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Client wants to maximize as a BUYER AND SELLER in this market, what do you suggest? Mortgage Brokers pipe in please....

By
Real Estate Agent with First Coast Sotheby’s International Realty

 I have a client who is lucky enough to have No Mortgage on his current home.  He wants to maximize his buying power and move up in property in this buyer's market.  His goal would be to sell his current home and pay cash for the new home.  BUT the flip side is that he needs to sell his current home, in that SAME buyer's market, which he is less likely to get top dollar. 

I suggested renting it out for the next 1-2 years to see where the market goes, but the downside of that might be A) what if the market further declines and 2) he would then have to take out some sort of a mortgage on the  new home....  Both homes are single family residences in the South Florida Area, so while we are experiencing a slightly declining market, it still isn't the big drop off that the new luxury condos are seeing....

 

Big note of qualification: the client has horses which are NOT able to be kept at his present home so he currently is paying boarding costs elsewhere. All homes he is considering are large enough to accommodate his horses, thereby eliminating the boarding cost. 

Sooo what would you all suggest that would allow him to get into his next home while the price is right, but still maximize on the sale of his current one (or hold)....

I am open to suggestions....

Thanks for your input, Janie

Janie Coffey
Owner/Broker, GRI, TRC, QSC
cell: 786-252-4970
email: janie@papillonllc.com

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Comments (12)

Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Janie, That's a very good question. Your market is very much like mine and I don't see things changing for at least a year or two. I do see it getting worse before it gets better. I have sellers in the same position and my suggestion is for them to decide how bad they want to move. If moving is a priority then they are in a very good position since they can price right to get it sold. Not having a mortgage is a major advantage right now since so many folks are top heavy and can't price right. Sell it and then negotiate from the strength of cash on the purchase. 
Sep 24, 2007 09:57 AM
Linda Scanlan
A Fan of AR - Burleson, TX
Janie - That's a good and bad position to be in. I agree with BB...see how badly they want to move. You always run the risk of the place getting trashed when you lease it out.  Good luck!
Sep 24, 2007 10:41 AM
Aziz Abdur-Raoof
RE/MAX Rewards - Columbia, MD
Howard Co. Real Estate Scoop

Janie -- sell current house and buy two  or three others with 20% down on each.  Actually, what's the long term goal of your client?

Good thing is your client has CHOICES.

 

Sep 24, 2007 10:50 AM
Katerina Gasset
The Gasset Group & Get It Done For Me Virtual Services - Provo, UT
Amplify Your Real Estate & Life Dreams!
Janie- The market in Miami is going to decline until the end of 2008. If he buys now he should only take out  a down payment on his home he owns free and clear. If he buys while owning his home, he needs to buy 20 to 30% lower than what the current market value is. I tell all our sellers that if they do not NEED to sell, don't. If they can hold on for 5 to 8 years do so. If he wants to invest, well, I never suggest using your primary residence to gamble with. That is how this whole mess started in the first place. Katerina
Sep 24, 2007 01:09 PM
Beth Butler
Beth Butler - Big Mouth Consulting - Miami, FL
Janie - it is a good time to buy - there are real values out there.  I think I would go with the rent the current property and borrow on the new one scenario.
Sep 24, 2007 03:36 PM
Sandi Bauman
Chico Homes Real Estate - Chico, CA
Chico CA Realtor
Janie-  I'm thinking along the same lines as Beth....  rent the current property out until the market turns around.  Take a 20% down out of the equity out on that home,  and borrow on a house that is a great deal. If he does it right, his rental payment will take him a long ways.  When the market turns, he can sell the first house.
Sep 24, 2007 03:48 PM
Brandon Hoffman
RE/MAX Connected - Irmo, SC
Eat it when he sells, make up for it when he buys. You can't always have your cake and eat it too. The alternative is taking out a mortgage and rent the current home. Not such a bad choice but then he runs the risk of replacing carpet, new paint, and possibly more on the rental home. Of course, no mortgage could make it a great long term rental property if it fits the bill. Use the income to pay the new mortgage and own 2 homes eventually. Personally, I'd take my last suggestion but it's not fore everyone.
Sep 24, 2007 03:49 PM
Janie Coffey
First Coast Sotheby’s International Realty - Ponte Vedra, FL
Uniting Extraordinary Homes w/ Extraordinary Lives

thank you Bryant.  I forgot to mention that one of the key reasons that he wants to sell is to be able to have his horses on his property rather than board them, so there are also other financial advantages of not selling.  All cash is a big negotiation point for sure!

