Buying a house is an easy decision for most people, but selling your home tends to be more difficult. You become attached to your home, from the decorations to the happy memories you created, selling becomes an emotional decision. In order to take the emotion out of making a huge financial decision, it’s important that you know all the factors before making a choice.
This year, I made the decision to sell the home that I bought 5 years ago for several reasons. One acquaintance of mine even texted me telling me how stupid I am for even considering selling my home. Well, I moved forward with my decision and regardless I have no regrets.
Here are a few key points when it’s best to sell your home!
1. You’ve built up a lot of equity.
When you buy a home, unless you pay cash, you’re borrowing money from a bank so that you can purchase a house. This is a form of leverage or in the investing world, called “margin”. Borrowing money, you don’t have to buy an asset with the hopes that the value of the asset will increase in value over time.
Many of us are taught that borrowing money is bad, but since buying a home is mainstream nobody thinks twice about it. Directly quoted from www.thecollegeinvestor.com,
“Over the last two centuries, about 90 percent of the world’s millionaires have been created by investing in real estate. For the average investor, real estate offers the best way to develop significant wealth.”
The deciding factor that helps create you into a millionaire is using a mortgage or margin to leverage your assets into the stratosphere. I bought my house for $306,000 five years ago and sold it for $450,000. This is roughly a 50% increase in value. In 5 years, I paid down my mortgage to around $264,000, which allowed me to cash in on the equity.
What helped me finalize my decision is that I decided to take the equity out today, so that I can be financially secure in the future. I paid off my car, my student loan, and most of my outstanding debts. Plus, it doesn’t hurt to look at your bank account and have a large cushion just in case something was to happen.
2. Real Estate is a Seller’s Market.
Right now real estate in Jacksonville, FL has a very low supply. If you haven’t taken an economics class, when supply is low, this typically drives prices higher. Not only are supplies low, but interest rates are near lifetime lows as well.
3. Your Emotionally Ready.
Unlike a stock where you can push a few buttons and sell your position. A home becomes a place that you’ve become emotionally attached to. When I used to work at a big faceless organization, I’d come across a lot of investors who would have very little money in the bank, but they wouldn’t have a mortgage.
This is the trap you don’t want to fall into is becoming “House Rich and Cash Poor.” What I mean by this is that you have all this equity in a piece of real estate, but your bank account doesn’t reflect the same amount of riches.
It’s going to be paramount to your success to know when you need to sell your home. Otherwise, you’re going to find yourself like many Americans. Struggling to pay bills, not growing wealth, and complaining about your finances. This is because you’re leveraging or using a mortgage to build wealth.
Once you have a home paid off, it’s no longer a leveraged asset, it’s just a normal asset.
According to www.fool.com,
“Real estate has historically appreciated at a rate of between 3% and 5% per year, depending on the price index you’re looking at. … To calculate the expected future value based on your growth rate, add one to the rate, and raise this to a power equal to the number of years you’re looking at.”
So don’t become house rich, make smart money moves, and don’t become too attached to your home or any asset in that case.
Your Guide,
Joshua Krafchick, AKA “CHACHI”
