Real Estate Transitions
January 26, 2021
Moving UP or DOWN, or just moving can be a headache in itself.
Staying at home in 2020 caused of lot of owners to think about how nice it would be to have a larger home to accommodate the additional activities that come along with isolating. Particularly for people with children at home or possibly, the potential of either adult children or parents coming to live with them.
There are other owners who are trying to weigh the pros and cons of selling their larger home and downsizing. For entirely different reasons, the advantages could be very appealing to an owner. A smaller home is easier to maintain and usually, has lower utilities, insurance, and property taxes.
Some people might be considering the convenience and ease of mobility of a single level home. It may be finding a location with proximity to the activities they are now interested in. A newer home might have less maintenance and be more energy efficient.
Married taxpayers who have owned and occupied a principal residence for two years can exclude up to $500,000 of capital gain while a single taxpayer can exclude up to $250,000. Liquidating the equity in their home without a tax liability could have multiple benefits.
Some people might choose to pay cash for the replacement home. Others might put 20% down to avoid mortgage insurance and possibly, even get a 15-year loan to get the lowest rate. The balance of the equity could be invested at a rate higher than the interest on their new mortgage. Still, others might want to have some reserve funds available for whatever the next unanticipated crisis might be.
It could be a way to fund a longtime goal like children’s or grandchildren’s education, or wedding, or a once-in-a-lifetime trip. Maybe part of the equity could be used to start a business or make a grant to a worthwhile charity.
Selling a home and purchasing another will have expenses involved that have to be taken into consideration. Purchase costs could be 1.5 to 3% while sales expenses could be easily be 2.5 times that much. The transition of selling and buying in itself is very technical. There are many moving parts to keep in mind so ensure a smooth transition.
Regardless of whether it is moving to a larger home or a smaller one, now may be a good time to make the move. Due to the low inventory in most markets, homes are selling quickly, many times, in less than a few days. Normally, these winter months typically have less activity which means less competition for buyers. Although with inventory as low as it is, the competition continues to be strong.
Another driving factor are the incredibly low mortgage rates. As of 1/21/21, the 30-year fixed rate was at 2.77% and the 15-year at 2.21%. This environment is encouraging many buyers to purchase as they see prices continue to increase.
Like any other big change in life, it is recommended that you take your time to consider the possible alternatives and outcomes that may affect you. You can expect that we will provide information that can be valuable in the discernment process such as what your home is worth, what you will net from a sale, marketing strategies, as well as, alternative properties for your next stage in life.