Linda, good point, renters don't always have the "house pride" that owners do

Aziz, your option would be mine!, but his goal is simply to have a mortgage free house and live with his animals

Katerina, the new house would be the primary residence, it is so he can have his horses on his property, but you are right, don't gamble with your primary home!

Beth, good suggestion, selling now is certainly not advantageous if he doesn't have to.  But what a great position to be in when you can choose!

Sandi, as long as he sells it within 3 years to spare the tax hit, he certainly would go along way with it!

Brandon, I would take your last suggestion also, but you are right, it is not for everyone, and I don't know if he would want to do it when I point out all the side effects, like you have (ie carpet, paint, etc) 

Sep 24, 2007 11:00 PM
George Tallabas
RE/MAX Advantage - Nampa, ID
Idaho Real Estate

Yikes Cowgirl - My biggest concern with renting is like you say, what if the market declines further and then you have to consider what repairs may have to be done to the home if the renters don't take care of it.  So you would then have a home that is worth less and repairs on top of that!

I would encourage my client to sell now even if it is for less that what he was hoping for because hopefully he will get an equally good deal on the replacement property.  I have seen too many horror stories from people renting out nice homes.

I hope all is well in your neck of the woods :-)

Sep 25, 2007 04:13 AM
David A. Podgursky PA
THE PODGURSKY GROUP @ Re/Max Direct - Boynton Beach, FL
THE PODGURSKY GROUP - Make the Right Move!

I like the idea of the client taking a hit on the house now to get the deal on the other home

there are great equity line prices that he could use from his first home to get into his 2nd

I don't agree with whomever said that you should only take the downpayment out.... you take the money out in whichever way you can get the best rate and that makes the most sense

the expense of the stable will be offset by the mortgage but if they really want the property where they can keep their horse close by then it just makes sense to try to get something now when prices are better

I don't agree with forecasting the market - this will happen in 2008, that in 2009 etc...

you're dealing with a niche property that does what it does... the condo market is hurting the entire market right now... if you separated the markets out then you'd see the real effect on each property type.

from my perspective as a mortgage guy, I'd just try to make the numbers line up properly on all financing no matter what they did

but underpricing the current house wouldn't be a terrible idea - especially if he's held it for a while and it really isn't his money

Gain on an investment is not real until it is acquired... so if his house comps for $700,000 and he bought for $200,000 he has NOT gained $500,000 until he sells the asset

so his gain is whatever the spread is in the ACTUAL sale and the purchase.... so is he going to be mad that he only made $400K? even if he buys his new house right??

Sep 26, 2007 08:47 AM
Carmen Offutt
La Rosa Realty - Altamonte Springs, FL
We have clients with similar choices to make.  I have giving them the 2 choices mentioned here.  Sell now and buy replacement now, or lease property now, sell later and buy replacement now.  In the end is going to be their choice, we can only give them the options but they have to decide what is more confortable for them.
Sep 28, 2007 04:03 AM
Martinelli Caputi
Martinelli Caputi & Associates, Ltd. - Warwick, RI
& Associates, Ltd.
That is a very tough position.  I agree with the previous commenters regarding the house pride issue.  Leasing a house that used to be "home sweet home" is another difficult position to be in.  However, if the renters are renting an entire house, there is a bit more pride there than if they were renting an apartment (in a multi-family) or a condo.  Again, I'm not saying that there is a no-trashing-the-place guarantee (no such thing!), but it's still better than most rental situations.  I've seen home renters make improvements that actually benefit the seller in the future.  Nonetheless, there is no guarantee that you will find a renter and no guarantee that values will rise by any date (although the end of 2008 is a good prediction!).  I would guage everything on how much equity you can steal with the prospective purchase.  Disclose every possible situation with the sellers and let them decide.  :)  Thanks for the comments Janie!
Sep 28, 2007 05:47 AM