Unlocking your Home Equity

Are you a member of the Equity Rich, Cash Poor Club? Discover how you can use your real estate property to free up money. By Senlitonga for the March edition of the API Magazine Australia where you will find useful information about real estate investing and tips to success.

What are our options for unlocking home equity?

Question: We own our home and are looking to unlock the equity in the cheapest way, in terms of interest rates, application and ongoing fees. The home is worth $350,000 and we would need about $100,000 in the short term. What would you recommend?

Answer: You have a few options to release the equity in your real estate property. First up, although you’ve paid off the property, check that the title has been released by your previous lender. This will decrease the fee you pay when you register the title with another bank lender. One option worth considering is a revolving line of credit. If you’re familiar with this loan type, it can be basically described as an overdraft account which is secured against your home property.

The word “revolving” means there’s no contribution required to your principal, as there’s no set term. You do, however, need to cover interest expenses. Some bank lenders allow interest to be capitalised into the bank loan. This means no repayments are required if you’re still under the borrowing limit. Another option in your case is choosing a “normal” mortgage, whether basic variable, standard variable or fixed interest. This avenue is likely to cost more since most of these loans enforce an “early repayment penalty” for the first three years.

Offset Explained in Real Estate Investing

Question: What’s the difference between a transaction account which reduces interest and an offset account?

Answer: In a nutshell, most offset accounts are transaction accounts but not all transaction accounts are offset accounts. Clear as mud? To get it into perspective, you need to understand the way an offset account works. It’s a way of shrinking your home loan by linking with your transaction account, the idea that every dollar in your transaction account is offset against your home loan. There are two types of offset accounts: 100 per cent offset and partial offset.

A 100 per cent offset account will reduce the full interest charged on the home loan by the amount you have in your transaction account. For example, if you have a $250,000 loan and you have $10,000 in your transaction account, you’ll only pay interest on $240,000.

Partial offset, on the other hand, means you receive a fixed amount of interest abased on your balance in this account. For Example, you might receive 5 per cent interest on a $10,000 you have in the account. That interest then goes straight into your home loan debt without incurring the income tax owed on the interest which would happen if the money was in the normal savings account.

Obviously an ordinary transaction account that isn’t linked to your home real estate loan is of no benefit in reducing that loan but the costs versus the benefits of a standard home loan, 100 per cent offset loan and partial offset loan have to be weighed up before making a decision.

A pitfall CANNEX has identified is the ineffective use many people make of offset accounts. To generate net benefits with a loan of $250,000, borrowers need to maintain a savings account balance of $12,000. This is to compensate for the 0.6 per cent extra an offset loan will cost compared to a loan without offset facility. Of 6000 offset accounts CANNEX surveyed, 63 per cent had a balance of $5,000 or less. These borrowers for real estate aren’t making the expected inroads into their loans and may have been better off in the long run with a standard mortgage.

Real Estate Investing Books and Property Investment Resources

If you are looking to purchase a book on how to invest in real estate or property investments or guides to property management, renting, seeking financing or general personal financial help, please read below.

The following web site is a great resource for real estate investors across the United States and Canada to purchase the best investment books that will guide you through the process of building wealth through property investments.

The two books that are recommended by everyone before you get started in the property investing arena are written by world-renowned author Robert Kiyosaki who teaches you on how to get out of the 'rat race'. By reading these two books, you will gain knowledge on why you are investing in real estate and how to change your life so that you can maximise your time, wealth and prosperity.

Book #1 - Rich Dad Poor Dad by Robert Kiyosaki

Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money That the Poor and the Middle Class Do Not


For CD Version:



Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money That the Poor and the Middle Class Do Not
A #1 New York Times bestseller, Rich Dad, Poor Dad is a true story on the lessons about money that Robert Kiyosaki learned from his two 'dads.' One dad, a Ph.D. and superintendent of education, never had enough money at the end of the month and died broke. His other dad dropped out of school at age 13 and went on to become one of the wealthiest men in Hawaii.

Book #2 - Who Took My Money by Robert Kiyosaki

Rich Dad's Who Took My Money? : Why Slow Investors Lose and How Fast Money Wins


For CD Version:

Rich Dad S Who Took My Money? Why Slow Investors Lose And How Fast Money Wins! (Cd/spoken Word)


Rich Dad's Who Took My Money? : Why Slow Investors Lose and How Fast Money Wins
Kiyosaki starts this book by asking the reader to study one's paycheck. "Look at all the deductions that reduce your take-home pay-federal taxes, state taxes, FICA, 401k deductions, etc., etc.," observes Kiyosaki. "For every dollar you earn, you seemingly only take home 60 or 70 cents! What guarantee do you have ALL these monetary deductions, like your 401k or Social Security, are ever going to come back to help you when you decide to retire?"Using this platform as a jumping-off point, Kiyosaki shows how today's employees can finally start taking advantage of their OWN investments to put them on the fast track to become independently wealthy. In short, Kiyosaki explains "who took your money" -and what you can do to make sure you aren't short-changed!

