Moving up in a down market
It's nothing new among self made millionaires, and independently wealthy individuals who have accumulated wealth through their own means, to go against the common trend in society. As a matter of fact most millionaires are made during a recession.
Our current real estate market in Los Angeles provides such opportunities that are being overlooked by many due to the emotional and financial pain associated with the decrease in value of their own homes. For the past 20 years when home values were consistently appreciating every year, we all felt good about the market and homeowners wouldn't think twice about selling their home for a gain and buy a larger more expensive home.
But consider this example. Lets turn back the clock five years and look at an average couple living in their first home having a value of $500,000. As their family grows, they need a larger home to accommodate their lifestyle. Usually they would move up to a home of approximately $800,000. In order to do so, they would have to invest an additional $300,000in the form of a larger down payment and a larger mortgage.
Now I want to fast forward to the market we face today. That same family's existing home has declined in value from three years ago by approximately 30% to $350,000. Emotionally, that is a HUGE hit! But hold on, the new bigger home, the home of their dreams has also declined in value. Using the same percentage of decline, 30%, indicates that the move up home, is now worth $560,000.
The critical point here is that the difference in cash or mortgage debt required to accomplish this move has been reduced from $300,000 to $210,000! Financially, it is far easier for this couple to afford the home of their dreams in Los Angeles’ current market than it was five years ago, even when the loss in value on their current home is factored in.
If you are able to look beyond the current situation and see opportunities which are overlooked by the majority, there is a window of opportunity that you may never see again. When most of the public is buying, there is a small group of individuals that are selling. When the masses are selling in desperation and feeling like the sky is falling, there is an elite group that is buying and taking advantage of the opportunity. Accept the loss on your current home, because all you are doing is moving equity from one home to the next.
Eventually the market will turn around, and what you really should be thinking about is where do you want to wait for the market to turn around, in your current home or the home of your dream? You'll be waiting somewhere, why not wait in the home you really want to be in?
Our current real estate market in Los Angeles provides such opportunities that are being overlooked by many due to the emotional and financial pain associated with the decrease in value of their own homes. For the past 20 years when home values were consistently appreciating every year, we all felt good about the market and homeowners wouldn't think twice about selling their home for a gain and buy a larger more expensive home.
But consider this example. Lets turn back the clock five years and look at an average couple living in their first home having a value of $500,000. As their family grows, they need a larger home to accommodate their lifestyle. Usually they would move up to a home of approximately $800,000. In order to do so, they would have to invest an additional $300,000in the form of a larger down payment and a larger mortgage.
Now I want to fast forward to the market we face today. That same family's existing home has declined in value from three years ago by approximately 30% to $350,000. Emotionally, that is a HUGE hit! But hold on, the new bigger home, the home of their dreams has also declined in value. Using the same percentage of decline, 30%, indicates that the move up home, is now worth $560,000.
The critical point here is that the difference in cash or mortgage debt required to accomplish this move has been reduced from $300,000 to $210,000! Financially, it is far easier for this couple to afford the home of their dreams in Los Angeles’ current market than it was five years ago, even when the loss in value on their current home is factored in.
If you are able to look beyond the current situation and see opportunities which are overlooked by the majority, there is a window of opportunity that you may never see again. When most of the public is buying, there is a small group of individuals that are selling. When the masses are selling in desperation and feeling like the sky is falling, there is an elite group that is buying and taking advantage of the opportunity. Accept the loss on your current home, because all you are doing is moving equity from one home to the next.
Eventually the market will turn around, and what you really should be thinking about is where do you want to wait for the market to turn around, in your current home or the home of your dream? You'll be waiting somewhere, why not wait in the home you really want to be in?
