Move-up means to sell your house and buy a more expensive one. Just a couple hundred thousand dollars can make a huge difference in the type of property you get in Los Angeles.
Many homeowners who have owned their home for a while have equity built up from appreciation and paying down their mortgage. They might consider taking their equity in their current property and using it to move-up to a better neighborhood, a bigger house, or a better school system. It’s a good idea to hold onto your property at least two years before you move-up to take advantage of the capital gains exemption.
For most people, their home is their best investment. Increasing your investment in your home by moving-up can be smart business.
Is it better to Move-up or Remodel/Add on?
If you want to change your neighborhood, then move-up is the only option. However if you like where you are but just need more space (extra bedrooms, family room, guest house) Remolding/Add on could be smarter- here is why: when you move-up you have to pay closing costs. Seller side closings costs are approximately 7% of total sales price when you sell, plus an additional 1-2% of purchase price buyer’s side closing costs on the upleg property. This gives remodeling an 8-9% handicap versus Move up. In my experience you can build new for fairly reasonable cost. The downside to Remodel Add/on is that your house will be a construction site for two or three months which can be a real pain! Remodeling costs aren’t as easy to finance as a new purchase- your best bet would probably be a home equity line of credit to use some of your equity to fund the construction cost, or cash if you have the available cash to cover the construction cost.
To determine which is better, ask your real estate agent how much your home is worth, look at the price of homes you would want to buy if you moved up (are they better than your house?), and get a few bids from construction companies for the remodel and see how it all adds up.
What is my move-up price range?
When you move-up, your expenses increase because you have a bigger mortgage and higher property taxes. Many move-up buyers are ready for higher expenses, because they are established at their jobs and making more money than when they bought their current home.
It’s probably not worth the hassle of moving-up unless you are getting a big upgrade on your current living situation, or you have no choice! Moving-up can be a real pain because you have to sell your house and buy another house so the sale timing is very important. I would start by setting a budget you are willing to spend and talking to a lender. Lenders are very helpful about this kind of stuff. Also ask a real estate agent how much your home is worth, and how much proceeds you would net on the sale. Add to the sale proceeds, any extra savings you are willing to through in and you will know your Move-Up Price range.
Proceeds of Sale + Any Extra Money + Max Loan = Move-Up Price Range
When you spend more, you expect to get more- so the properties you are seeing in your price range should be getting you excited to pull out those moving boxes!
When is the best time to move up?
I have ran the numbers for different market conditions and there isn’t a significant difference, so it really doesn’t matter when you do it. The real estate market moves together more or less, so if you’re property is going up, the move-up house is going up too. If you’re property is going down, then the move-up house is going down too.
|Prices Going up||Sideways||Prices Going down|
Most buyers move-up when the market is going up (sellers market). This is because the increasing prices are creating equity quickly, which is needed to buy up. Also, consumer confidence in the economy is high, and unemployment is low so buyers are willing to take on larger expenses.
I am ready to move-up, How do I do it?
The first question I always ask is: can you buy before you sell?
If the answer is yes, then you have it easy. Go buy the property you want, then put your house up for sale afterwards or rent it if you want to keep it. You might have to make a few double mortgage payments but all in all this will be pretty stress free.
For most of us, we are not in a financial position to buy before we sell. If you can’t buy before you sell, then you have to list your home for sale.
Here are some tools you have to help you make a smooth transition from your old house to your new home:
The seller leaseback is the most popular option when moving up. You essentially rent your house back from the buyer after you sell it. What is good about this, is that your house has closed and you have the money, so when you write offers you do not need a contingency on sale of other property, which will make your offer a lot stronger, and you have a place to live while you are looking. Typical time periods for a seller leaseback are 30-60 days, and the rent is usually the buyers holding cost.
-Write offers with Contingency on Sale of other property (COP)
In a buyers market, sellers will be desperate for an offer so there is a good chance you will get your offer accepted with a COP even before your property is listed! The opposite is true in a sellers market. Unless your property is in escrow and all contingencies are removed you won’t stand much of a chance in multiple offers with a COP.
The farther you are along on the sale of your other property the stronger you offer with a COP will be:
-Not Listed Yet
-In Escrow and all contingencies have been removed (you may decide to not include a COP in your offer if are here to make your offer stronger)
–Longer escrow period
Instead of 30 day escrow, you can ask for 45 days or 60 days when you are accepting an offer on your current home. The longer escrow period will give you more time to look, the only disadvantage is that you don’t have the money yet. You can combine a long escrow period with a Seller Leaseback to get even more time.
Get a Bridge Loan
I don’t know much about bridge loans, talk to a lender about this option.
To sell and then buy requires a leap of faith. Because of the delay between deciding to sell your home and when it sells- you won’t know what houses will be on the market when you are ready to buy. Some sellers worry that they will have to settle for less, or overpay, or be homeless! Most houses can be improved so I wouldn’t worry to greatly. You might indeed need to overpay to get a property, but this is hardly ever more than 4-5% at worst. As for being homeless, if you are unable to find a property to buy, you can always choose to rent for a while.