Home : Blogs : Danny Batsalkin | Los Angeles Real Estate | 310.623.8711 : Los Angeles Real Estate Blog!

TRADE UP! 5 Reasons why this is the BEST market to upgrade!

Have you thought about getting that bigger, better house in a better neighborhood?

NOW IS THE TIME!

Whether you need more space, want to upgrade your location, or for any other reason, the current real estate market presents a unique opportunity to capitalize by trading up!

5 reasons why this is the best market to trade up!

1. You will make money NOW on the trade!

Here's how this works. You currently own a condo that was worth $1,000,000 three years ago, and now it's worth $700,000 (that's right, it's gone down 30%!). You may be thinking, I've lost $300,000, right? Wrong!

What you do is go out and sell your condo and purchase the home of your dreams for $1,400,000. That house, three years ago, was worth $2,000,000 and you probably couldn't have afforded it. By buying it now, what you've just done is bought your new home at a $600,000 discount! Just like that, on the trade, you've made $300,000! This doesn't even take into account the money you'll save on property taxes because you're paying taxes on a $1.4M house, and not on a $2M house.

2. ... AND you will make money LATER when you sell your new home!

OK you've listened to my advice, bought that new home of your dreams and traded up. YES! Fast forward five years and the real estate market has gone up 20%. Let's take a look at what has happened. Your old condo is now worth $840,000, for a $140K gain over today's value. Your new home is worth $1,680,000, or $280,000 more than when you bought it today. Just like that, you've made an extra $140,000 on the trade!

Your New Dream Home! 3. You can likely buy a house you otherwise could not have afforded, and may not be able to afford again!

Going back to my example above, you probably couldn't have afforded that $2M house three years ago when you bought your condo. You also may not be able to afford it again in 3 - 5 years when the market rebounds. If you've been dreaming about a bigger home or one in a nicer area, now is really the time to capitalize.

4. It's much easier to trade up in a down market than in an escalating market!

I've had clients say that they will trade up when the market "goes back up." Let's take a close look at that. Let's say that 5 years from now, the market is back up 20% from today's values. You then sell your condo for $840,000 and your dream home is now worth $1,680,000. You've gained $140K on your condo (from today's values) BUT your dream home is now worth $280,000 more! That means that, by waiting, you've now spent an extra $140K to buy that house!

5. You'll probably get a better house by trading up in a down market!

The current market presents some very unique opportunities. In most areas, inventory is pretty high and buyers have a lot of great choices. By shopping in this market, you can really get the home of your dreams and take your pick of all the inventory available. In most cases, you can get a good deal on a great property in a terrific area.

The bottom line is that if you can afford it, now is a terrific time to upgrade! Interest rates remain at historic lows and there is plenty of financing available.

DANNY BATSALKIN
The Batsalkin Group | Real Estate Experts
Rodeo Realty
www.BatsalkinGroup.com
www.BestLosAngelesHomeSearch.com

CA D.R.E. License #01421366

Posted by Danny Batsalkin | Los Angeles Real Estate | 310.623.8711 on 12/14/2009 12:26 PM

Comments (113)

Trading Up in the Home Buying Channel

home selling, home buying, trading up

Generate short URL

This post has been included in California Real Estate News Los Angeles County, CA Real Estate News Los Angeles, CA Real Estate News

113 Comments on TRADE UP! 5 Reasons why this is the BEST market to upgrade!

DEC

2009

Daniel, great points. Math is off, typo probably in paragraph one, $300000 is the delta they've made. Well written.

Oh, if only we could all unload the properties that we are upside down on...

Josh - thanks for catching that - I corrected the error. It is a $300K delta.

Jami - that's a great point! If you are upside down on your current property, you can still accomplish a trade-up by paying the shortage or doing a strategic short sale on your property and trading up into a more expensive proprty. The second scenario would be challenging, but still could be done in the right circumstance. If you have an issue like that or know someone who does, please feel free to call me directly to discuss.

Daniel,

Thank you for the great post. I think a lot of buyers are missing the boat right now by not jumping at buying a more expensive house.

How about you sell your condo . . . lose $300,000 . . . and buy a home for $600,000 rather than the $1.4M in your example. You will have "made" $500,000 . . . ($800,000 difference between $600K and $1.4M -- MINUS the <$300,000> LOSS). Living within your needs can pay off! Playing with numbers is SO much fun!

This was a really good blog. I have a client I''m going to send this too!

Daniel,

You make some great points for the buyers that are in good shape. But their are so many others who don't have such a rosie situation.

