Lock In Profit, Or Let It Ride?
QUESTION: Should I sell my home to trade up?
I purchased a brand new condo a year ago and got a great price compared to others on the market. The neighborhood is quickly changing and property values should continue to rise.
My neighbor just sold a similar condo for over $100K more than what I paid a year ago. Assuming that I could sell for that price, would it make sense to take the profit and purchase a new home ($100K more than my current home)?
Your decision of whether to hold or sell will be based on a few factors:
3. Purchasing power
1. Past Appreciation
A quick and easy method will be to use a free online tool, but these can often be incorrect by up to 30%, so make sure you check out at leat 5 to 10 different sources. The most accurate pricing methods will always be to request a Comparative Market Analysis (a "CMA") from a local valuations expert.
You'll also want to know how hot the market is by calculating the neighborhood's absorption rate.
Your absorption rate should also be found in a CMA, or you can find a local specialist to request a free CMA here.
2. Future Appreciation
To understand whether the market has topped out or has room to grow, you may want a local expert to answer a few questions for you.
Are new homes, apartments, or transportation hubs being built?
Are there new stores and companies relocating to the neighborhood?
Are developers or investors making large investments in the neighborhood?
This information is usually found in the CMA, or you can also purchase reports online which estimate a neighborhoods future appreciation or risk of decline.
3. Purchasing Power
Lastly, you need to know how much new home you can afford. Your home may have increased in value, but others around it may have, as well.