Equity And Own Work. Equity and personal contributions: You should calculate carefully here
Without a minimum amount of equity, solid mortgage lending is not possible. You should therefore now determine the amount of credit you have already saved in your financing.
Last but not least, the question of whether the credit is available immediately is also important when preparing the equity. If not, you have to finance it until the due date – and the additional expenses incurred in the form of additional loan interest should be taken into account in the financing planning.
Here is an overview of the financial resources that can be used as equity in real estate financing:
- Call money and time deposits are available at short notice and can be used immediately as equity.
- You can basically sell investment fund shares and shares on the stock exchange at short notice and thus use them as your own funds for building without interim financing. However, there is a risk of having to realize possible losses in the event of a stock market low, depending on the price development. In order to minimize the risk of a possible price loss, you should exchange stocks or equity funds for non-volatile overnight or time deposits as soon as you have decided to buy real estate.
- Savings bonds or long-term fixed-term deposits can usually be financed through to maturity without any problems. You should definitely include the difference between credit and loan interest in your cost calculation.
- In the case of building society savings, it depends on whether the contract is already ready for allocation and whether you want to use the building society loan to finance it, provided it is a low tariff. If necessary, you should also choose bridging finance until the contract is awarded – while this is more costly in the short run, you will then profit from the relatively low interest rates on construction loans to society in the long term.
IMPORTANT: Do not invest all your free funds in the property up to the last dollar, but keep a sufficient cash reserve available for unplanned expenses. Otherwise, you would have to invest in expensive installment loans, and that could put a heavy strain on the liquidity calculation.
Often, personal contributions to construction – popularly referred to as “muscle mortgage” – are added to equity. But you should be careful here: not all work can be done in the evening or on Saturdays, and at some point the vacation quota is exhausted. If, over time, the motivation among friends and relatives decreases, this can be the beginning of serious scheduling and money problems.
In order to eliminate such risks as far as possible from the outset, you should also plan enough reserves for your own contributions in order to be able to cope with unforeseen expenses and difficulties.
IMPORTANT! In the case of so-called “outfitting houses”, it is advisable to critically compare the price reduction due to personal contribution with the additional costs due to purchasing the material yourself. If your own work is not adequately remunerated after deducting the additional material costs, it can make more sense to forego your own work and generate the additional equity through overtime or a part-time job.
In general, you can assume that even energetic, skilled and committed builders can only save more than 15,000 dollars with their own work in the rarest of cases. That should also be the upper limit for you if you want to avoid additional financial burdens at the end of the construction period.