This is a great way to look at things. Thanks for your perspective.

Great information and realistic scenario. I'll forward to a couple of clients.

Although I appreciate your post, I don't know how realistic it is for the majority of consumers out there. Even those currently in good standing are having a difficult time solidifying financing due to new regulations, or, perhaps, a surplus of loan officers who don't do the work upfront, and wrongfully inform consumers of what they can afford. I see this market as being great for first-time homebuyers who could have never dreamed of home ownership in a different market, but even then, only if they have good solid jobs. It's a crazy catch 22 I feel, this crazy market we find ourselves in!

For those who can afford this beautiful upgrade, amazing time to buy! I'm a little envious of their position, if I do say so myself!

Sounds good on paper, but have you considered (reason #1) that if your client has no equity they won't be buying their upgrade home? (Reason #2) are you predicting a market rebound in the next 5 years? Sounds like same thing agents we're telling clients back in 2003 2005. (Reason #3) How have your clients made $140,000? It's only on paper until they sell the home. The bottom line is that if your client needs to unload a home to obtain a "move up" home, they will have to have a very strong equity position on their home or own the home outright.

My issue with the scenario that is only for the long term hold. I think we are in for the long slow rebound

Daniel, well said! Your thoughts are right on! I'm reblogging this great post.

Daniel - Your post follows neatly behind the Business Week post by Marc Roth where he said "If You Don't Buy Now, You Are Stupid or Broke."

Michael

Daniel, Points 4 and 5 are my favorites. All the math is good but if you keep it simple when explaining it to folks then the most important parts are what you get out of it in the end. More for less! I have to agree with you!

Interesting discussion.

I just had a client (i am not a realtor) say that he did not believe trading up was the best decision because of the interest costs of taxes and association fees, etc.

He did the long term cost analysis and did not believe that the property prices would appreciate to the level to offset the addiational cost in the next 5 year.

Your point are also valid and i suppose trading makes sense when they intend to keep the home for a longer term.

With people moving on average every 5 to 7 years, would trading up really be in their interest for the short term especially if no one has a handle at the rate of real estate appreciation given the new market landscape we find ourselves

Even the Dow Jones industrial index is slowly strugglying to move up and with the market captilization of the big firms being wiped of the market no one knows how long it would take to recover to the original 14500 basis points it was a year ago.

Just curious to find out from your perspective that would you really give your client that absolute certainty knowing that people move every 5 to 7 years and no one is able to peg the growth rate of real estate in the years to come.

I can understand from an emotional point of view that it makes sense to buy a "trade up home" since the historical price has dropped significantly, but without knowing the actual growth rate, could you with complete confidence and certainty justify a move up home

Thanks for a good perspective on this topic.

Great, positive thinking for sellers in a good position to take advantage of that type of "buying up." But, sooooo many sellers are upside/down or can't sell in markets with mucho inventory in the same price range. It's definately an interesting and multi-faceted market we're living in at this time.

Sue of Robin and Sue

It sounds great on first glance but there are so many variables: what did they originally pay for their 1M condo? Interest rate? How much equity? Gotta be alot more than 300K to come up with the necessary 20 0/0 down on the new jumbo ...if they can get it. How can they be said to save on prop taxes if they were paying taxes on 700K (or less on original purchase price) and are now paying prop taxes on a $1.4M prop. Where am I wrong so far?

Hi folks - thanks for your terrific comments and thoughts on this topic! Just a couple of thoughts in response to some of the issues raised and questions asked:

People not able to trade up

Of course, it is true that this "trade-up" scenario is not for everyone and there are many people that unfortunately cannot take advantage of the opportunities presented by the current real estate market. As I mentioned, even if someone does not have equity in their current home, they may be able to trade up by paying the shortage or completing a strategic short sale on their current home and purchasing a new one.

I sell real estate in Los Angeles and my niche market is working with professionals (lawyers, CPA's, etc.) and thus, fortunately, many of my clients are able to trade up in this market. The example scenario I highlighted in my blog was an actual client from a few months ago, so this was not a purely hypothetical case (well, except for my prediction on what will happen in 5 years).

Prediction for the future

Obviously I cannot predict with certainty what will happen in the next 5 years in the real estate market. If I could, I wouldn't be blogging here (I would be buying stocks or betting on sports). What I do know is that prices have come down to a level where affordability is coming back to somewhat normal levels. Financing is also back to where it should be and where loans are being made to people that really can afford the loan and have the credit and income to support the payments. To me, that bodes well for a nice recovery in the future. No investing is certain and I don't have a crystal ball.

