You know me, I’m always looking for new ways to explain the whys & why-nots of real estate, and at times it gets just plain tiring. Sometimes, the tiring part comes from trying to put together an illustration that’s easy to understand and makes sense. Other times it comes from watching folks trying so hard to time the market, and missing out on a golden opportunity instead.
I recently read a great article in TIME Magazine (Ignore the Headlines) about stocks, housing, and the overall strategy that many miss out on. Not only do I love the headline, there are some real nuggets of wisdom included here, so if you haven’t read it yet, please do. Otherwise, the rest of this won’t mean much to you.
I couldn’t have possibly explained the pitfalls of timing the market any better than this article did, but I have a couple of things to add:
- First, in the example of rising financing costs offsetting anything you may have gained by waiting, also consider that during that year of waiting, while paying rent, you’re missing out on any equity you may have built, either by paying down your mortgage balance, or by a rise in property values. During that year, you’re also missing out on the tax benefitsof home-ownership.
- Secondly, the article mentions that it’s tougher if you already have a home to sell. In some cases this may be true, but at times it may make sense to go ahead and take the hit on your home and move up.
- Let’s say your current home is worth $300K and you sell at $270K. You then turn around and buy a $500K home that just dropped to $450K. Didn’t you just net a $20K gain?
- Now on the flip side of the turnaround, that home appreciates at a rate of 5% a year. Would you rather have that 5% appreciation on a $270K home, or on a $450K home?
Essentially, you gained big when you traded up, and you’re gaining at a larger rate when the market climbs. Win-Win!
So, here I am preaching about the big picture again. Don’t just look at the negative press and the gross numbers. Look at the end result and evaluate what the best situation is for YOU, not what everyone else is doing. Taking calculated risks that others are afraid of is where the real opportunities are.
About Ryan Hukill
