Buying a Trade-up Home
You may need a bigger home because your family is expanding or because you feel too restricted in the space you currently have. You may have aimed too low the first time you bought and now you need more room and/or amenities. You may feel you have done so well at the low-stakes table, you are ready to play for more. You may be doing it for your partner. There are a thousand reasons why people need a better house than the one they have. One reason I would add is that it can be a very smart business move. If you trade up from, say, a $200,000 home to one worth $400,000, you can double your benefits in the expanding real estate market.
You can use the equity you have gained in your present home and any appreciation in its value as leverage to purchase a more expensive home. I suggest looking at your next real investment as soon as you became settled in your first home, because this bigger investment will require time. You will probably have to wait for your mortgage payments to gain you some equity, or for your present house to gain significantly in value, before you can act. Don’t look on this as a frustrating delay, but as a time in which to investigate, make contacts and learn.
Many people wonder whether they should trade up or renovate. You get to keep your present home if you renovate. On the other hand, you may have to live with ongoing construction for much longer than you initially anticipated. One way to help you decide what to do is to compare your house value with others in your neighborhood. If your home price is in the top rank, you probably should not renovate. You could spend a lot of money on improvements, only to find the neighborhood a ceiling to price appreciation.
Finding the right trade-up house is often a big problem. You’ve probably grown more particular than you were when you bought your first home. On the other hand, you are probably more confident now than you were then, and therefore more willing to act instantly when you see what you want. That is crucial in today’s market.
Once you buy, you need to quickly sell the house you are in. Timing your move from one house to the other can be tricky. For more on trading up, including the financial aspects, check out Chapter seven of my book Bubble Proof.
