Uncategorized June 29, 2012

Is it your Time to Move?

I’ve long marveled at how the prospect of buying or selling a home can transform the most patient poetry professor or the sweetest Sunday school teacher into a fast-talking, number-crunching, negotiator extraordinaire. Or, rather, it can make these sorts of people *think* they need to talk and act like wheeler-dealers! In my experience, this mostly involves ranting about “leaving money on the table” while they secretly quiver with the fear of making a mistake! But offers and negotiations aren’t the only real estate decisions that make people think they should be more strategic than they are legitimately equipped to be. Many buyers and sellers believe they should know precisely how to time the market to buy at the bottom and sell at the top, despite the facts that: a) even seasoned investors like Warren Buffett avoid trying to time markets – he has famously advised investors not to buy anything they can’t hold at least 10 years, specifically to avoid getting caught with poor timing; and b) human emotions make us want to buy when we think prices are on the upswing, and sell when we fear that we may lose money (this, btw, is the diametrical opposite of our logical desire to buy low and sell high!). If you're struggling with the mind-spinning condundrum of whether any given moment is the 'right' time to buy or sell, look for some or all of these signs:

Sign #1.

It’s the time of your life. Here’s my overarching rule of thumb on so-called market timing: if you’re buying the home you plan to live in (versus an investment property), don’t even bother trying to align your buy or sell with market peaks and troughs. It’s a better practice to time your transaction in accordance with your life, your vision and your finances. Then, take the market more deeply into account when you’re executing your decision to buy or sell, like deciding how much to offer, when to lock your interest rate, setting a list price, deciding the precise month and week to list it, etc.. So, if you’re just at a point in your life where you feel ready for or excited about stepping up or down the responsibilities, stability and upsides of home ownership – or you feel that your vision for the next phase of your life involves owning a home, freedom from home ownership, moving to a new town or owning a different home than the one you have, these are all good reasons to consider buying or selling (assuming you see some of the other ‘signs’ listed here). For many, these ‘times of your life’ align with life transitions like marriage, divorce, having kids (or other relatives) move in or out, relocating for work, or simply just maturing to the place where you feel ‘grown up’ enough to take on the obligations of owning a home. If you feel like ‘it’s time,’ it just might be. And in the same vein, it’s also a sign that you should explore buying or selling if you simply really want or need to – no matter what others say, no matter what’s going on in the market, again, assuming the other items on this list are also in place.


Sign #2.

You need the tax write-off or other advantages. The one person whose urgings to buy a home you should at least take into account is – no, not your Mother: your accountant! There’s no hard and fast rule of thumb for how much income you have to earn before you’d be crazy not to own a home and take advantage of the mortgage interest and property tax deductions for homeowners. There are too many inputs into any given person’s tax situation for such a black-and-white rule. But if you feel like you are paying too much in income taxes every year, you should be aware that these are two of the meatiest deductions the average wage-earner (i.e., non-self-employed individual) can take. If you’re feeling crunched by taxes, talk with a local CPA or other tax professional and get some help projecting how various home purchase price points may alleviate some or all of your tax burden. Tax considerations are less of a pressing motivator for home sellers, for the most part (again, we’re talking about personal residences, and not investment properties, here). For example, the fact that you are approaching the capital gains tax exemption limit (i.e., $250,000 of profit on your home for single people, $500,000 for married couples) is not a good reason to sell a home you otherwise love and could be happy with for years to come. On the other hand, if you’re a seller considering a short sale, be aware that there is a major massive tax exemption currently in place under which the IRS will not charge you the normal income tax on your forgiven mortgage debt – so long as your short sale closes by the end of this year. It’s likely that Congress will pass an extension to the Mortgage Debt Forgiveness Relief Act, but that hasn’t happened yet. Given the lengthy timetable of the average short sale, if you need to close yours by the end of this year, your home should be on the market now.


Sign #3.

