Buying Up in a Down Market
With real estate in the middle of a down market, the big question is: 'Is it better to buy or sell now or must we wait it out?' Although there are concerns over the economic challenges we are facing, markets always go through up and down cycles. The savvy investor know that there are always opportunities in any market. You just need to know what to look for.
For Sellers, there are challenges. There are currently lots of houses in the market that will compete for the same buyers. Prices are under pressure and although the banks are granting more home loans, many buyers are waiting and hoping that prices will go down even more before they buy.
For Buyers, it can be risky. The only way to really know when prices reached their low point, is when the market already turned, prices are on the rise and you end up paying more.
When you are selling your property and simultaneously buying another, higher priced property, you might just be in luck.
Let's look at some selling and buying numbers:
Let's say your home is worth R1 700 000, but because of few buyers and lots of other competing stock, you must reduce you price by 10%. That means that instead of getting R1 700 000, you would get R1 530 000 and "lose" R170 000.
Now consider the bigger investment picture. Say you bought this home ten years ago for R830 000. You're still ahead R700 000, less the costs of sale, aren't you? (This ignores monthly mortgage payments, but you would make those if you were renting, too.)
Now if you are planning to move up to a R2 700 000 house , which is in an area with similar market conditions, chances are good that you could buy that house at the same 10% discount, equalling R2 430 000. It would mean that you had "saved"R270 000.
So, let's review the Numbers:
- Although you might have "lost" R170 000 on the sale of your home
- You "made" R270 000 on the purchase of your new home
- That put you R100 000 ahead, doesn't it?
Author: Erna Sciocatti