Having said that, I definitely can (and do, every day) justify a move-up home, both from an investment and personal standpoint.

Thanks again for all of your great comments.

Hi Dale -- It is a good move up buy time here in Greater Cleveland with prices rolled back to 2000-03 in many cases.

great post - we all need to make these points to our sellers and buyers!

DEC

2009

Great information Daniel~

Thanks for the Post!

~Pam

Not to many people wanting to spend more cash to trade up. Many people are still worried about their jobs as well.

I love your numbers ... and would love to be in a market where those kinds of home prices were commonplace. If I wrote this blog, you could remove at least one zero on each example!

i do agree with your post. The only challenge is that many folks are not in a position to do what you described. But for the ones that can your spot on.

have a great day

tony

Great read Dale!

Good stuff Daniel!! If we would all take on a little more of your attitude...it might bleed into the minds of our clients and produce more sales!! All the best this holiday season!!

The biggest hurdle I see with the trade up or trade down buyers is selling what they have now to get to the next property. Yes, the property they will be purchasing will be affected by the same market conditions that are probably hurting them now. But they still have to find a buyer before they can purchase something else.

Great post-but I've gotta move to LA ! One sale and I'd be in the Million Dollar Club !!!!*L*

Daniel:

You are right on with this thinking. For people who can get financing right now this is a fabulous time to think about trading up and making up the money on the lower price they will be paying in their purchase. I am working with several couples right now who are doing just that.

Barbara Calwhite Great blog. To me, it does not matter if the market is up 20% in 5 years. The upgrade will still be profitable because the current house won't be increase at a faster rate than the new house. I am going to re-blog this post!!

Daniel wonderful post, I was thinking of writing a similar blog, but why reinvent the wheel. This is very true but sometimes hard to get across to others.

Daniel: This is fantastic. Your writing style and examples make the case for selling and buying now very clear! I'm going to repost - thank you!

Daniel,

Thanks for this post! Great points and it is GREAT to hear about one of the positive sides to this market.

I like the way you think.

Thanks for the post!

Be well,

Brendan Winans

Hi Daniel,

Great post! And, so true. I'm going to blog about it and link back to your article.

I'm sorry because I'm sure the intent was honest, but this borders (at least to me) along the lines of a used car sales pitch...The manner in which you "push" higher priced homes is what partially got us into this mess. Especiallly in this economy, thats a mighty small target market, even for LA

You have perfectly said what we all know and try to tell our clients! Thanks so much for the blog post. I'll be sending my clients to read it!

Good luck!

~Katie

Great post, I have been using this same scenario for the past 12 months. One thing you might want to add, maybe I missed it. The price of money today. Let's say interest rate is currently 5%. 1,2 3,4,5, etc years from now, What do you think interest rates will be? NOT 5%

Thank you

Daniel -

Great write up! I had to re-blog! I appreciate the information.

-Phil Graves-

utahbuyeragent.com

Thought provoking - and good responses to the points brought up.

Let's see, a strategic short sale. So you are recommending that people "put it to the bank" so they can improve their position. They have an obligation, as well as legal documents they signed when they closed and promised to repay. Does strategic mean shady or deceive their current lender?

On top of that, to obtain a new mortgage when you have just sold your home on a short sale, is not only very difficult but almost impossible until you have reestablished your credit background.

I agree with what you have said with the caveat that it needs to be looked at carefully for each and every consumer and their local market. As you said and others have said, it is not for everyone.

Oh, my gosh. I keep making this point to my dad who rents every winter in Arizona. He won't buy his dream home there which is 1/2 what it was a few years ago because the value of his condo in Seattle is down about $60,000. What??? He wants to wait until the value of his condo comes back to where he thinks it should be (and he owns it free and clear!). Seattle market has barely moved and Arizona has plummeted.

Aaargh. Thanks for putting my thoughts into words.

Super post and so true, but each person needs to examine their wants and needs and finances and then decide.

Congrats David on the High number of Re-Blogs. As I briefed down through the new blogs this morning while booting up AR for the first time I encountered 3 re-blogs in a row. Had to check it out for myself.

Fun but really not very accurate for most people. For the most part people who buy homes and or condo's generally buy the most they can afford. Owning a home for 3 years with a loss of 30% for most everyone is an unsustainable hit. No Equity. The majority would not be able to sell at a loss and still be able to purchase another home.

For those who could, I wonder how many would be eager to put themselves even further in debt for the hope of future gains? Remember those same people had that hope when they bought there current home.

