10 Tips in This Housing Conundrum
We know the old saying, “buy low, sell high”. Traditionally, it is associated with the winning strategy to buying stocks (or honestly anything). You buy a stock that is beaten up and undervalued while raising the capital to buy that stock from a holding that is overvalued. It is a brilliant saying and concept, although truthfully, rarely executed. Now, conventional wisdom would suggest the same strategy should hold true for any large “investment”, especially one’s home.
Yeah, thanks for the obvious, Andrew! I know gang, but here is the thing when it comes to the housing market. Generally speaking, a rising tide lifts all boats. Conversely, a sinking tide lowers all boats (like how I invented a new saying?). What I mean by this, and what makes real estate purchasing so difficult sometimes, is that when times are good in the housing market, they are for the most part good everywhere. The same thing holds true when times are bad.
Time To Buy Or Sell?
We are seeing this play out in front of our very eyes as I write this. I was just having this discussion the other day with someone about their beach house. Over the past year or two, the value of their home has gone up tremendously. Here is the catch, so what? Do they want to not have a beach house anymore? Nope, they love their beach home. Would they love to upgrade their home? Sure, but the logical upgrade now costs almost double what it did a year ago. How about downgrading and taking their growth and pocketing it? Sounds like a great idea, except also seems insane to sell their current home to buy a much lesser home, which is the value at what their current home was two years ago.
This sort of housing paradox we have going on holds true for almost any market. I’m seeing first-time homebuyers stretch themselves extremely thin to buy a starter home (yet not pay starter home prices). Or retirees quickly sell their family home, yet struggle to find their retirement home.
Desperate Times Call for Desperate Measures
Here is where the problem truly arises. The problem at hand is desperate times force us to take desperate measures. Sometimes, those desperate measures can be really detrimental to our overall financial health. So how does one attempt to navigate successfully in an insane market like the one we have here? It isn’t easy, but here are my best tips to help you win in this market.
Ten Tips for Homebuyers In This Housing Conundrum
- In an upmarket remember the seller has all the power. This cuts two ways generally, as most of us are selling in order to have to buy. Simply understanding this can help you best strategize timing and cadence to listing and purchasing.
- Know your budget and stick to it. Where I see the most people get burned is they tell themselves, and pocketbook, one thing, yet when push comes to shove throw caution to the wind.
- Patience my dear. I know it is easier said than done, but you have to try your best to stay patient. It can get very frustrating bidding on a dozen houses and getting none. That said I find with patience comes the smartest outcomes.
- Get creative. Again, remember that the seller is king so you can name your terms. For instance, I am a big advocate of selling and agreeing to rent back. That way you can sell your home at top dollar and rent your home back for a handful of months. This both buys you time to find the perfect home, and have maximum flexibility in doing so. Another great strategy I recommend is using your non-retirement investments to get a short-term loan to bridge the buying/selling gap.
- Know what you can compromise and what you can’t. This one speaks to the mindset of the buyer. It may be hard to stand out when there are 4 bids on a home all at full price. When that is the case, how can you position yourself to be on top? You can do things like offer all cash, which most people don’t realize doesn’t mean it all has to come from your checking account. It can easily come from a mortgage company; it just means you are waiving your mortgage contingency. Also, a quick close is very appealing to the seller. On the other hand, be wary of waiving a home inspection. Doing so could be an extremely costly mistake!
- Act quickly and know the market. Being you are now patient home buyers (see tip 3) you should be an expert on the market you are trying to purchase in. That said, the early bird sometimes gets the worm. If you are the most knowledgeable, and on top of the market person, you can quickly sniff through a fair deal and move quickly.
- Don’t get emotional. I’m tearing up just by writing this. Staying calm and not leading with your emotions is always a smart decision when it comes to real estate. There are so many goofy things that happen in this kind of market – you simply can’t let them affect your emotions. If you do you are very likely to make a costly error.
- Rent. Did I just use that four-letter word? Rent! I know it is taboo to many of you, but selling your home to rent for a year or two can be a brilliant strategy. This can allow you to take your chips off the table and not be forced to overpay or act irrationally. Additionally, you may find this is single-handedly one of the few ways to actually sell high and buy low in real estate.
- Get comfortable being uncomfortable. Yes, buying and selling in a super-hot market like this can be very unnerving. The pace is fast, you’ll compromise on things you didn’t think you’d have to, and your brain likely hasn’t caught up to process the reality. What is my best advice to you hear? Get over it! Sorry to be so harsh but better you hear it from me now so you can, well get over it.
- Arm yourself with a great team. I suggest having a great realtor, mortgage professional, CPA, attorney, and financial planner in place. You’ll need to lean on all these individuals during these times. Having professionals that surround you to help navigate these choppy waters can often be the edge you need to succeed.
Tougher than the rest
If you know me by now you know I’ll use any excuse to quote Bruce Springsteen. That said, during times like these you have to be “tougher than the rest” to navigate these crazy times. Follow my ten tips and I think you’ll find yourself well-positioned for success.
As always stay wealthy, healthy, and happy!