Perhaps you’ve been thinking about “moving up.” Although your current home has served you well, you know that you could use some more space, a different area, or better functionality. The real estate market in our area has been challenging for the last few years. Inventory issues, multiple buyers competing for the same home, and now an increase in interest rates may have you wondering if you missed your window.
However, would you believe that now may provide you with the best opportunity in the next few years to move up? “How!?” you ask? Let me show you the math!
Let’s say you bought your home in 2007 for $300,000 and, with appreciation, the market value is now $475,000. You have about $200,000 in equity and are paying 4.5% interest since you refinanced in 2016 (which would be similar to your rate today if you acted quickly). But your needs have changed, and the type of home you want is closer to $600,000. Although there will be a lot of buyers for your home, there are also a lot of buyers for the home you want to buy. What is the best option?
Here is where the power of leverage comes into play. You have $200,000 in equity. Is it better to keep that equity in your current asset (your home) or trade up? Take a look at the table below. I have even factored in 7% in closing expenses for moving in the “trade up” column.
Although your monthly principal and interest payment will be higher, the ending projected equity at year ten is $87,361 higher for the trading-up scenario. Why? Higher-valued assets appreciate faster – all other factors being even.
To make this simple, let’s say one house was valued at $10 and another at $20 and both appreciate at 10% per year. After year ten, the first house is worth $27 while the second is worth $54. The second house enjoyed twice the appreciation because its beginning value was twice as much to start with.
Of course, I have made generalizations here and properties don’t always appreciate equally, but people increase their net worth every day due to the power of leverage. Don’t worry about the market – strategy can help you land the right home before interest rates creep higher.
Unsure about the math or want more examples? I’ve got plenty of them. Just give me a call or text at (360) 410-1297 or send an email to Jerry@JerryBlankers.com. I’ll crunch the numbers to show you how moving up may actually do more for your net worth
than remaining in your current home.