happy young couple buying a house for the first time and signing papers on closing day with agent

Buying a House in 2020? Here are 5 Things you Need to Know

Many people are wary of buying a property during the time of the down market. The usual tendency is to wait out and see how much farther the property prices dip. However, just as it is with the stock market, the more you wait for the prices to lower down, the more risk you run of losing out on a good deal. 

If the property market in your locality is undergoing a downtime, it is prudent that you invest in it. However, there are certain strategies that you must consider for a fruitful endeavor. In this post, we discuss in detail about buying real estate successfully during a down market. Read on to learn more about this.

The 3 Essential Strategies

Here are 3 crucial points to be remembered when you plan to invest in real estate in a down market.

  1. If you want to buy a more expensive home, then the down market is the right time for it. If you wait for the prices of the more expensive homes to fall further, you run the risk of increased competition. This can make those homes out of reach.
  2. However, if you can arrange for alternative housing after you sell your current home, then you can wait out for a couple of months. This will allow you to gauge where the market is going and perhaps cut a better deal.
  3. If you are planning to sell your existing place and buy a new one, then your best bet is to do it simultaneously. That way, your losses from the sale will be covered by the amount you save while buying.

Let’s Look at an Example

The best way to elucidate the above is through a simple and practical example.

1. Selling Your Current Home

Let’s assume that your current property is worth $350,000. However, since the market is at an all-time low, there are fewer buyers and more houses on the market. As such, you have to sell your house at a 10% loss, i.e. at $315,000. your “losses” in this transaction amount to $35,000

But, you probably had bought this house 8 years ago at $ 150,000. As a result, you are really $165,000 ahead (minus costs of selling) of the initial price you paid for the house.

2. Buying a More Expensive Property

Now, you want to upgrade your house and want to buy more expensive property. Going by the current market situation, you buy a $500,000 worth house at the same 10% discount. thus, you end up paying $450,000 and technically save $50,000 on the purchase.

3. Final Standing

When you look at your buying and selling numbers, you see the following-

  • Property sold at $35,000 loss
  • Property bought at $50,000 profit
  • The net gain is of $15,000 (discounting the cost of selling)

Overall, this does seem like a sweet deal, doesn’t it? You get a better home and you actually save some money along the way.

The Impact of Interest Rates

Considering the usual 20% down payment on an 80% conventional house loan, the principal and interest payments come up to the following-

  • $425,000 sales price, at 4.5% interest, payment- $2,413.
  • $450,000 sales price, at 4.0% interest, payment- $2,148.
  • $500,000 sales price, at 4.5% interest, payment- $2,533.
  • $525,000 sales price, at 3.5% interest, payment- $2,357.

While the monthly payments do not vary a lot from each other, the main difference is in the sales price. By opting for the house priced at $425,000 for a 4.5% interest over the $525,000 at 3.5% interest, you can save a whopping $100,000 on your transaction. However, if you wait for prices to fall further during the down market, you can lose the perceived value to higher interest rates. Hence you end up losing the optimum window of opportunity to invest in the market.

Final Thoughts

Understanding the market and the locality is essential when it comes to successfully investing in real estate during downtime. That is why, sometimes, it is prudent to take the advice of experienced professionals to help you decide after weighing in on all the pros and cons. At Signature Properties, we understand the requirements of our clients and help them make the right decision.

Contact us today for a free consultation if you are planning to buy real estate.

Real Reviews from Real Clients - Check out Zillow Profile

Zillow user Jamisonrp

Sold a Roxborough home in 2017

"Trish is amazing! Trish was my agent when I bought my home in Philadelphia, so of course I went to her when I was ready to sell. Despite an election and the holidays, she was able to have my house sold by the time frame I needed to move. Trish was always helpful with guiding me through the  process of paperwork, staging my house, and even went to my closing for me because I was out of town. She was always professional and incredibly knowledgeable about the market, comps, and finding appropriate potential buyers."

Zillow user Radcliffe Beverly

Sold a Phoenixville home in 2015

"Trish Puleo exceeded my expectations during the process of selling a home that was part of an estate. Since I was out of state, she offered to check on items and secured vendors to fix some repairs that were needed. She is responsive, knowledgeable, and thorough. She followed up on all showings  and got answers to questions from potential buyers even when I did not know the answer. I felt she always had my back especially with the settlement process since I was not planning on attending. I would highly recommend making Trish your partner in getting a house sold." 

Zillow user Abjkl

Bought a Phoenixville home in 2017

"We were first time home buyers who underestimated the details of what on the surface seemed to be a standard, as in everyone has the same forms and procedures and ethics, home buying process. Trish is an experienced  professional who brought with her calm sensibilities, timely and accurate communication, and complete knowledge of the requirements, timelines and paperwork. She was reassuring, helpful and on our side when we needed it most! Only wish we would have included her the moment we decided to buy a house!"

Zillow user Applescriptguru

Bought and sold a Phoenixville home

"Trish is an excellent realtor and property manager. She’s friendly, professional, honest, dependable, responsive, and knows the Phoenixville area intimately. We’ve been extremely happy with her services, and will recommend her to anyone."

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