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| Grab Your Big Real Estate Gains and Run? Part One |
If you bought a home two or three years ago you are a financial
genius. In many areas real estate values have blasted up, up and
away and left you sitting pretty.
If you have resisted the temptation of easy money home equity
loans, chances are that you're sitting on a big, fat profit.
Perhaps it has crossed your mind that the big run up in prices
is nearing a peak and values could come tumbling down. If that
were to happen your big, fat profit would become very skinny in
a hurry. That kind of financial weight loss you just don't need.
This article is not meant to promote the idea that we've all
experienced the effects of a real estate bubble and that
inevitably that bubble must burst. That could be the case, but
honestly, who really knows? But if a reversal is ahead, what can
you do to avoid watching the value of your home plunge and your
equity profit vanish?
Across the country, in the real estate markets that have been
the hottest, some |
homeowners are selling and temporarily moving
into apartments. They feel that they are selling at the peak of
the real estate cycle and it could be years before they ever
have a chance to sell for as much profit as they can get now.
They just could not tolerate doing nothing and then watch a
major decline in their net worth.
Their thinking is that over the next 24 months or so, interest
rates will go up. If interest rates go up one or two percent
many people will be priced out of the home buying market. That
means less demand for homes and less demand means lower prices.
That and other factors could result in falling home values. They
want to pull their big profit out now, bank it and wait for
prices to fall.
As real estate prices move to the lower end of the cycle, these
sellers will then buy another home. In a way this will allow
them to have their cake and eat it too. One of their choices
will be to buy a home equivalent to the one they sold, but |
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at a
lower price. In this case they can allocate the remaining
portion of their profit to other investments.
Another option will be to use all of the cash they received from
the sale of their original home to buy a more expensive house.
Still another choice would be to sell and take their money to
another area where real estate prices have not skyrocketed and
buy a much nicer home. Family and employment obligations prevent
most people from doing that.
What could go wrong with any of these plans? Home prices could
just continue to climb. Then these sellers would be left sitting
on the side lines, unable to even afford the house they just
sold. Even if home prices just stayed flat without declining,
they would still be stuck. The cost of an equivalent home, plus
buying expenses would exceed the profit they earned from the
sale of their original home.
The other challenge to their plan is what to do with that big,
fat profit once they |
had it hand? Can they find a safe
investment that could earn more than real estate? Due to the
effect of inflation the buying power of the cash would diminish
every day if they just sat on it.
Finally, you can do as most home owners certainly will. Nothing!
That's fine as long as you have not refinanced all of your
equity out of the property. Then if values drop you will be "up
side down". That means you will owe more on your mortgage than
the home is worth. That thought may scare some home owners into
selling just to get out even.
Now that you've come to the end of part one of this article you
are ready for the perfect solution to this potential situation,
right? You certainly are an optimist. Sorry, not enough room
here for solutions.
About the author:
Part Two of this article can be found at author Mark Walters'
Web site http://www.cashflowinstitute.com/grabprofit.htm
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