FAQ: Where Can I Buy to Guarantee That I Have Equity in Five Years?

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Real Estate Agent with Long and Foster REALTORS®, Gainesville, VA VA License # 0225089470

FAQ:  Where Can I Buy to Guarantee That I Have Equity in Five Years?

There are two types of real estate buyers in the world.  Those that are looking for home and those that, while they may be looking for a primary residence, are really focused on the investment aspect of buying that home.  The latter will often ask where they can buy that will guarantee them a good amount of equity in the next five years.

It sucks to burst that investment minded buyer's bubble, but that sure thing doesn't exist.  

All properties are affected by the ups and down of the local market.  There is no sure thing when buying real estate.  In general, over the long term, properties do appreciate in value.  However, the real estate market crash in the first decade of the 2000's taught us that our appreciating markets can turn on us in the blink of an eye.

If you are a buyer that is selling and moving from one home to another, don't focus on the appreciation.  Here's why.  Your existing home is being sold in the same market as your next home.  If you waited to buy that next home until it was cheaper, your existing home would also garner you less equity.  I know.  My husband and I went round and round about this when we moved up from a townhouse to a single family home.  My husband was so angry that we paid over $620K for our new home that was now worth only $500K.  He never thought about what the current value of the townhouse we sold was.  The one we sold for $410K was now only selling for $299K.  Funny how that works.  On paper, we lost equity.  In reality, we didn't lose a cent.  If we did that same transaction in the down market, our mortgage payment would have been the same. 

First time buyers are the ones subject to the turbulence of real estate market ups and downs.  Here's how they can avoid a downturn biting them in the rear end.

  1. Don't do 100% financing.  The larger the down payment, the more room you have to maneuver if the market falls and you HAVE to sell.
  2. Don't ever do an interest only loan.  If you never pay down principal, you won't ever buy your own equity.
  3. Don't buy a home whose mortgage payment is more than the property would get in market rent.  In the event you end up upside down and need to move, you can always rent out the home and cover the mortgage.
  4. Don't buy more than you need.  Just because you qualify for $400K, doesn't mean you need to max out your budget.  Buy modest when you are buying your first house.  Show boating will often land you in hot water if the market crashes on you.

There are no sure things when buying the property you will call home.  It's best not to even consider it an investment, in my opinion.  It's not easily liquidated, like stock.  You can't sell it for money, it is your shelter!  If you sell it, you still have to find a place to live.

The best way to look at home buying is this:  You are going to pay to live somewhere, whether you rent or buy.  You might as well have control over where you live, how long you live there, and get a tax break in the meantime.  

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Rainmaker
2,184,673
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of Manchester NH's Leading Agents

Such a good blog as i do get buyers asking me similar questions about guaranteeing equity Chris Ann Cleland . It is not always an easy or simple subject to start talking about

Jun 12, 2017 01:06 PM #1
Rainmaker
1,784,382
Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Waxhaw/Fort Mill Area Realtor

Hi Chris Ann... I tell all buyers who raise this question with me that if I had the answer to that question, I'd be queen of the universe and not just queen of Charlotte real estate! I always tell my buyers that what we look for is to not buy something that could depreciate and that when they go to sell any money over and above breaking even should be considered a bonus and meantime they've had a very nice roof over their heads, probably paid less in mortgage than rent, etc.

Jun 12, 2017 01:22 PM #2
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Belinda Spillman
Aspen Lane Real Estate Colorful Colorado - Aurora, CO
Colorado Living!

This is some great advice.  There are no guarantees.  Anything can happen but having the right knowledge will let buyers enter into their contract with eyes open.

Jun 12, 2017 01:38 PM #3
Rainmaker
1,198,055
Beth Atalay
Cam Realty and Property Management - Clermont, FL
Cam Realty of Clermont FL

Chris Ann, I get this question from time to time, if I had the answer, I would be a full time world traveler.

Jun 12, 2017 02:57 PM #4
Rainmaker
1,779,920
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

This is great advice, Chris Ann, for all home buyers, young and old alike. That, and if you wait long enough, everything comes around again.

Jun 12, 2017 04:13 PM #5
Rainmaker
1,857,911
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

I like your 4 tips about buying, Chris Ann.  It is impossible to predict where guaranteed equity will exist in five years.  For example in 2005 when we were at the height of a real estate boom, who among us could have predicted that mortgage shenanigans would lead to the real estate bust that followed?

Jun 12, 2017 04:20 PM #6
Rainmaker
2,454,494
Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning Chris Ann. Your points are really well made: it is always a reltionship thing and if you are not moving, it doesn't really matter.

Jun 13, 2017 06:10 AM #7
Rainmaker
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Curtis Van Carter
Better Homes & Gardens Wine Country Group - Yountville, CA
Your Napa Valley Broker Extraordinaire

Chris Ann

You sure can't tell your buyers this fact enough. We know as RE professionals, RE has been a great investment over the long haul, but I have been through 4 big market downturns in my 30+ year career. cheers cvc

Jun 13, 2017 07:17 AM #8
Rainmaker
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Curtis Van Carter
Better Homes & Gardens Wine Country Group - Yountville, CA
Your Napa Valley Broker Extraordinaire

Chris Ann

I came back to read more replies and was surprised there were not more. Still you do so well in what you do, cheers cvc

Jun 14, 2017 01:49 PM #9
Rainmaker
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Sybil Campbell
Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia - Williamsburg, VA
REALTOR® ABR, SFR, SRES Williamsburg, Virginia

I remember early in my career a lady asking me if I could guarantee her that she would be able to make a good profit on her house if she sold it in a few years.  Of course no agent can make that guarantee.  You bring up some good points in this blog.

Jun 14, 2017 08:37 PM #10
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Jeff Dowler
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Great question and response, Chris Ann. I occasionally get buyers asking if I think they will make money in X number of years, or if they will be able to sell in X time and not lose money. There are so many "it depends" issues! I wish my crystal ball was working.

Jeff

Jun 19, 2017 05:30 PM #11
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Chris Ann Cleland

Associate Broker, Northern VA
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