1 February 2010
In Life, Don’t Sell Property. Buy.
Posted by Ryan Coffey under: Uncategorized; When to Buy and Sell .
A piece of advice that I am dispensing more and more often these days is that it is generally wiser to buy real estate than it is to sell it.
The reasoning is quite simple. Real estate values increase over time, and it costs money to sell. You can rent a property at a price that is similar to what it costs to make mortgage payments based on current real estate prices so why not buy today and rent it out tomorrow? If you are patient, you can allow the rental income to increase as the years pass while your mortgage payments decrease. This way, someone else will pay most of of your mortgage at first and eventually all of your mortgage on the property you are renting out. I suppose it is worth pointing out here for the uninitiated that if you already have an existing property you are more appealing to mortgage lenders.
Remember, the golden rule is that real estate prices go up and down in the short term but up in the long term. That’s faster than inflation by the way. So, let’s say you had bought a property ten years ago and know it to now be worth a little more than twice what it was worth at the time. (This is average right now.) Instead of selling it before buying again, you can rent it out at today’s prices and receive an income from that property which you can use towards paying for your new one. Should you decide to do this again in a few years, it will be even easier. This way, you will accumulate wealth throughout your life.
Most people sell their existing home before buying the next one. This is understandable because the proceeds from the sale gives you more buying power for the next property, but in the long term it holds you back. You see, in the process of making that move you have to pay for a variety of things like lawyers, any fixing up you have to do in order to make the property more appealing and Realtors too. Us Realtors are expensive. I’m not saying we aren’t worth what we charge, because it’s a much more crazy and stressful job than most people think and it’s harder to make a living at than most people think. This is attested to by the large numbers of people who start as Realtors every year, and then drop out in a couple of years due to stress and/or lack of income. However, for you and your interests, that money is better left in your pocket, or rather, left in your property.
My position is simply that there are good times to buy and better ones and if you don’t have to sell, don’t. Just rent out your existing property and move into a new one. You’ll be better off in the long run. This is all providing you can afford the payments and that you don’t get carried away and that you are realistic with how much rent you will get. Obviously, if you’re having kids and you can’t afford a big enough place for the new larger family without selling the existing one, this is an exception. Or if you are retiring and want the cash, or if you have just lost your job and can’t make the payments… these are good reasons not to follow my formula. Conversely, reasons like “I am moving overseas” don’t matter so much because I have a number of clients who are in that position and they own property here which they are renting out via a property management agency which charges 10% of the rent for the service.
Selling costs you a good chunk of change, and holding on to a property and renting it out rather than selling it will increase your net worth in the long run.
My position is not shared by all, and it is certainly not something that every Realtor will promote as listing properties that need to sell is the best kind of business we get and the mainstream media will probably never tell you this because they are usually peddling drama and fear rather than informing people on how to get ahead.
If you are of the more analytically minded, read the following posts for a deeper understanding of where I am coming from:
Good Debt: Yes, There IS Such a Thing!
When Should I Buy My First Home?