Timing Matters (But Not The Way You Think)
Is there a right time to sell your property? Yes, but maybe not exactly when you thought it was. More than anything, timing the sale of your home or investment depends on what you plan to do next. Depending on your longer term plans, different spots along the moving graph of market performance will either save or cost you money, regardless of the sale price of your currently owned property. Here’s why:
Even the most sophisticated sellers can become hung up on their absolute selling price. Unless you are exiting the market, however, your selling price is not a relevant number. The relevant number is the DIFFERENCE between what you sell for and what you buy for. As a smart buyer, you want that number to be as small as possible when you are trading up. And as a smart seller, you want that difference to be as large as possible when you are trading down. To say it another way, you always want to trade up when the market is slow and depressed, and you always want trade down when the market is hot and frothy.
Here’s how it works: you always need to contemplate your next trade in terms of the percentages. If you currently own a two bedroom, but you need a three bedroom, a little research will usually indicate how much more in percentage terms you will need to spend. Will it be 30% more, or in order to get what you want do you have to spend 50% more? Once you have that figured out, then it’s just a matter of the numbers. If the market is hot, and your current place comps out at a value of $2,000,000, then the next place at 50% more will cost you $3,000,000. But if the market is down 10%, your current place is only worth $1,800,000. Which means that your new place will cost you around $2,700,000. See? Without doing a thing except for trading up in a down market, you have saved yourself $300,000!
Of course, the opposite holds true when you trade down. Let’s take the same example but look at it the other way. Your current two bedroom is worth $2,000,000 because the market is hot, and the one bedroom down to which you want to trade is worth 70% of that. You are putting $600,000 in your pocket with the trade. If on the other hand the market has dropped 10% and your current place is only worth $1,800,000, then the cost of your new place will be around $1,260,000 and only $540,000 goes into your pocket.
Success in the market does not always mean obtaining the highest price for what you currently own. It can equally well mean paying the smallest increment for what you want to buy next. Figure out the final impact on your pocketbook in terms of dollars saved or dollars earned after the dust settles on both a purchase and a sale – THAT is when you will know whether or not you made a smart deal for yourself.