I own 400 shares of Intel stock. On August 31, 2000, this stock reached its all time high: $74.87 a share. Today it trades at around $25 a share. Do I wish someone would have told me to SELL THAT STOCK while the value was still this high (and then buy it back when it plummeted to twenty bucks a share?) Is it possible we may look back some day and regret NOT CAPTURING THE EQUITY WE HAVE IN OUR HOUSES NOW? Should we all sell our real estate and wait out the storm as (gulp!) RENTERS??????
Yesterday, I was invited to a workshop being given by a respected colleague of mine. It will be presented to MOVE UP BUYERS in our area. He is proposing exactly this: buyers immediately sell their homes, bank their equity, and RENT while they wait for even steeper declines in real estate prices.
Final step in this plan is to swoop in when values are lower, and buy better real estate at a deeply discounted price, and much lower rates. Is the market is ripe for this strategy?
- He believes real estate values will continue to go lower, causing equity (and net worth) to erode further
- He believes RATES will be lower
- Renting most likely will be cheaper than buying. In California, the house that rents for $2000 would have a payment of AT LEAST $4000 (not to mention the hidden costs of upkeep) As people fail to sell their houses, the supply of rental houses will grow, causing rents to remain low.
- This solves the challenges of refinancing out of adjustable rate mortgages when jumbo loans are expensive and stated loans have very tough guidelines.
- This allows the client time and money to pay off credit cards and re-work their financial lives to be able to have higher credit scores, and income that can be fully documented (right now this is the gold standard for mortgage applicants)
- This allows the client a clear cut path to getting into a better neighborhood, and the ability to assess the area before buying. My colleague is suggesting the client immediately RENT in the neighborhood they have targeted as their move up dream.
Part of the plan is they bank their equity in a safe place with a return of about 5%. That they use the difference between house payments and rent payments to pay off other debts (cars, credit cards). He is also offering to refer them to one of his trusted real estate partners to list their home (and eventually buy another), and to assist them in positioning themselves to get the best mortgage when they do buy again.
When housing prices get lower within the next 2 years (before the client loses the ability to defer the tax from gains on their residence), he believes these clients will be able to buy a new residence getting both a better buy on the real estate, and a lower rate on the mortgage.
An interesting twist on this whole strategy is that my colleague is offering a long term strategy that carries no immediate gain or commission. I believe this adds credibility to his proposal.
The emotional side of me says a home is NOT a technology stock. That owning a home is so much more than an investment decision. That you ride out the storm and continue to pay for the leaky roof, patch the lawn, enjoy the tax deduction, and accept that these cycles occur. In the long run, real estate always appreciates. There is a value and a satisfaction in owning a home that transcends investments strategies. But.....
The business side of me says much of what he has proposed makes sense.
And what about that tiny little voice somewhere deep in my head that says being a renter for a little while just might be a delicious freedom? What do you think?
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hind site is still 20 /20 and will never change, but sometimes we must go with our guts.