the plan.

A bank guarantee is similar to a deposit bond but can be more costly and time consuming, and requires security. The amount of the guarantee is secured dollar for dollar against another asset such as a term deposit or equity in an existing property.

Investors should familiarize themselves with these tools and assess their suitability as alternatives to cash deposits.  They offer flexibility and the capacity to move quickly which can mean the difference between securing or missing out on a potentially lucrative property investment opportunity, and reaching your financial goals faster.

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