Both release capital from an asset. They differ in cost, permanence and what you keep afterwards.
When an owner needs a significant sum, the two obvious routes are borrowing against the property or selling it. The decision is often made on which feels less drastic, when it should be made on cost, timing and what you want to own in five years.
Borrow against the property at a glance
Raise a facility secured on the property, retaining ownership and any future appreciation while taking on a repayment obligation.
Sell the property at a glance
Release the full value, eliminate ongoing obligations and holding costs, and deploy the proceeds elsewhere.
Amount released
Borrow against the property: A portion of value, determined by the financier's assessment rather than by what the property is worth.
Sell the property: The full net value after transaction costs, which is usually considerably more.
Cost
Borrow against the property: Financing cost across the term, which accumulates for as long as the facility runs.
Sell the property: Transaction costs once, with no ongoing cost afterwards.
What you retain
Borrow against the property: The asset, its income and any future appreciation, along with the obligation.
Sell the property: Nothing of the property, and no exposure to its future performance in either direction.
Speed
Borrow against the property: Usually faster once documentation is in order, since no buyer is required.
Sell the property: Dependent on the market and on finding a buyer at an acceptable price.
Risk
Borrow against the property: The property stands behind the obligation, so failure to repay has consequences for the asset.
Sell the property: No ongoing risk from this asset, though the proceeds carry whatever risk you deploy them into.
When borrow against the property wins
- You want to keep the asset and its future value.
- The need is temporary and repayment is realistic.
- Selling would take longer than the need allows.
- The property produces income that supports the obligation.
When sell the property wins
- The need is permanent rather than temporary.
- The property is underperforming or costly to maintain.
- You do not want an ongoing obligation.
- The capital has a better use than this specific asset.
How to decide
Borrow when the need is temporary, repayment is realistic without depending on a hoped-for outcome, and you want to keep the asset. Sell when the need is permanent, when the asset is underperforming, or when the obligation would only be serviceable if everything goes according to plan.
Before deciding, calculate two figures: the total cost of borrowing over the expected term, and the net proceeds of a sale after all costs. Then ask what the property is likely to do over that period. Those three numbers usually make the decision clearer than any discussion of preference.
If you are weighing a financing decision, Domira can review the offers, model the total cost and stress test the obligation with you before you sign anything.
Frequently Asked Questions
Can I sell a property that has a facility secured against it?
Generally yes, with the facility settled from the proceeds as part of the transaction, subject to the terms of the financing and any early settlement provisions. Establish those terms before you need them, since they affect both the timing and the net proceeds.
What if I borrow and then cannot repay?
The consequences are set out in the financing contract and, because the facility is secured, they concern the property. This is why the stress test matters more than the optimistic case, and why borrowing an amount that depends on everything going well is the error to avoid.
Is partial sale an option?
Where a property can be divided or where a share can be sold, this is sometimes possible and worth exploring, though it introduces co-ownership complexity. For land, subdivision may be feasible subject to requirements and approvals, which should be confirmed before relying on it.
Have a Property Question?
Domira can help you navigate property, financing and investment decisions in Saudi Arabia. Speak with our team for an initial consultation.
