We are hearing the same question over and over from sellers today: should I buy again right away or rent for a year or two before buying again? Before sharing our two cents, we must first answer “it depends” and ask at least a few of the many questions that you should consider in assessing your own personal situation:
- Are you going to take advantage of a 1031 exchange to offset any capital gains you might have from the sale of your investment property?
- Are you selling due to cash-flow reasons or financial distress?
- How much do you value “owning” your home and being able to call it yours?
- How long are you able or planning to live in your next property?
If your personal situation does not sway you in any particular direction and you’re looking for a more investment-oriented push, here is one way you might choose to look at your decision: sell to buy if you’re downgrading and sell to rent if you’re upgrading. (Important disclaimer: we’re intentionally staying away from a typical rent/buy analysis assuming you prefer home-ownership, as the original question suggests.)
Let’s chat about the underlying assumptions behind this theory.
- The lower end of the market has thus-far adjusted the most and quickest to the current real-estate downturn. It has been responsible for most of the transaction volume and inventory absorption we’ve seen to date. This is why this segment looks to have stabilized and, in some cases, is already showing signs of improvement. A purchase of a smaller property at a lower price-point may well be justified.
- The higher end of the market is lagging these trends, continuously hurt by today’s tight credit markets and sellers waiting it out. Further, higher end inventory is sparse and the last thing you’d want to do is rush into a purchase when you’re upgrading your home. With the rental market still struggling from its peak in 2007, it may pay to rent for a year and buy your time. You can therefore make the right decision on your new home from the safety of a rental. No worries, you won’t miss a market spike!