Buying or Selling a Home/selling and buying a home

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Expert: - 7/5/2009


Question
I own a home with a lot of equity...say it is worth 100,000 and I have 75,000 in equity.  I plan to buy a new home worth 120,000.  What should I consider when I make a decision about how much of a downpayment to make on the new home?  Is it silly from a tax standpoint to simply roll all the equity to the new home?  Or I could put 20% down and invest the balance (carefully!). What aspects of this should I be thinking about?

Answer
Hello Am - First, the disclaimer! This question should be asked also of a financial planner, tax CPA, and possibly a real estate attorney so that you can receive proper advice from all sectors being effected by this proposal. I am not an attorney, CPA or financial planner so this information is directed at real estate ownership thus falling under my domain. If the home you own now has been your personal primary residence for 2 out of the last 5 years then the property qualifies for capital gains exemption, so your equity would be federally tax exempt up to $250,000 single, $500,000 married. Obviously in this case the entire $75,000. The advantages of real estate investment will depend on a number of issues... qualification for new primary residence financing incl down payment requirements, settlement fees, etc; your financial planning objectives; and from a real estate perspective property investment options and property management concerns. The best opportunities for gain come have historically come from real estate, and the best returns come from when property has been acquired during times of economic downturn. Not all property is a good investment... but even you personal residence should be considered an investment as long-term ownership tends to result in better returns than with most other investment avenues. I recommend you discuss real estate with a local 'REALTOR' who can demonstrate experience not only in residential properties but personal real estate investment of their own. From a cash perspective you need to decide between the different payment and down payment options looking at how much the payment differs with the larger down payment... if you plan to hold the home for many years then you may even consider paying 'discount points' to reduce the interest even further... to determine if this is a good option divide the cost of the discount points by the monthly savings and the result will be the number of months before your discount point costs equals your savings. from this date on you are benefiting by the monthly savings, but up to that date you are repaying yourself and their is no realized benefit yet. Of course, if you decide to sell before this date then you wasted some of the amount you paid to reduce the interest rate because you sold before you reimbursed yourself. Finally, and there are many additional considerations, for the purpose of this reply you should consider buying in a buyers market. This is when the days supply of homes is in excess of 6 months. Today, we are experiencing a 4-6 supply, although by August additional Bank Owned (REO/Foreclosure) inventory will once again increase the number of available homes on the market. This will increase the months supply of homes in many markets to above 6 months creating buyers markets. Usually prices recede due to competition making it a better opportunity for those who can qualify. As indicated there are other concerns that professionals each in their specialty can offer objective information and answers. I hope this has helped. - Todd

Buying or Selling a Home

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Todd C. Menard

Expertise

National Association of Realtors Code of Ethics and Professional Standards * Contract Questions: 05/05 Arizona Real Estate Purchase Contract, Exclusive Buyer Broker Contracts, Listing Contracts and associated contract documentation as it relates to boilerplate, covenants, contingencies, procedures and procedures. * ARMLS Arizona Regional Multiple Listing questions * Real Estate Professional Standards and Practices, Ethics, Obligations, Duties * Agency relationships in Arizona, Procurring Cause * Questions typicaly arising during the listing period * Questions typically arising during the escrow period * Questions about working with a real estate agent/REALTOR * Questions Related to New Home Builders

Experience

National Association of REALTORS Board of Director (2011) Arizona Real Estate Salesperson License (1991-1995), Arizona Real Estate Brokers License (1995-Present), Arizona Association of REALTORS Board of Directors (2008-Present), Arizona Association of REALTORS Professional Standards Committee (2008-Present), AAR Certified NAR Code of Ethics and Professional Standards Instructor, Southeast Valley Regional Association of REALTORS President-Elect (2011) Southeast Valley Regional Association of REALTORS Board of Directors (2008, 2009), Southeast Valley Regional Association of REALTORS Grievance Committee Chairperson (1998-2007), Southeast Valley Regional Association of REALTORS Bylaws Committee (2008-Present), Southeast Valley Regional Association of REALTORS Education Committee (2008), Arizona Association of REALTORS Forms Committee - Residential Purchase Contract (2005), Arizona Association of REALTORS Forms Committee - Residential Rental Agreement (2008), Arizona Association of REALTORS Forms Committee - Buyer Broker Agreement (2009), Arizona Association of REALTORS Presidents Advisory Group, Road to Professionalism (2009), Arizona Association of REALTORS GRI Curriculum Review Committee (2009), Arizona Department of Real Estate, Commissioner's Education Advisory Group Sub-Panel B (2010) Arizona Department of Real Estate, Commissioner's Statute and License Review Committee (2007)

Organizations
National Association of REALTORS, Arizona Association of REALTORS, Arizona Real Estate Educators Association (AZREEA), Arizona Regional Multiple Listing System (ARMLS), American Notary Association, Southeast Valley Regional Association of REALTORS (SEVRAR), Southeast Valley Regional Association of REALTORS Women's Council of REALTORS (2010-Present), Phoenix Association of REALTORS (1994-2000, 2005-2009), Scottsdale Association of REALTORS (1994-2000, 2005-2009), Maricopa/Glendale Association of REALTORS (1994-2000, 2005-2009),

Publications
"Real Estate in 2008"- Lifebushido Publishing (Contributory Author), SEVRAR Magazine, Internet Crusade, RealTown ListServe, Blogger.com, Active Rain

Education/Credentials
- AAR Certified Ethics and Professional Standards Instructor, Graduate REALTOR Institute (1993), Certified Negotiation Expert (CNE), Over 100 Hours of annual real estate continuing education, Annual Ethics and Professional Standards Development Workshops as required by the National Association of REALTORS, Approx. 36 hours of NAR Code of Ethics training annually, Numerous IDW, Seminars and Train the Trainer programs, Business Management Degree - 1981

Awards and Honors
2009 REALTOR of the Year Award, Southeast Valley Regional Association of REALTORS (10,000+ Members), Double Platinum Production Award ($45,000,000 Sales Volume)- Keller Williams Realty Int'l (2001), Top 15 Sales Production Keller Williams Realty International (2001), Top 5 Sales Producation Keller Williams Realty Southwest Region (2001), Top Recruiter Award - Keller Williams Realty Int'l, SW Region (2002), Who's Who in U.S. Executive (1983), Who's Who in U.S. Real Estate Professionals (2007)

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