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Real Estate trading up for a better house in the down market

Discussion in 'Real Estate Investing' started by ryanpal, Aug 1, 2007.

  1. ryanpal
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    ryanpal Contributor Read Millionaire Fastlane

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    Hey guys,

    The post I made before triggered some other brainstorms, so I figured I'd try to get some feedback here.

    The two year mark for living in my home will be coming up in Feb. I like the mindset of selling your home every two years so that you can avoid capital gains (i think james smith said this).

    Anyway, it occurred to me that I could potentially take advantage of this downward market. I figured, hey, this is a great opportunity to be able to fish out some motivated sellers who's home(s) have been on the market for quite some time and would desperately like to sell.

    My thoughts before I fell asleep last night were "Hey, I could probably bargain a $400k/$375k home for around $350k (FMV of my current home)". This is the FMV of my home 2 years ago.

    When I woke up this morning, I felt stupid, I neglected to realize that my home has decreased in value just as others have (yes I need more sleep).

    However, I do believe I could work something out along these lines. Since I am not a motivated seller, perhaps I could put my home on the market and just sit on it until I can get the price I want. I could then negotiate current prospects of nicer homes in attempt to get for the same price. The obvious idea here is to obtain a better home for the same price.

    Now having read the above novel, I'd like to hear some thoughts you guys have that could help accomplish what I'm trying to do. I'm open to all types of creative deal structuring etc.

    :cheers:

    Ryan
     
  2. SteveO
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    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    All you need to do is sell at market and buy well under market to get yourself in a better position.
     
    Enki likes this.
  3. biophase
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    biophase Legendary Contributor I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    As Steve said, put your house on the market at FMV along with the other thousands of homes. If someone happens to want to buy it that's great.

    Then you can go shopping for nicers houses at the same price!

    What is your definition of trading up? Are you looking for a bigger home? a better neighborhood?
     
    Enki likes this.
  4. ryanpal
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    ryanpal Contributor Read Millionaire Fastlane

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    guess thats all there is too it.

    biophase,

    my definition of trading up would be in the same area but a bigger home..thats all ;]
     
  5. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    objective

    Ryan,

    What is your objective?

    Do you want a new residence, or is this simply an investment strategy?
    Do you have a long term REI plan/goal?
     
  6. ryanpal
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    ryanpal Contributor Read Millionaire Fastlane

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    AroundTheWorld,

    I guess it depends on how you interpret it. As most investors believe, your current home is a liability, not an asset. This is going by the "assets put money in your pocket" rule.

    I figured since I purchased my current home at quite a discount, why not gain some benefit from selling this home now. Why not sell your home every two years if you can avoid capital gains and obtain a better residence. While "trading up" wouldn't be an immediate investment, it might be considered a long term one? It seems like a good way to obtain better homes from leveraging the 2 year capital gain law.

    ---

    My longterm REI goal seems somewhat scattered at the moment. As a matter of fact, it would require a seperate post which you just gave me the push to do so :)

    Ryan
     
  7. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    Some food for thought...

    If your goal is to live in a bigger, and bigger home - then trading up every 2 years could work - given you are selling at FMV and buying at a discount as others mentioned. Live where you are happy.


    If your goal is to ultimately get into multi-family you don't necessarily need to take advantage of the 2 year thing...

    You can live in the house for a year or two, while you rehab, etc. Then, rent it out (assuming cash flow would be okay). Let your equity sit, build as renters are paying down your loan.

    When ready, you can 1031 these properties into your multi-unit and still not have to pay (right away) your tax bill.
     
    Enki likes this.

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