Tag Archive: Real Estate

When to Switch From a Variable Mortgage to a Fixed Rate Deal

The following is a guest post from Nigerian real estate developer Michael Chudi Ejekam.

The cost effectiveness of most mortgage deals is dependent on market interest rates. Those that currently have a variable rate deal may be wondering when or if it will be better to switch to a fixed interest option. Homeowners coming to the end of a deal and those looking to switch to try and save money may want to consider the pros and cons of fixed or variable mortgage products.

How Market Conditions and Interest Rates Affect Variable and Fixed Mortgages

Each type of mortgage deal comes with a potential cost benefit. But, this benefit is not guaranteed. Choosing the right deals at the right time could save homeowners money. Making the wrong decision could see them paying more than they technically need to.

For example, variable rate mortgage deals give the best cost benefits when interest rates are dropping or are at a low point. These products will have repayments that rise or fall depending on market conditions. In a decreasing or low rate scenario, payments go down. As soon as interest rates start to go up, then this kind of deal becomes more expensive.

Fixed rate deals work in a different way. Here, the homeowner is given a guaranteed fixed repayment for a period of time and market conditions have no effect. So, if interest rates go up, then the mortgage holder will potentially be saving money as their repayments will not rise. But, if rates drop significantly, then they could be paying more than if they had a variable product.

When is the Best Time to Switch From a Variable to a Fixed Rate Mortgage?

Although it is possible to anticipate what might happen to market interest rates, it may not be possible to guarantee accuracy. Some consumers will look to fix a deal when rates look likely to rise. This may work if they are particularly low (i.e. there is nowhere to go but up) or if market conditions make interest rate increases likely.

The best time to switch to a fixed rate deal from a variable product will happen at a point where switching saves people money (i.e. when their fixed rate payment is less than their variable payment would be). It can, however, be hard to get the timing exactly right.

Some that move early may end up paying more on a fixed rate deal ahead of market rises actually taking place. Those that move later when rates start to rise may find that the costs of their fix are not as good as they were in the past.

Real Estate Investment Dream Team: Advice from Experts Can Lower Costs for the Real Estate Investor

Before plunking down money for a property, real estate investors must ask themselves many questions, such as whether the tax write-offs for a particular property will boost the return on investment (ROI) and whether the area in which a property is located will mean higher property insurance premiums. When deciding whether to sell properties in their portfolios, investors face questions about the timing and characterization of a sale, among other things. Unless investors have the expertise to answer these questions, they should include tax professionals and insurance agents — not just real estate agents and lawyers — on their team of experts.

Tax Advisers and Real Estate Investment Plans

Before putting a property purchase or sale in motion, an investor should consider speaking with a tax professional. Advisers such as tax attorneys, certified public accountants, or other tax experts who have experience with real estate investing are excellent sources of information about the types of investments that fit an investor’s particular investment plan and capabilities. The tax adviser should be familiar with the tax laws of the jurisdiction in which the investor’s property is located.

Competent tax advisers can help can help an investor’s bottom line by recommending specific strategies for buying or selling property, such as:

  • Owning property as a specific type of partnership or corporation
  • Selling property outright or over time by taking back a mortgage
  • Structuring a sale as a 1031 tax-deferred exchange, in which the investor delays payment of the capital gains tax on the sale of one property by buying another property of the same kind and of at least equal value

Tax laws are extremely complicated and always changing. Understanding the various tax laws and rules and how they interplay is beyond the ability of most non-tax professionals. For these reasons, the smart investor does not hesitate to make a competent tax professional a permanent member of the team of experts.

Insurance Agents, Real Estate Operating Expenses, and ROI

The cost of premiums for fire and liability insurance on a property is often overlooked by investors when trying to estimate the ROI on a property. An experienced, independent insurance agent – which means that the agent is not committed to only one insurance company – is ready to disclose what insurance companies consider to be an insurable risks and the range of premiums charged by insurers in particular areas. This helps the investor make an informed decision about whether to avoid certain areas because of the high premiums charged.

An insurance agent also helps an investor look at a neighborhood from the perspective of the insurer. For example, out of concern about declining property values, some insurers are reluctant to issue policies for properties that are near boarded-up buildings or on streets where there are several “For Sale” signs.

An insurance agent will also ask the investor to find out certain facts about a property, such as the age of the building, roof, heating system, and hot-water heater, and the dates when the plumbing and electrical systems were last upgraded. Some of this information can give leverage to the investor when negotiating with the seller about price or concessions.

With the assistance of an insurance agent, an investor can also find a comfortable level of deductibles and determine which type of insurance coverage is either indispensable or unnecessary for the location and type of property involved.

