When To Purchase Real Estate In A Down Market

Everyone wants to know when to purchase real estate. Questions abound...have we hit the bottom yet? Will we see an uptake in real estate values next year? What type of return can I expect on my investment if I purchase real estate now? These are questions that are frequently raised by home buyers as well as investors.

Some Home Buyers Should Purchase Immediately

1.] If you are a seller who wants to move up to a more expensive home in a down market...now is a great time. If you need to sell, you should do so as your selling price may continue to drop.
2.] Another option is to sell now, arrange for temporary alternate housing, wait a few months and then make your purchase.
3.] If you buy and sell at the same time, you typically will still be ahead of the game because the price redution on the purchase is greater than the loss on the sale.

Consider What "Loss" You Might Appreciate When Selling Your Home

For example...your house is worth $300,000, but because of increased inventory and few buyers, you must reduce your rice by 10%. So, instead of receiving $300,000, you would get $270,000 and appreciate a "loss" of $30,000.

Consider Your Real Profit

You purchased this home for $100,000 ten years ago. Even though you "lost" $30,000 on the sale, you still appreciated a capital gain of $170,000. (not taking into consideration payments made...but you would have made them whether it was a mortgage or you were renting).

Consider The "Savings" On Buying Your New Home

If you are planning on moving up to a $600,000 home, you should be able to appreciate a "savings" of at least 10% and possibly more...because you would be able to purchase the home at a discount. If you negotiate shrewdly, you might be able to increase that amount to at least 20%, depending on market conditions in your area.

Reviewing The Transactions And The Associated Numbers

1.] You "lost" $30,000 on the sale of your home.
2.] You "saved" a minimum of $60,000 on the purchase of your new home.
3.] That is a net of $30,000 ahead.

Watch Out For The Impact Of Interest Rates

Are interest rates moving up or down? If interest rates are nearing an all time low and are beginning to inch upward. waiting could cost you more than you think. Here are some facts to consider...

1.] Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.

2.] Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.

3.] Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.

Look At The Differences Among Purchase Prices VS Interest Rates.

If you put 20% down and qualify for an 80% loan...here are some scenarios to consider:

1.] $425,000 sales price at 8.25% interest, your payment is $2554.
2.] $450,000 sales price at 7.75% interest, your payment is $2579.
3.] $475,000 sales price at 7.25% interest, your payment is $2592
4.] $500,000 sales price at 6.75% interest, your payment is $2594
5.] $525,000 sales price at 6.25% interest, your payment is $2586

You can see the obvious difference....although the payments are pretty much the same, your purchasing power dramatically increases with the lower interest rates.

A wise strategy is to consider the pros and cons of real estate ownership prior to making a decision to buy or sell. Don't panic or overreact to what you hear in the media. Run your own numbers...double check yourself...Make an informed decision...an Empowering one. If you have questions, contact me...our professionals can help.