On Trulia Voices today, someone asked if they should sell their condo in Scottsdale. The property owner felt prices had fallen by 10% since January 2007, and if this trend was to continue, shouldn’t he sell today, and then buy again after prices finish falling.
I answered as follows:
With real estate, like any investment, you must consider your short and long term goals when making a selling decision. If you sold today, would you be a buyer tomorrow? Or, if you sold today, would you sit on the sidelines until you thought the bottom had been reached?
Personally, the only reason I would advise selling today, due to the market conditions, is because you have identified a better investment that you consider “cheap” at these prices, and so you want to move your money to that other investment. Think of it like selling Intel to buy Apple. You still plan to be invested, but you think there’s a different investment that you like better.
If you plan to sell and then sit on the sidelines, there’s a reasonably good chance that when you decide to re-enter the market, prices won’t be any better than they are today. Here’s the problem: to know we’ve hit the bottom, we’ll have to be able to see that bottom in the rear view mirror, which means prices will have been going up for a while.
Plus, while you are sitting on the sidelines, you lose many of the other advantages that being a property owner have. Tax advantages come immediately to mind, but there’s more to property ownership than just the tax benefits.
One final thing to strongly consider, with regard to selling real estate, is that selling is not cheap. With commissions and escrow fees, it’s going to cost more than a $7 trade at Scottrade. And then when you buy again, you’ll pay escrow and mortgage fees. Will this new bottom really be that much lower to offset those additional costs? Know one knows the answer to that, but history suggests it’s unlikely.
So my advice would be, if you plan to stay invested, then sell if you want to buy something different/better, but hold if you were thinking of sitting on the sidelines.
In retrospect I wonder what I was thinking with that last bit of advice? How will I possibly sell more real estate if I’m recommending NOT selling…
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