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Category: Articles » Finance » Real Estate » Article » Article Code

Is now a good time to sell your home?

If you own a home in a real estate boom market, you are probably richer now than you ever thought you could be–on paper. Even if your house is in a real estate market that's rising more modestly, you may still be feeling pretty flush–on paper. But is it possible to "cash out" your paper wealth? Assuming you're living in the home you own (if you own investment properties, stop reading this article now and just go talk with a real estate broker or investment advisor), you'll have to find new housing if you sell. That's ... read more

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If you own a home in a real estate boom market, you are probably richer now 
than you ever thought you could be–on paper. Even if your house is in a real 
estate market that's rising more modestly, you may still be feeling pretty 
flush–on paper. But is it possible to "cash out" your paper wealth?

Assuming you're living in the home you own (if you own investment properties, 
stop reading this article now and just go talk with a real estate broker or 
investment advisor), you'll have to find new housing if you sell. That's the 
point where most people stop thinking about "cashing out" their home's equity. 
After all, if you'll just end up spending all that money on another house, why 
bother?

The reality is that most homeowners can, in fact, "cash out." For many 
homeowners, selling property really will be quite a windfall. Not selling now 
might be the biggest financial mistake of their lives. For some, selling would 
be an equally bad idea. How do you know which came you fall into?

Selling Your Home: Three Options

If you sell your home then buy a comparable home in the same market, you'll 
simply be losing money on the costs involved in real estate transactions. There 
are, logically, only three scenarios in which it would be possible to actually 
sell your home and not lose your big money on buying another home–and all of 
them are better ideas than you might assume:
<ol>
selling then renting new housing
selling then buying more modestly priced housing
selling then moving to a less expensive market</ol>

1. Selling then Renting New Housing

Have you checked what rents are like in your community? According to a recent 
New York Times article, in the most price-inflated housing markets–most 
prominently, the Bay Area of California, Boston, New York City, and Miami– 
renting is now an indisputably better deal, at least in the immediate future. 
When you add to the cost of buying a house such "hidden" costs as property 
taxes, interest on a mortgage, real estate transaction costs, and maintenance, 
owning can easily cost twice as much as renting.

In terms of investment value, housing prices would have to rise far faster 
than they are rising now for buying a home in an overheated market to be 
anything but a money-loser for about the next ten years, and possibly far 
longer. Given that buyers are now stretching themselves thin to buy homes in the 
current market, you have to ask: who will be left to buy homes if prices 
actually do double? In the long term, San Francisco, Boston, and Manhattan may 
compete directly with Hong Kong, London, and other highly desirable cities in a 
virtually limitless price war. For now, there aren't enough multi-millionaires 
in any of these cities to keep prices going skyward forever.

Of course, some markets are still good for buying your own home. According to 
the New York Times, the cutoff point when buying is more expensive than renting 
is roughly when it would take more than twenty years' worth of rent to equal the 
sales price. Chicago is the biggest market in which the Times says it still 
makes sense to own rather than rent, at least if you're staying longer than a 
few years. Meanwhile, if you're buying the property as a long-term investment 
and will be renting it out, the rent may very well be enough to make up for the 
costs of owning.

2. Selling then Buying More Moderately-priced Housing

In the stock markets, you can manage your risk by selling some of a 
high-performing stock in case it drops and keeping some of it in case it goes 
higher. With housing, the closest thing to hedging your bets is to trade down 
for a less expensive property. Housing prices don't always follow people's 
tastes exactly, so a less expensive house might actually be more to your liking 
than your current home. A "less convenient" street may also be less busy and 
therefore more quiet. Or, your home might owe part of its market value to its 
proximity to public transportation that you don't use anyway.

3. Selling then Moving to a Less Expensive Market

Moving to a less expensive market might seem like the least practical way to 
cash out your home's equity. But don't rule it out completely: you don't have to 
move to Nebraska, just to a nearby market. Particularly if your job isn't close 
to home now anyway, it might be easy to move from San Francisco to Sacramento or 
from Boston to Providence.

Depending on your lifestyle, you could even combine some of the options 
above. For instance, if you're retiring, you might sell your home, spend 
extended stays in faraway cities you always wanted to visit, and then return to 
rent or buy a smaller "empty nest" apartment.

Of course, there are intrinsic benefits to home ownership, such as the 
freedom to change the paint or have guests over whenever you wish without 
checking your lease. Just don't confuse those intangible benefits with economic 
ones. After all, you can't pay the mortgage with intangibles.

Author Bio:

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