Here are the categories listed:

1. Rich Dad Poor Dad by Robert Kiyosaki
2. Donald Trump - How to get rich through real estate
3. Real Estate Investing for Dummies
4. Flipping Property and How To's
5. Real Estate Financing and the Banks including Mortgages
6. Renting Real Estate and Property Management
7. Home Renovations and Reno for Dummies
8. Recreational and Resort Real Estate Investing including Timeshares
9. Canadian Real Estate Investing and books by Don Campbell
10. Life, Wealth, Prosperity, Retirement - General Financial Help Books

Real Estate Renovation Rumbles

Written by Michaela Ryan for the API Magazine in Australia, Jan 2007

How can you renovate a real estate property and keep your relationship intact?

First a confession. I find renovating real estate properties stressful. Sometimes it makes me lash out at my husband when really, we’re but just doing our best to work through what seems like the world’s longest “to do” list. But apparently we’re not alone. A survey by AAMI in 2005 showed 58 per cent of people find their real estate renovation projects stressful. Thirty per cent find the renovation real estate projects to be a source of tension with the people they live with.

For information regarding why you should purchase pre-construction condos in Vancouver real estate versus buying old properties, click here.

So how can you minimise that tension? As a real estate property investor, this is important to address, because if one bad experience puts you off renovating for life, you could miss out on some great opportunities.

Katrina Spyrides, executive officer of the Conflict Resolution Services to the ACT, suggests that before real estate renos, couples should consider the problems they’re likely to face and discuss how they’ll deal with situations if they arise.

“If the couple is anticipating (various issues) then they can be on the same wavelength, rather than all of these dramas being a shock to them,” Spyrides says.

Possible Real Estate Reno Problems

1. Feeling exhausted
It can be exhausting working full-time and then coming home to do physical work on a renovation of a real estate investment property. It can also be mentally taxing to coordinate tradespeople.

2. Inequality of effort
Resentment can grow if one partner puts more time and effort into the real estate reno than the other.

3. Kids
“(Your kids) are at a school during the week and they want mom and dad’s attention if they’re being shipped off at the weekends then they might start acting up as well,” Spyrides says.

4. Lower quality of life in the short term
During a real estate property renovation, time and money can be scarce. your lifestyle accordingly suffers.

5. Disagreements about the details
How much to spend on a bench top? Which colour? Whether to bring in a tradesperson or do it yourself? There are plenty of little decisions that can potentially lead to disagreements between partners.

6. Living in mess
If you live in the house you’re renovating, there could be tools everywhere. And there will be rooms out of action for periods of time. comfort levels can suffer.

Coping Strategies of Renovation or Real Estate Property

1. The pre-reno discussion
Before your renovation project, it helps to talk about the issues we’ve just mentioned and how you might be able to (a) avoid them, and (b) deal with them if they arise. It’s also worth creating a ‘to do’ list (which will be a work in progress). Delegate all the tasks and establish a realistic timeline. Budget carefully for your investment property renovation project. Factor in a buffer for unexpected expenses – every reno has them!

2. Choose a good time to talk
Conversations can be counter-productive if you’re angry or tired. If you have a problem you need to discuss, Spyride says, “Set aside time when neither of you are tired and talk about it.”

3. Switch off
“Sometimes within a renovation of real estate property couples start to see each other as sub-contractors and every bit of their conversation is about the renovation. It’s about putting that line in and saying, “okay after eight o’clock we won’t talk about the renovation,” Spyride suggests.

4. Outsource
If the DIY jobs are causing too much stress, investigate the cost of outsourcing. If a tradesperson can complete the job within a day that would take you a couple of weekends to do, they might pay for themselves because you can tenant the property a week earlier.

5. Keep an eye on your tradies
Try to check on your tradies’ work every day if possible. It’s amazing what you discover when you drop in for a chat! If you pick mistakes up straight away, you can avoid big headaches down the track.

6. One step at a time
If you keep thinking about how much there is to be done, it can feel overwhelming. Sometimes you need to keep your focus on the next task or two in your real estate property renovation project in order to keep stress levels under control.