Optional Members of the Real Estate Investing Team

A real estate investor may also want a mortgage broker or lender, an appraiser, and a title insurer on the team of experts on an ad hoc or even permanent basis.

How Realtors Juggle Real Estate With Family Life

Rick Braden, Broker/Owner of MaxWell Realty in Lethbridge, Alberta, a Realtor for 16 years and a married father of two, finds it easy to balance real estate and family life. “I adore my family and most days I can’t wait to see them. In my line of work I meet a lot of people and far too often I see split and/or blended families that are a result of one or both parents not paying attention to their home life. All I have to do is reflect on their position and how unhappy they are and it becomes very easy to keep my family a priority.”

John Evans, Broker/Owner of Re/Max of Terrace in Terrace, B.C., a Realtor for the past 23 years, and a married father of seven-year-old Landon shares his thoughts, “I’ve gone through a transition of how I conduct my business depending on the stage of my life. Right now family is a strong priority for me. When I first started, I could work mornings, evenings, weekends – it didn’t matter. Now I have to work at keeping my time to myself or for my family. In the past couple of years I’ve worked less than 10 evenings per year. About 50% of my Saturdays are tied up and I have a rule that I just don’t work on Sundays. That is difficult to do in our business but most people understand.”

Mary Ann Keary, Broker/Owner of Royal LePage Riveredge Realty Ltd. in Brockville, Ontario, wife, and mother of Ashley and Zak, established a system to keep her family a priority. “Our team concept was developed in 1999 for two reasons. One was to provide professional and quality on-demand service to our clients when they required it in their busy lives. The other was to enable my husband, Rodney, and I and our two children to enjoy uninterrupted family and vacation time together. When we are “off duty”, our clients are covered by another trained and experienced team member. We attend church every Sunday as a family and share the rest of the day together. Our team does not conduct Open House tours on Sundays nor do we encourage home viewings on a Sunday, respecting our clients’ needs for quality family time and that of our team members. We enjoy family vacations and spend time individually with our children in their choice of pursuits.”

Is Organization the Key to a Balanced Life?

Most Realtors who are able to balance family and career credit their organizer. Rick Braden shares, “As a commissioned salesperson, my life revolves around my Daytimer. If I book an activity with my wife and/or daughters, it becomes an appointment, even if all we are going to do is watch TV. All I say to the client is, ‘I’m sorry, but I am already booked at 6:00, but I am available tomorrow at 4:00 and 7:00. Which would work best for you?’ I think one of the biggest misconceptions Realtors have is that customers won’t wait or adjust their schedules. I disagree. I think customers appreciate dealing with busy, successful people. They don’t need to know what my appointment is, just that I am busy. On the extremely rare occasion when no other time is possible, I will find another agent in my office that is available to cover for me.”

Like Braden, John Evans does not sacrifice family time for clients. “I simply say I have a meeting with my family. You aren’t always able to get out of it but most people understand. Most reasonable people are going to appreciate that you have a life outside of real estate and are going to respect you for being honest with them and work with you.” Evans does admit to losing a few clients every year who aren’t willing to work with his schedule but he averages 100 ends per year so he is doing something right.

Some Realtors involve their families in their career in ways that benefit each family member. If your spouse has always wanted to go to Hawaii, make it a goal to take him or her once you have sold a certain number of properties. Keep a chart tracking your progress or watch the stash of money grow in your ‘vacation fund’ jar. If the children want new bikes or a whitewater rafting trip, involve them in the same way – by working together as a team to reach the goal.

How to Balance Real Estate and Home Life

Braden offers some tips on balancing real estate and family:

  • Make family time an appointment.
  • At the beginning of the year, when you are setting your goals, pre-book family time. It doesn’t have to be a week-long exotic vacation; it just needs to be uninterrupted and committed to.
  • Have a buddy in your office that can lend a hand when you have conflicts with your schedule. It might cost you the occasional referral but that’s a heck of a lot cheaper than losing touch with your family while you are chasing that almighty dollar!
  • I don’t care how new you are or how broke you are, set aside one day a week to unwind a get away from work.
  • Do stuff as a family – go to a hockey game, go to a movie, go on a holiday, eat dinner, watch TV, take a class.
  • Let your family “in” on your day. Share the best and worst parts of your day with them and ask them to do the same.

Evans makes a good point, “There is no real real estate emergency. We are not doctors – it’s not a life and death issue. Some of our clients might think that it is. Most calls can wait for an hour for you to finish dinner with your family.”

Keary sums it up, “I recognize that it is definitely not easy to maintain the balance. Each and every day, I have to check myself and make the choice not to allow my priorities to get out of order.”