Taxes is another problem. In Oregon when you buy a home the taxes do not lower just because you paid less. Perhaps it works that way in your state. If it did it seems as if there would be many people trying to scam the system.

Hmmm.. considering the true state of affairs with the economy and the uncertainty... I would have to agree with Carla's reasoning in comment #5. Or... multiple homes at lower price points for rentals with positive cash flow. Betting on future appreciation within 5 years is speculation... one of the main reasons why the market is what it is today and "dream" homes have become "nightmares".

I agree with the underlying concept of trading up now. Home prices have dropped and interest rates are are time low. Not everyone understands that this may be one of the few times (I have been through a few recessions) they are able to buy at attractive prices.

Telling someone that they have SAVED $600,000 on the new purchase is akin to my wife telling me she saved 30% at a "sale". When I ask her to show me the money she saved she can't. Neither can the person buying in this scenario show that they have an equity position $600,000 greater than what they paid. The sale item was only worth 70%. Try going out and selling that item at 100%, you cannot do it!

Excellent! Great list of reasons why it's the time to "Move Up"!

Housing up 20% in five years? Is this what realtors believe and this is "great stuff" most of you claim?

Anyone who buys into the buy-up strategy above thinking they will be making money is surely kidding themselves. Once the interest rates skyrocket in the next few years, that home will go down in price and you will have lost even more money. This must be the way some realtors look at things to con their clients into making a purchase.

Just how many of you realtors are "moving up" to take advantage of this great opportunity? This is no more than realtor hype and indicates a lack of knowledge about what is really happening in the market. If you can afford it, you should stay in your home that is probably worth less than what you owe on it as you may not get a loan to move up once you sell your home short.

Yes David, this is a great time for move-up buyers. Your advice does provide an exciting piece of information to light a fire under our clients, however, we find your line of argument to be dangerous and irresponsible for most consumers.

In your comment that "you will make money now"... is preposterous. You will be getting a discount from whatever the peak value was on your purchase, but what is clear now is that the "peak price" was an inflated number based on economic factors that were unsustainable and does not exist today. The value of your purchase today is whatever price you and the seller agree to.

Although you may (depending on your jurisdiction) be able to appeal your property taxes immediately to receive a discount from the previous level, The overall reduced level of property tax collection due to decreased values will eventually rise proportionally as all boats will rise to meet municipal taxing demands.

It's not neccesary to comment on the comment "you will make money later when you sell your home". You don't have to be a real estate professional to have an opinion on this statement.

Yes, "you may be able to buy a house that you otherwise couldn't have afforded", but isn't that part of the problem that led consumers to the place they are in today with 30%+ of mortgage holders under water on their loan? We feel we should be encouraging our clients to be searching for a home, not a speculative investment.

Yes, it is "easier to trade up in a down market, than in an escalating market" but your example does not take into account that properties in all price points do not necessarily move in tandem. It's pretty clear these days that in most markets, there is much less volatility in lower priced properties than in high end properties.

Yes, we fully agree that "you can get a better house by trading up in a down market", but be careful what you wish for.

I think carla #5 is spot on why in the hell go buy a home for 1.4 million one of the reasons we are in this mess is because so many people want to live beyond their means and wanted bigger and better ,,,, sure move up ,,, but do you have to move up so much?? This seems so much the rant of typical NAR,,,its always a great time to buy

fabulous example, the numbers are to high for my market but the flow is great.

Robby

Spoken like a true Realtor. Just tell people to buy. To bad they have no equity because prices have fallen so much so they don't have a down payment. Their job situation is usually shaky at best and they "lost" $100K from the peak prices. Buy hey buy buy buy, prices are still going down and cheaper homes keep coming. I think you are better off educating people on the opportunities and use a cash flow model to show that this will be a good investment, because most homes are not good investments.

Daniel that is a great spend to put on the market. Very creative thinking. I hope you don't mind if I share this with my agents.

Great blog for buyers! This will get their confidence up!

Daniel,

Great blog! Some buyers really get "this" while others are so busy looking at their potential loss, that they can NOT visualize the potential GAIN/

Great post, it's always nice to hear someone take a negative and turn it into a positive.

I was going to write a similar post, but I'll just reblog this one instead. Thanks!

Sorry Daniel, but add me to the people who thinks this sound too much like a sales pitch. We really have to back off of the "Buy buy buy" mantra and get back to educating people. The assumption that you make that the market will come back strong is exactly the kind of thinking that made so many underqualified buyers become real estate speculators.

