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Friday, August 18, 2017

The Advantages of Selling Low, Buying Low

We hear homeowners stating over and over that they would love to participate in today’s real estate market–a market that is offering prices lower than they have been in over 15 years. Most believe, however, that they are unable to take advantage of this historic opportunity because they feel “stuck” in their current home. Another common feeling is that owners do not want to “give it away.” In other words, sell their home for the current market value when they may not receive a return on the money they originally invested in the home or get anywhere near the inflated values they could have had at the peak of the market.

I hear of regrets of not having sold at the peak of the market quite often. The problem with that is that if one sells at the peak, they usually buy at  the peak to replace the home that was sold — sell high, buy high. The opposite is true now — sell low, buy low. There are strategies in both markets that are investment opportunities. There was a lot of frenzied buying activity during the peak of the market. Buyers were not afraid to over pay to secure a home and frequently waived appraisals and inspections in addition to over paying for the opportunity to own a home in this seller’s market. In today’s buyer’s market, the opportunities are fantastic but the theme among buyers is fear, not frenzy. I did not sense fear in the buyers when the market was peaking, however, now that prices are the lowest they have been in over a decade, buyers are fearful.

There are  many sound strategies buyers are using to invest in real estate in today’s market. One Laveen family owned their home for 20 years and their children are now grown. Their home is now too large for them and is beginning to require more maintenance. The owners wanted to downsize and spend more time traveling, but felt they were stuck in their home. However, because they had owned their home for so long, they had enough equity in the home so that they could sell it for more than what was owed, although they felt they were giving it away. They sold their home at a market price that seemed low but were able to purchase a low maintenance, luxury dream home in a golf course community for less than half of what it would have cost them if they had sold their home at the peak and bought the golf course home then. At the peak of the market, their Laveen home would have sold for $500,000. In today’s market it sold for $300,000 getting them $200,000 less than it would have at the peak. The golf course home would have cost them $800,000 at the peak and was now going for $350,000, $500,000 less than if they had  purchased at the peak.
Peak                                   Today
Sold At $500,000         Sold At $300,000
Bought At $800,000   Bought At $350,000
Cost $300,000               Cost $50,000

If this family had sold at the peak and bought at the peak it would have cost them $300,000, while selling and buying today only cost them $50,000. Their goal of downsizing was achieved for a lot less than if they had sold at the peak. Not only did they save $250,000, they are enjoying their new lifestyle in their luxury golf course home. When the market recovers, the luxury home will appreciate more than the family home. If they had waited to sell the family home when the market recovered, the golf course home would have also appreciated at the same rate and they would have no longer be able to afford it thus missing out on years of their new lifestyle.

I have worked with many young families that are taking advantage of the market in a similar fashion –they are using this market as a way to move their children into a home that is located in a great school district that previously had been too expensive for them. Many young families that may not have equity in their home could rent out their current home in order to purchase a home in a more expensive, highly desirable school district that was previously unaffordable. Using this strategy, they can have tenants pay off their current home as renters, while their children reap the advantage of a great school system. Once their children are college age, the market will have recovered and they will have paid off enough of their loans to have equity in both homes to help fund their college expenses.

Investors from colder climates are taking advantage of this market by buying winter homes now, even though they may have many years remaining until retirement, the prices are low now and they can rent the property up to the day they are ready to become snow birds.

For the first time in several years, homes are priced where they can be rented at an amount that provides the investor with a positive cash flow. In addition, the rental market is very strong due to the demand for rentals from the many families that have lost their homes to foreclosure or  short sale and do not have the credit to purchase now. As the years pass, these families with credit issues will eventually be able to purchase a home again which, in turn, will drive up the demand, and prices, for homes.

There are great strategies for investing in real estate in any market.  Don’t let fear keep you from getting in the game. Call your real estate  professional to discuss your options for taking advantage of this historic opportunity.

Carlie Back is a resident of the South Mountain District and a local real-estate agent with Keller Williams Lifestyle Realty. E-mail her with questions, comments and suggestions at carlie@carlieback.com

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