How To Buy if You Already Own

A challenge that many current homeowners face is that they do not want to sell in this market because of how bad a market it is for sellers. Many people need the profit from their current home to be able to afford to buy another one. This is not so much a challenge, as it is an opportunity, if you have equity in your home and you know what to do.

Get a low interest rate home equity line of credit for the home that you are in. There are many opportunities for getting great home equity loans right now with no closing costs and outrageously low interest rates. I recently got a home equity line of credit from Regions bank. It is a variable rate- no, variable rate is NOT a bad word- it can be a fantastic opportunity as long as you choose the right kind of loan at the right time. I purchased my current home with a variable rate loan from Suncoast bank while the interest rates were already low and I’m currently paying only 4% on my home loan. Then, last year during these very low rates, I got a home equity line through Regions bank and that loan is interest only payment for 20 years (I pay more than just interest by choice, but it’s good to have the option when it’s a tight month) and my interest rate is now down to 3.75% !!! A $75,000 loan only carries a payment of less than $200/month!! You can actually purchase a home for less than $75,000! You can use the money from the HELOC in these ways:

1) Take the full amount of the loan and buy a smaller home. You can get a 3BR house starting in the 30’s, though the ones for at least $50K are more realistic investments. You could rent it out for 4 years with a cost of only $200/month toward your loan and maybe $250/month to taxes and insurance. Depending on what you buy, there’s an excellent chance that you can DOUBLE your investment within 2-4 years just in the equity of the sale!

2) Take money from an equity loan and use it toward the down payment on your dream home. Maybe you’re ready for a larger house or you always wanted some property where you could keep a horse or you want to retire on the beach? Keep the house that you’re in as an investment and rent it. Though you may not make much or any profit from the rental, you’ll make plenty of money when you sell in a 2-4 years and you can still claim the interest on both loans against your taxes.

3) Spend it on a vacation home. This is my favorite option. Beach properties are opportunities for short-term rentals- people visiting for a week or a month. This gives them higher income opportunity, allows you to use them yourself at least a couple of times a year, and qualifies for a second home tax credit. These buys will certainly balloon when values go up, making a tidy profit!

If you’re curious about such options, let me know and I’ll be happy to give you some guidance and point you to decent resources. If you do decide to get an equity loan so that you can purchase something else, let me know. I don’t do loans, but I can get you some good comps for the appraiser so that he values your current home as high as possible.

Another option, depending on how much equity you have in your home, would be to sell now at the lower price because of how much you’ll save on your new purchase. I consider this a less desirable option because of the missed opportunity for investment, but it’s still an option. As a non-short sale/ no foreclosure home, you’ll still have to compete with the prices of distressed sales, but your home will be more appealing to buyers and realtors because they won’t have to deal with the short sale process. If your home is currently worth about $225K, but you could get $300K in a couple of years, that’s down $75K, but you could possibly get a home at ½ its value (now only $250k, but later would cost $500K), so that would be a savings of $250K and a huge savings at the current interest rates. Even after you subtract the $75-$100k that you might be losing to sell now, you’d still be more than $175K ahead, not including the interest rate. Current rates are hovering at an unbelievable 4.78%!! To put that into perspective: If you owe $200K on your home loan, and you were paying a comfortable 6.5% (historically, this is a LOW rate), your principal & interest payments would be $1264.16/month, when compared with the current 4.78% which yields principal & interest payments of $1046.91/month. That’s a savings of $217.25 each month and $78,210. over the life of the loan!! If you were to keep this house until it’s paid off, that would bring your total savings (minus the $75K lost to selling in a down market) as high as $253,000. That’s more than the $250,000 you’d be paying for it in the first place. The drastic changes in the real estate market have illustrated very clearly that timing is everything. The economy is bad, so many people don’t have the option of buying. If you do have the option of buying, it’s foolish to wait.