The truth is that it's a great time to buy for SOME people (those planning for the long term), but not for everyone. There are just not that many people that can take advantage of this market, which is another reason why it's down.

I'm sorry to criticize because I know your post is well intended.

Hi Daniel,

Your logic is sound and for those with documented income, now is a great time to move up. Many qualified people are scared though and will likely not take advantage of these unique times.

Hi Daniel, This scenario only works for a very few people, such as the professionals you work for. People around here who lost 30% have no equity, no money, and would not qualify for a loan. People who do a short sale don't move up, they move in with their parents.

Hmmm.

Maybe it's better I didn't major in economics.

1. You will make money NOW on the trade!

Let's see. I currently own a condo that was worth $1,000,000 three years ago and now it's worth $700,000. I'm thinking I lost $300,000. Well, it depends when I bought it. If I bought it three years ago for $1 million, I'm pretty sure I did lose $300,000. If I want to sell that condo for $700,000, I'm going to have to bring $300,000 to closing. (Or do a short sale, which sure isn't going to help my credit score when I try buying that $1.4 million dream home.) So that's not a pretty picture.

What if I bought that condo 10 years ago for $300,000, and now I can sell it for $700,000. Now, at least that $300,000 is just a paper loss. So, really, I agree: I've made some money on the deal. But let's take a look at that $1.4 million dream home.

First scenario: I'm out of pocket $300,000. Now I've got to come up with another $280,000 as a downpayment on my $1.4 million dream home. And we're not counting closing costs, commissions on the same of the condo, etc. Let's say I'll need approximately $600,000 to get out of the condo and into the dream home. Ugh! And my monthly payments probably have gone up. I used to have a $1 million mortgage. Now I have $1.12 million mortgage, and the tax assessment is on a $1.4 million value (or $2 million if it hadn't adjusted downward), up from $700,000.

Second scenario (I bought the condo cheap). I made $400,000 on the sale of the condo (we're not counting commissions, but we're not counting mortgage paydown either). I buy the dream home for $1.4 million, putting $280,000 down. OK. Not too bad; I end up with maybe $100,000 in cash. But let's take a look at what's happened to the mortgage. I had a $300,000 mortgage, paying maybe $1,800 a month. Now I've got a $1 million mortgage, paying maybe $6,000 a month. Well, if my income has tripled in 10 years (I wish!), if I feel secure in my job (no chance of layoffs or reduced hours), and I feel comfortable with the purchase, maybe then it might make sense.

2. ... AND you will make money LATER when you sell your new home!

Or: Fast forward five years and the real estate market has stayed flat. Or, worse, it strengthened for a couple of years, then fell back due to much higher interest rates, a huge national debt, the expenses of the wars in Iraq and Afghanistan, health care expenses, and so on. Maybe, overall, it's gone down 10%. (What? You say the market could never decline by 10%? Hey, they're not making any more land, right?) So the old condo is worth $630,000; it's lost $70,000 in value. The dream home? It's lost $140,000 in value. So, I've got $140,000 in equity left in my dream home. Or I've got $330,000 in equity in my old condo. Plus, now the mortgage paydown really helps with the condo--I'm in years 10-15 of a 30 year mortgage. I'm in even better shape if I bought the condo with a 15 year mortgage. Now it's totally paid off, and I've got $630,000 equity in the condo, versus just $140,000 in my dream home.

So, depending on what you're selling and when you bought it . . . and depending on what the real estate market may do over the next 5-10 years, it might possibly be the time to trade up. But not in many cases.

No matter the price range or spread, people can't trade up until they can sell what they already own.

As an industry, we MUST encourage the first-time buyers to purchase an owner-occupied property as opposed to an REO so people can actually trade up. Every time a first-time buyer buys a vacant foreclosure, no one else moves. WE need to get them on the trade-up ladder. It's all up to US - period.

No one really knows what will happen in the future. Yes, prices may continue to fall. On the other hand, they may indeed rise over the next 5 years. I don't know.

I never recommend anyone buy a home unless they plan to live in it for a number of years. Over the long haul, buying a home is a great investment. There are exceptions, such as the last 3 years. But, if you look at the last 70 years, you will find that buying a home to live in is one of the best investments anyone can ever make. People who have lived in a home for the past 20 years, who actually have a lot of equity, have a great opportunity now to move up and take advantage of today's low prices and the historically low interest rates. It is indeed an excellent time to move up, based upon everything Daniel wrote.

