How to buy if you already own
One challenge many current owners face is that they don’t want to sell now because this is a very bad market for sellers. Many people need the proceeds from their current home in order to buy another. This is not so much a challenge, but an opportunity, if you have equity in your home and you know how to use it.
Get a low-interest home equity line of credit for the home you’re in. There are many opportunities to get great home equity loans right now with no closing costs and outrageously low interest rates. I recently obtained a home equity line of credit from Regions Bank. The rate is currently just 3.75% and only carries interest for 20 years (I pay more than just interest by choice, but it’s nice to have the option when it’s a tight month). A $ 75,000 loan only carries a payment of less than $ 200 / month! In fact, you can buy a home for less than $ 75,000! You can use HELOC money in these ways:
1) Take the full amount of the loan and buy a smaller house. You can get a 3BR home starting in your 30s, although those at least $ 50K are more realistic investments. You can rent it for 4 years at a cost of only $ 200 / month for your loan and maybe $ 250 / month for taxes and insurance. Depending on what you buy, there is an excellent chance that you can DOUBLE your investment within 2-4 years on the net value of the sale alone.
2) Take money from a home equity loan and use it for the down payment on your dream home. Maybe you are ready for a bigger house or have you always wanted a property where you could have a horse? Perhaps you’ve always fantasized about owning a beachfront property? Keep the house you are in as an investment and rent it. Although you may not get much or no benefit from the rental, you will make a lot of money when you sell in 2-4 years and you can still claim the interest on both loans against your taxes.
3) Spend it on a vacation home. This is my favorite option. Beach properties are opportunities for short-term rentals – people visiting for a week or a month. This gives them a greater income opportunity, allows you to use them yourself at least a couple of times a year, and qualifies for a second home tax credit. These purchases will certainly skyrocket when the values go up, making a hefty profit!
If you’re curious about these options, please let me know and I’ll be happy to guide you and point you to decent resources. If you decide to get a home equity loan so you can buy something else, let me know. I don’t do loans, but I can get you some nice rewards for the appraiser to value your current home as high as possible.
Another option, depending on the equity you have in your home, would be to sell now at the lower price due to how much you will save on your new purchase. I consider this to be a less desirable option due to the lost investment opportunity, but it is still an option. As a no-short sale / no-foreclosure home, you will still have to compete with distressed sales prices, but your home will be more attractive to buyers and real estate agents because they won’t have to deal with the short sale process. . If your house is currently worth around $ 225,000, but you could get $ 300,000 in a couple of years, that’s $ 75,000 less, but you could possibly get a house at half its value (now only $ 250,000, but then it would cost $ 500,000), which would be a savings of $ 250,000 and a large savings at current interest rates. Even after subtracting the $ 75- $ 100,000 you might be losing to sell now, you would still be more than $ 175,000 ahead, not including the interest rate. Current rates are around an incredible 4.78% !!
To put that in perspective: if you owe $ 200K on your home loan and you were paying a comfortable 6.5% (historically, this is a LOW rate), your principal and interest payments would be $ 1264.16 / month, compared to 4.78%. current, generating principal and interest payments of $ 1,046.91 / month. That’s a savings of $ 217.25 each month and $ 78,210. during the life of the loan !! If you kept this home until it is paid for, that would bring your total savings (minus the $ 75K lost from selling in a falling market) to $ 253,000. That’s more than the $ 250,000 you would pay for it in the first place. The drastic changes in the real estate market have illustrated very clearly that timing is everything. The economy is bad, so many people do not have the option to buy. If you have the option to buy, it’s foolish to wait.