(This blog is written for a current real estate market that has rising or level prices, you may not want to use this philosophy in a declining market) The other day I met a man who wanted to purchase a new place in Las Vegas. He was an older gentleman who wanted to unload his current residence, a small two story condo, and buy a single story home with a pool. Like many people who currently own in Las Vegas Nevada, he was looking to take advantage of the huge price reductions and upgrade to a larger place. This gentleman was very serious about purchasing immediately…until… the reality kicked in that he would be losing money on the property he was planning to sell even though he would be gaining the same loss or coming out ahead from the next purchase. Mimicking many people I’ve heard rant before he declared; “I don’t want to sell right now because I’ll lose too much money on this home. I’m waiting for the market to go up before selling and then I’ll purchase a larger home then.” It’s very important fact to point out, that this particular condo was owned free and clear and condos in his neighborhood, like many neighborhoods here in a Vegas currently, were lasting less than a week on the open market before being swarmed with multiple offers from hungry buyers.
At this point, I would really have liked to ask the simplest of questions, “Really? So how’s that working out for you?” But, logically, being in real estate as long as I have and knowing when someone is truly set in their ways, it seemed like a waste of breath. However, if someone is reading this blog right now who may be my redeeming grace, an opinion I could possibly change, someone out there in the same situation as this gentlemen, whose sitting on the fence, stubborn as an ox in winter, but curious enough to read on, I’d love to break this man’s ‘logical’ argument down to the bare bones for you and show you just how totally irrational and, downright foolish, it is.
OK, let’s first start with the fact that this gentleman owns a condo. Did you know that, in general, condos and townhomes are the first real estate types to go down in value during a crash and the last real estate types to recover during a boom? Yep, that’s right, therefore, unfortunately, by the time this man can sell his condo for what he wants for it (which requires a real estate market that rises in value to meet his expectations), then spends two to six months or more looking around to purchase his new single family home in a market that was already rising, he’ll probably end up spending tens of thousands of dollars more than he has to on the future upgrade purchase.
Secondly, did you know that, during real estate crashes, larger homes generally sell for much cheaper per square foot than smaller homes of the same nature? Why? The answer is kind of complex, but it basically boils down to the ‘herd mentality.’ Warren Buffet was once quoted as saying, [if you want to make money], “Be fearful when others are greedy and greedy when others are fearful.” For those of you who paid attention during our real estate boom throughout the country, especially on the coasts, you may have noticed that during the mid 2000’s people were slinging money bidding on houses like it was going out of style. To some extent, this is always true during a boom. However, just the opposite happens in a crash. People instead become extremely tight with their money, question everything, and try to spend as little as possible. Investors buy smaller/cheaper properties because they are trying to minimize risks and primary residence and second home buyers don’t tend to overpay as grossly for a property they like because there are, or at least it is perceived, ‘many more fish in the sea’ if a particular house should not pan out. And, of course, to everyone, investor or primary residence purchaser alike, ‘the economy is bad’ and unnecessary risks are to be avoided at all costs, hence larger homes tend to sell much cheaper in price per square foot during a crash.
Lastly, let’s just say you took this gentlemen’s advice and waited to sell your current home first. Now let’s skip forward in time. Your home is now sold; now what? You’re now hurried to find a rental in a market that is more competitive than before? Or maybe you are encroaching on relatives and friends for a place to live ‘temporarily’ while you look for your new place? This also causes a huge array of possible dilemmas. Where’s all your ‘stuff’ being stored in the mean time? Is your new ‘temporary’ residence large enough for all of it or will you rent storage space as well? Will you feel pressure to rush and find the first place that is available rather than somewhere you really want to live so you can get back to a permanent living situation? Will you feel stress about the uncertain length of time your new ‘temporary’ living conditions will be accommodating you? How will your daily routines be interrupted? All this time I’ve been saying ‘you’ and ‘your’, but what about those that live with you, if you are not single? How will they be reacting to all this change? Last, but not least, when you finally do get around to house shopping again from your new, unstable, living quarters, do you understand that in a rising real estate market, sellers have the advantage and buyers lose out on perks like having their closing costs paid by the sellers (several thousands of dollars in out of pocket expense now shifted to YOU). Doesn’t this whole paragraph just sound delightful to you?
So, let’s revisit this gentleman’s core logic again. What would have brought more merit to his way of thinking? Is it savable at all? The answer is yes. If you cannot or are unwilling to rent for a while if you sell your current home first; if you cannot afford to float two mortgages for a reasonable length of time while you are trying to sell your previous home after your new purchase; or if you are unwilling to become a landlord; then YES, you would have made a solidly logical decision for erring on the side of conservative. Unfortunately, like this man, that’s not why many potential upgrade buyers recall their decision to purchase immediately when faced with this dilemma, but, hey, it is what it is, and I’m willing to call a spade a spade if you are. I’m hoping this blog may provide someone out there with the courage to do what is smart, not just what appears (be it falsely) to be the safe move. Make the well planned, calculated risk, and purchase your larger upgrade home before you sell your current one.
Thank you very much for reading my blog, I hope this information helped you out. For this blog and other helpful tips and tricks please visit our tourism and real estate website http://PlacesInLasVegas.com or, for all aspects of general real estate, our parent website http://LasVegasRealEstateConnection.com.
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