Great information to share with buyers. Thanks for sharing this with everyone.

You thinking actually works, but only for thsoe who are both in the mood and in the position to trade up. As others have already mentioned, it does not work for everyone, and I don't think I would use this scenario to sell anyone on the topic...not unless I had an indication that they were moving in that direction...

I agree with your post. I actually had written a very similar post a few months back based on a client who did the same thing. The numbers were a little lower, selling a $400,000 sfr and purchasing a $750,000 sfr. They were able to purchase their dream home in a neighborhood they had wanted to move into a few years ago but felt was out of their budget. Very conservative couple with combined household income of over $400K. They felt they were way ahead of where they would have been had they purchased this home a few years ago for $1,100,000. In this case they actually only had about $10,000 in equity (after commissions and loan payoff) in their current home. And they used an FHA loan with 3.5% down to purchase the new home. Totally within their means, perfect credit, and yes, they felt they were ahead of where they would have been had they purchased the home in 2005.

For those who disagree with the post, it seems we're losing sight of the fact that there are plenty of people out there who do live within their means and will make a decision to buy based on their comfort level with the real estate market and their own budget. Purchasing a home should be a long term decision (not a flip). Should I have told these people they should downsize, maybe move into a $300,000 home? Crazy. This post does serve to educate potential move up buyers of the advantages of moving up in a down market. Just like there are advantages to downsizing in an up market, this is a great time to upsize, if it fits in the budget.

That's a great post. I've heard it said best that "you can't sell high and buy low in the same market". It can be hard for people to accept a loss upfront (with a sell) then make it up on the buy side. However, real estate is about long term gains. Your clients will thank you 5-7 years when they sell again and the market is back up.

I will be moving up soon (my house is almost ready to go on market) since we need a little bit more room. Our monthly payment won't be more than $200.00 higher than our current payment and depending on the home we choose, it might be very close to our current payment. We'd actually prefer a fixer-upper with the space we need so we can make it how we want it.

When we purchased our current home we thought it would work and fell in love with it's charm. There wasn't much on the market at the time we bought the home (2003). Now there are a lot of choices.

We might not lose on our home (although we probably will because of what we put into the house), but we are prepared to sell for less than we bought it for - we have the equity. We plan on living in the next house for a minimum of 10 years.

We need the space, prices are good, interest rates won't stay this low for long and we have a bigger choice for our move-up home than there is for the home we're selling. This is not being done as a monetary investment, but an investment for our lifestyle.

Daniel,

Very good logic! However, I think the operative words here are " if you can afford it"! Many people are just surviving and are not even thinking about "moving up". I'm grateful that I have customers, WHO HAVE SAVED THEIR MONEY, and are buying their vacation homes NOW!

Definitely agree with you on the lower taxes, I just think that a lot of folks are deciding that they are comfortable in what they have, now that they see other's walls come tumbling down. All of a sudden Home Sweet Home looks a lot sweeter. If people can truly afford it, as you said, with prices and interest rates so low this is an awesome time to buy!

Thanks again for all of the great responses and commentary! I'm thrilled with the discussion generated by this topic.

This is utter common sense and I have tried to tell people this. I will re-blog.

I think the key thread here is "it depends," on when the homeowner bought his house, how much equity he has, how secure his job is, and how good his credit scores are. For homeowners who bought a while back and have built up equity, even with the market decline, it's a great time to trade up. However, they must be willing to price their current home to sell. I've had quite a few sellers who want to trade up, but when it comes to pricing their home to sell, they are unwilling to price it at the current market level - but when they go out with me to look at the trade up home to buy, all they say is "We want to lowball because it's a buyer's market out there." They don't see the irony.

Thanks Daniel for the post and great job.... but your plan is unrealistic for most of my clients. They have spent a lot of money on their first home and are concerned about their employment and now I ask them to up their monthly payment on a bigger home. And some of my (Lucky) folks have their homes paid for ---- why would they sacrifice another loan now when the media is still drilling us about employment numbers??? ....

Melissa: Great point, and oh so true! I've actually used this rationale with my "trade-up" clients when discussing a price reduction, and they ultimately agree with me. I've shared with them that they're not "losing" $50K by reducing the price of their home, they are pricing it to sell now so that they can take advantage of the lower price on their new home.

Great Post!

Susan Rossi #64 - You are dead on there too.

Reminds me of a saying..."The pessimist complains about the wind. The optimist expects it to change. The leader adjusts the sails..." --- If a client can move up and wants to move up, this post is a great pitch.

