When should you buy or sell your New York City home. It all depends on your plans. The best strategies depend on inventory, the overall state of the market, and whether you want to trade up or down. Here’s how to do it like a pro (although many of the pros haven’t figured this out either):
If you are living in a smaller property than you want, and you feel ready to trade up to something larger, you should plan to do it in a down market if you can. Many sellers who are planning to buy as well as sell become hung up on the price they will receive for their property. But the truth is, it doesn’t matter in and of itself. All that matter are the incremental dollars between the price of what you sell and what you buy. And those dollars are always smaller when the market is slower.
- Say you bought your 2 bedroom apartment four years ago for $1,500,000. Now you need something bigger. The next apartment size up will cost you about 33% more than your apartment is currently worth. So what is better – to sell your apartment for the same $1,500,000 you bought it for and pay 1/3 more, or $2,000,000, for your new, bigger home, or to make a solid 20% on the sale of your current place, for a price of $1,800,000 (how satisfying!) and pay 1/3 more, or $2,400,000, for that new, bigger place? One way you make nothing on the sale of your old place but pay a $500,000 premium to trade up. The other way you get a big premium for your old place because of the rising market but the new place costs you $600,000 more. You decide.
- Precisely the same logic in reverse applies when you are trading down. The big apartment where you raised the kids will provide you with more actual dollars in your pocket if you trade to a smaller place when the market is high. Here’s how it works – you sell your big place for $4,000,000 and spend ¾ of that amount on your new place. You pocket a cool million (at least you would in that paradise on earth where there are no capital gains taxes.) If, however, the market becomes less strong and you have to sell the big place for 10% less, or $3,600,000, then you are paying ¾ of that amount, or $2,700,000, for your smaller home. Only $900,000 in your pocket.
Of course, other factors are always at play. Switching neighborhoods can change the dynamic, since the micro markets of which our city is increasingly made up can vary substantially in price. And of course the laws of supply and demand always apply. Selling out of a neighborhood with very little inventory, thus driving prices up, and buying into one with a lot of inventory, which drives prices down, can also improve your outcome.
This is where your broker comes in. A smart and experienced real estate professional should be giving you advice about this and the many other factors which can affect the timing of your buying and selling decisions. Do you have one?