7. Just deal with it
“not all problems can be resolved. But they can be managed,” says Spyride. “It doesn’t mean that you have to have a bed of roses at the end of the day. Sometimes things will just be the way they are and there is not resolution. It’s probably just about working through them until they subside.”

Take heart – the real estate renovation won’t last forever!

For more real estate renovation tips and pre-construction condo purchasing opportunities, please click on this URL.

Understanding Mortgages

One of the first steps in buying a new home or real estate property is to take a realistic look at what you can afford and how you are going to pay for it. If you are like most people, you will probably have to finance your home purchase with a mortgage loan.

What is a Mortgage?

A mortgage is a loan that uses the home you buy as security. This loan is registered as a legal document against the title of your real estate property. Here’s a quick overview of some of the most common aspects of a home mortgage that you need to understand.
- The principal is the amount of the home loan, or the cash actually borrowed.
- The interest is the amount the lender bank charges for the use of the funds, or principal. Interest rates vary according to many factors including terms and conditions of the real estate mortgage. Mortgage payments are applied towards both principal and interest.
- The amortization period is the actual number of years that it will take to repay the entire mortgage loan in full. This normally ranges from 15 to 25 years.
- The term is the length of time for which a mortgage real estate agreement exists between you and the bank lender. Typically, terms range between six months and seven years.
- The maturity date marks the end of the term, when you can either repay the balance of the principal or renegotiate the mortgage at the current interest rates.
- Options let you tailor the real estate mortgage to fit your personal needs and circumstances. Open or closed mortgages, pre-payment options, fixed or variable rates or home portable mortgages are just a few of the available options.

Types of Mortgages

There are two basic types of home mortgages:
- Conventional Mortgage: The loan amount does not exceed 75% of the real estate property value, defined as the lesser of the purchase price or the appraised value.
- High-Ratio Mortgage, or National Housing Act Mortgage: The amount is more than 75% of the real estate property value (up to 95%). By law, a high-ratio real estate home mortgage must be insured against borrower default. The home borrower pays a mortgage insurance premium (a percentage of the total loan amount) which can be added to the mortgage loan or paid in a lump sum in advance. The borrower must also pay an insurance application fee.

How much can you afford to spend on a new home?

The amount of money you can afford to spend for a new home is determined by two factors:
- Your Downpayment. This is the amount of money you have available from your own assets. You need a minimum of 5% of the total purchase price as a downpayment for your real estate property.

A larger downpayment means lower mortgage payments or, even better, that you can pay off the mortgage faster, thereby saving thousands of dollars in interest payments. Or you may be able to buy in a higher price range, if you qualify. (Be careful, though, not to stretch your budget to the limit, and to set enough money aside to cover the other expenses of buying a home or property investment).

First time home buyers can use their RRSPs towards a downpayment and closing costs. Under the federal government’s Home Buyer’s Plan, first-time buyers can borrow up to $20,000 tax-free ($40,000 for couples) from their RRSP savings. The funds must be repaid within 15 years, but you don’t have to begin repayments for two years.

- Your ability to carry mortgage debt. Bank lenders use a simple two-step method to determine the real estate mortgage amount that you can comfortably pay back on your income. As a rule, you can usen o more than 32$ of gross income on monthly paymnents to cover principal, interest, property taxes and heating (PITH) and possibly condominium fees, or 40% of your gross income on all financial obligations. The latter could include car payments, credit card instalments and other payments in addition to the “shelter” costs listed earlier.

Once your maximum monthly payment towards “shelter costs” has been established, it is easy to determine the size of loan you can handle, depending on interest rates and amortization periods.

Be Aware of the Total Costs

When you calculate how much it will cost to buy a home or property and how much you can afford, don’t forget to consider the additional costs that you may encounter. Ask your real estate builder and the sales representative for detailed estimates, and consult with your lender and lawyer for further information.

Get Pre-Approval

It is a good idea to have your bank financing in place before you begin looking for your real estate property or home. That way you can negotiate arrangements with your real estate builder in full confidence and without delay.

A pre-approved mortgage is preliminary approval by the bank lender for a mortgage up to a certain amount, usually with a guaranteed rate for a specified number of days (90 days and sometimes longer). If interest rates go down during that period, you will get the benefit of the lower rate. If they go up, your rate stays locked in.

Pre-approved mortgage financing is simple to arrange, costs nothing and does not obligate you to go ahead with the bank loan, if you choose not to. The final mortgage amount and terms will be determined once you have reached a final agreement with your real estate builder.

Information provided courtesy of the Canadian Home Builders’ Association. For more information, visit CHBA online at www.chba.ca.

For more condominium mortgage tips and home buyer checklists for pre-construction condos, click here.