My opinion is that there will always be risk associated with any decision and business transaction. The market could sky rocket or plummet or be flat. No news there. For those that can or want to move up, it is our jobs to help them make good decisions. Part of that process is understanding the marginal utility (The additional satisfaction received from goods or services that is derived from consuming one more unit) the client would get from a larger/ better home. The dream home concept... It is not for all but for those that can, I like Daniel's "Make It Happen" attitude!

Ken

Its a great upgrade opportunity for the investment minded as well. Buy a new home with your equity (assuming there's still some left) and rent out your old home for the time being. Chances are you'll make money on the rental, and you can use the profit to help offset your new home. Not only that, but when they're ready to move again, they can 1031x the old home and repeat the model on the second one.

Daniel .. Thanks for this article and encouragement for buyers to be trading up in this challenging and down market. It's indeed a great time for our clients to be homebuyers.

Hi Daniel,

Great points. I am going to re-blog this.

Thanks!

Daniel, it's all in the numbers, it's hard to be accurate when using percentages. Need to take that one to the bank.

Really great analogy, I hope people listen. It is so true and a great investment oportunity and you got it at a great price!

Excellent financial analysis and post. However, you forgot one thing. To figure in another 20% hit to the down side on price next year in LA County. Recast- Option Arms combined with a 30% increase in Strategic Defaults this year alone (in Ca.), tells me to wait just a little longer before I would want to implement your strategy .

Daniel, I think your post made some great points that I think many americans are missing. There are always opportunities in every market. This does not apply to everyone, but to those that have been wishing, waiting or looking to upgrade this blog certainly pertains to them.

I would like to add, that many homeowners for one reason or another are still paying their original mortgages with higher interest rates. A new home in the current market with a low interest rate could still make upgrading affordable. A recent client of mine just moved from a 500,000 home paying 3,900 a month to a 750,000 home with a new payment of 4,500 a month. His old interest rate was much higher than the one I got him on his new house. Because unlike years past, it is also a great time for jumbo loans. It used to be difficult to obtain low interest rates, and they were usually adjustable loans. Now jumbo loans can be 5% or lower on a 30 year fixed loan.

With the combination of lower prices and lower interest rates, I agree it has never been more affordable to upgrade, and may never be again!

Really good and interesting blog. What I was amazed at all the negativity of the Realtor community. Yes this is not for everybody. DUH! However for people who can this is the opportunity of a lifetime. Interest rates below 5% combined with great deals. The house trade needs to be analyzed on both sides with your current financial situation.

You've inspired me to write the blog about the Denver, CO market. This is one of my big marketing pushes for next year.

Great points. I love using this kind of math!

I agree with Mike Henderson (#86). Of course this is not for everyone; it is only for people who can do it. If they decide they can do it, they need to decide if they should. It is still a great opportunity for many who fit the criteria.

Unfortunately, there are very few people able to upsize right now and leveraging is not a smart financial strategy for most right now. It was the leveraging that got the higher end properties into the foreclosure arena in the first place when the lenders refused to modify terms or refinance option arms. I'm a CPA (inactive) so I can say this - - before you follow this advise, be sure to consult your local tax professional or attorney.

Interesting post and variety of thoughtful comments. Your advice is not appropriate for many homeowners (with 25% of them upside down)....but it's great for the long term buyer with solid equity, excellent credit, and a long term strategy. I am leery, though, of your projected 20% upside in five years. This economy is in such critical condition that I'd be happy with a stablizling of values....that would have us leveled off and looking forward to slow appreciation gains in years 6,7,8,9, &10.

Hi Daniel,

We met at the Superstar Retreat in Las Vegas back in July 2007.

Your post is uplifting and while not for everyone there are positives to take from it.

I've been working with a client who bought his condo for $507,000 and his first is 407 w/a second of 100. It is now worth 350. How do you short sale something you're upside down 157K on and still keep your credit in tact so you can qualify for the "move up" house? Thanks to "Buy and Bail" it's pretty much impossible to first buy the "move up" house and then short sell.

If you have enough equity in the house you live in, no need to sell. You refi with cash out for your "move up" house down payment. That way you keep the property as a rental. Also, when you refi you'll get a great rate because at that point it's still your main residence.

I too, think it's a great time to buy because of the incredible rates. However, for people that are upside down it's very difficult if not impossible.

Daniel,

I like the premise of your post. That would be great but who really knows. Which is good reason for the consumer to retain the services of a real estate consultant.