Your financials and the market are in alignment. Buying a home before your financials are truly ready for it is a grave, grave mistake – the same mistake that was responsible for so much of the mortgage and foreclosure mayhem we’ve seen over the last few years. Back then, the norm was to buy as soon as you could possibly qualify, no matter what it took (which wasn’t much). But that created a whole generation of home owners who had (a) very shaky financial foundations and (b) bad mortgages, so that a layoff or a mortgage adjustment was all it took to devastate their home owning dreams. Now, I’m not suggesting that you should wait until you can pay cash for your home, or that everyone should make a 20% down payment and make sure they still have oodles of cash in the bank. But here are some signs you might be financially mature enough for home ownership: Your income is relatively secure (i.e., you didn’t just start a new business or leave a job to find yourself). You have money in the bank (enough that you’ll still have a cushion once you’ve paid out for down payment and closing costs). Your consumer debt is well under control (or non-existent). You have good financial habits around spending and saving in place. Also, it’s essential that your financial resources map to current home values in the geographical area you’re looking to buy in, so you can actually afford to buy the sort of home you’ll need in order to stay put for 5-10 years. Best practice is for you and your co-buyers, if any, to sit down, run your monthly budget numbers, assess your savings and decide how much cash you have to close the deal, as well as how much you can afford to allocate to housing every month, then to take that information to your team of real estate and mortgage pros. You tell them what you can afford – not the other way around. Ultimately, talking with a local real estate agent, mortgage broker (and maybe even an accountant or financial planner) is the only way to get a clear, detailed picture of what your income and expenses will be after you buy the sort of home in which you’re interested – including the tax implications of ownership. Often, people who are right on the cusp of feeling too pinched to afford a home on a monthly basis are able to change their monthly payroll income tax withholdings and bring home a little more cash every month after they calculate the home ownership-related tax advantages they stand to realize. If you’re a home owner considering selling, the same principles apply. If you have been holding onto a mortgage that is not sustainable throughout the course of the recession, going into more debt to pay the bills or just struggling to make ends meet, the uptick in buyer demand and home values this summer might present a great opportunity to sell or refinance and get back on solid financial ground, even if it means you have to rent for a while or downsize into your next home.


Sign #4.

Your space needs are predictable for at least 5-10 years. During the recent recession, I saw at least 4 responsible, professional men I know personally take huge real estate losses, because they: a) bought lofts with concrete floors or cable-suspended staircases b) fell in love and got married, and c) had kids (who, by the by, aren’t known for being loft-appropriate). – all within a few years from when they bought their bachelor pads! Unfortunately, these turned out to be the same few years in which the market (and their HOAs) tanked. Forced to move and unable to sell at a profit – or even a break-even! – and facing new financial obligations to support their families, these men were forced into short sale situations – and worse. None of these guys are idiots – they just bought at a time when the market was ascending and figured they’d sell at a profit if they needed to sell in the short term. If asked, most of them would probably have guessed that they’d be likely to start a family in the next decade. The issue was that none expected that they’d be unable to unload their homes, quickly, for at least what they paid in the couple of years after they bought them. Post-recession, it behooves every smart buyer to make their decisions expecting that they won’t be able to break even or profit for at least 5 or 10 years following the buy. This conservative approach will help reduce the risk of avoidable losses. So plan out how much and what sort of space you’ll need 5 or 10 years from now, and aim to buy that home. Make sure to account for future space needs like a single story layout (if a member of your household might have trouble getting around in that time frame) or an in-law unit (if you anticipate having an adult child or a parent move in during that time frame). And if you can’t project your space needs out that far in advance, you may want to wait to buy until you can, so that a market downturn won’t find you stuck with a bizarrely inappropriate home for your lifestyle. Sellers-in-waiting should heed precisely the same advice, but in the opposite direction. If and when your home stops meeting your space and living needs, as it did for the gentlemen I mentioned above, that is a serious and valid motivator for at least exploring the prospect of selling. With rates low, buyer demand high and home prices still relatively low, right now could be a good opportunity to try to sell for more than your home has been worth in a while, while still buying for a great price. Just make sure the place you buy will work for you, space-wise, for years to come.


Sign #5.

Your location will be predictable for at least 5-10 years. Are you ready to stay put for a while, geographically speaking? If not, home ownership is probably not the best move to make, unless you’re comfortable with the idea of being a landlord when you move and you won’t need to use the cash you put into your home to make a move. This is why many young adults who do decide to buy homes prefer to buy in or around bustling cities with thriving job centers, rather than buying a home in a one-company or one industry town. It helps to know that if your employer goes under or your industry has a downturn, there are other opportunities for making a living near your home. The flip side applies for sellers: if you are concerned about the future job, educational or other important prospects for yourself or your family members in your town, that’s certainly a valid reason to think about making a move. Just make sure you don’t wait until everyone else makes the same move. That’s a surefire way to do the opposite of every seller’s goal: selling at the bottom.




Cortesey of Trulia

By: Tara-NIcholle  Nelson