You may enjoy your home but the addition of children or just the desire for greater space may have you considering the option of trading up to a more spacious version. There are a lot of things to think about, especially in the current market where there are amazing opportunities to upgrade to a larger home with plummeting prices, but this becomes a double-edged sword when you are also trying to offload your current home to snag that castle that you have had your eye on.
It’s All in the Timing
According to those who follow and study the state of real estate markets around the country, a depressed home market is an excellent time to take the leap in square footage, location, and acreage. While it may sound bad in one way, the number of foreclosures and bank-owned properties provide you with a wide-range of inventory that can offer the new home of your dreams with additional features that you may have not previously considered.
As with everything in life, there is a downside as well. The trade-off is that you will most likely have to take less for your old home than you previously might have received when the market was through the roof, but you have to remember that those were unrealistic times.
There are a number of steps involved in moving ahead with the process of trading up your home:
Step 1: Find out what you can get for your current home after fees and commissions, so that you can see what range you can buy in. These fees are a real laundry list beyond just the broker commissions:
- Capital gains
- Clean-up and staging costs
- Legal and registry fees
- Repair costs
- The intangible costs of your time and effort
- The possible risk of having two mortgage payments or having to pay rent until the new home is ready for occupancy as well as storage costs for all your belongings.
Step 2: Consider the possibility and weigh the option of renting out your old home in lieu of not being able to sell it. This may be a way to circumvent the current market conditions, but you will need to have assets to make a down payment on the trade-up home plus you will need to substantiate to the mortgage company your ability to pay both mortgages if you cannot rent the home.
Step 3: Do your homework by finding out what a new place will cost. You can do this by:
- Going online to real estate listing sites.
- Attending open homes.
- Visiting with agents and touring some of the available listings.
- Finding out what homes have sold for in the area, which can be very different than the asking price.
Step 4: Calculate the costs of the new home. Factors to consider include:
- Home inspection.
- Legal and loan costs. Sometimes, trading up will move you into the realm of a jumbo loan, which carries a higher interest rate.
- Possibly higher property tax payments.
- Greater home insurance expenses.
- Moving costs.
- Higher utility bills and increased maintenance expenses.
- Intangible costs, including more time and effort to care for the home and less time to relax (unless, of course, you are fortunate enough to afford hiring service teams to help you with this factor!).
One of the ideas that most real estate investors will remind you is to not focus too much on home values because loss and gains are simply on paper and are only important at the point in time when you are actually buying or selling. Although a home invokes so many emotions, real estate is really to be viewed as an investment for the long-term and something that should be considered carefully after doing an intensive amount of research.
Size Doesn’t Always Matter: Other Types Trade-Ups
Outside of trading up to a bigger house, this decision can actually involve other factors that have nothing to do with the size, scope, or monetary value of a home. People move for different reasons and you may have other ideas of what trading up means:
- Trading up can really mean trading down to a smaller house with less work but that is located in a more prestigious neighborhood or one that is located near the water.
- You may want to move to a different home because you are trading up to a better school district or a location that does not require the same commute, thereby saving money and time.
Tracking Your Financial Strategy Online
If you use an online service, such as that from Ownersite Technologies, which allows you to track your maintenance and repairs as well as taxes and mortgage costs, then you can apply the figures you already have compiled to see if trading up would be a strategy that works for you in terms of a smart investment decision.
Having all this information at your fingertips makes it easy to download into an Excel spreadsheet to measure, apples for apples, against a larger home to see if the costs are something that you can live with and that will not cramp your living style. This will help you better estimate what this type of decision will yield without relying on the emotions and excitement that can cloud your better judgment.
After all, you do not want to be house poor. No matter how much you love that new big house, it is not a good idea to squeak by financially just to trade up. Anything unforeseen occurrence could then wipe out all the benefits of making the trade up. So, proceed with caution and use your online partner to educate yourself about your present and future homes.