It works if you have the equity in your current home to be able to sell at a loss and if you are buying you dream home to live in till things straighted out - go for it

This is truly on a case-by-case basis and you have to look at all the numbers. If you have the income to move up and handle the new payment, it could probably well work for you. Because if you are waiting for your house to increase in value to afford a better more expensive house, won't that house also probably increase and you still won't be able to afford it? Many people need to sit tight.

Daniel I love your excitement and enthusiasm. I wish all buyers could see the opportunity out there.

You make some excellent points here. It's very important to point out the positives and back them up with stats. Yes, there are many who are not in a position to take advantage of the opportunities in the market right now, but there are those who are who are in a totally negative mindset who are not just receptive to looking at opportunities they may be missing. Your approach is positive and much needed.

The idea of saving money on taxes makes sense here in California with Prop 13 being part of the equation.

I think there is a lot of opportunity for move up buyers right now, and I think you've pointed out several of them.

Great dream and ideal ... however not very realistic for most!!

DEC

2009

The math seems a little fuzzy to me. If you lose $300,000 on the condo and only gain $280,000 on the purchase and appreciation of the larger home that still is a net $20,000 loss, not counting the transaction costs involved.

You alao have to assume that the $300,000 of cash lost in the sale of the condo was not cash that they needed to make the down payment on the new house.

Daniel I have a seller in this exact situation and I was trying to explain these things to him just the other day. Good information.

Daniel, In every market correction opportunities are created and those who can seize them. There will always be those who say I wish I had bought when i had the chance.

Daniel, thank you for your thoughts on this, brilliant! It is also amusing to read the comments on this blog, I believe that attitude is a determining factor in someones success

I was actually in a class yesterday and the speaker was talking about this at great length. Looking at it the comparison on the chart makes sense.

Ty (#102) - that's really a great point! I've been reading the comments to my post and there are really some interesting ones! I do believe that as agents, our Attitude, Approach and Expectations account for 90% of our success.

I truly dont want to burst anyone's bubble, and you're blog was so inspiring I had several light bulbs going off at the same. The bottom line though is this: a homeowner can only do that if it is not a short sale situation. The reason is, lender restrictions to purchase a new home once a short sale goes on your credit report.

Thanks.

DEC

2009

I tell my clients this all the time. In fact, I am not just talking the talk - I am in the process of "upgrading" as well! Congrats on the feature.

DEC

2009

Interesting comments and all have value. I enjoy reading them. I think if you are 'risk adverse' then you are not going to be doing what you are suggesting and as you say your clientelle are likely to move forward with your choices. I prefer to see buyers buying what they can realistically 'afford' right now and in the near future, and waiting to see what happens with the economy. Another post indicated that the average 1st time buyer is 44 years old - so old enough to have some wisdom yet fairly old to be buying their first home. Much to ponder...keep the posts coming.

DEC

2009

I have always believed that this is the perfect market for moving up if you can afford to. Its true that when you're in a good place, good things come to you. The opposite is also true, at least for the short term.

DEC

2009

Hello Daniel,

Terrific post! Thank you for sharing it with us. You made some excellent points.

Chris

Daniel

Awesome post - I have to re-blog - your points are good!! The numbers with your example actually work in my market too!!

Happy New Year!

Thanks all, for reading the post, and for the great comments!

I think it's been pointed out a few times that this only works if you can afford to do it and it fits your situation. I concur with those thoughts.

Also, I have a few of these "trade-up" clients about to complete the tail end of the transaction, so I will be posting some "success stories" as soon as we close.

-- Danny

Daniel,

It is impossible to argue that by selling one house today and buying a more expensive one at today's prices, (whatever difference that might be) that you are making a profit. The definition of a profit is a positive monetary gain after subtracting expenses. If real estate prices appreciate then you will make a profit when you sell. Using the kind of logic found in your first point is what got us into trouble to begin with. Theoretical profit doesn't pay your bills! Points 2-5 I like. Again, I know it is tempting to believe in point 1, but the fact is there is no profit now.

JAN

2010

Hello Daniel,

Terrific post! Good information and points about now being a great time for homeowners to move up! Thank you for sharing!

Chris

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?

Danny Batsalkin | Los Angeles Real Estate | 310.623.8711

Los Angeles, CA

More about me…

Rodeo Realty

Address: 202 N. Canon Drive, Beverly Hills, CA, 90210

Office Phone: (310) 623-8711

Email Me

CA D.R.E. LICENSE #01421366

Listings

Links

Archives

Find CA real estate agents and Los Angeles real estate on ActiveRain.

Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.