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Research shows that the average American moves every 10 years. That means that there are some of you reading this, who have been in your house for 10+ years, and may be at the point where you are thinking of a move. But…you’ve not taken any steps toward that idea because of the latest news headlines that bemoan high home prices and high interest rates.
The average potential buyer starts on the internet, does a little research and may come away with sticker shock. That causes their research to stop, and they decide not to make a change. But there’s a piece of research that is missing that they may never consider, and that is that they may be sitting on a pot of gold.
My husband and I just made a move. Partly to free ourselves from yard work, and partly to cash in on the equity that we had earned by doing nothing but living in our property for a few years. We sold our home for just about twice what we paid for it in 2018. The remaining mortgage balance was easily paid from the proceeds, and then, we had decisions to make about what to do with the large equity balance, the likes of which we’d never experienced in previous moves, thanks to the recent price increases in our area.
So, I did the research. I worked with my lender and got scenarios on what our finances would look like if we put 50% down on the next property (using almost all our equity to do so). But we also investigated 20% down options and 5% down options, enabling us to purchase the next property, but also leaving us with cash to invest elsewhere. We decided to put down less and get creative with our equity cash.
We purchased a condo in the city where our oldest son is living. We paid cash for the condo using nothing but the equity from the sale of our home in Knoxville. He will rent the place from us, and we can charge him below-market rates because there is no mortgage expense for us, saving him money. Our investment gain will come when we sell the condo sometime down the road.
But this decision also gives us flexibility. If we ever needed the money for an emergency, we could sell the condo and cash out, and not have to leave our own home or borrow against our primary home to access our own money. Or our son may choose to purchase the place from us someday. With the rental savings he’ll have, he may be able to make his own investment more quickly because he will be able to save more now.
I had equity leftover, even after the purchase of the condo, so we paid off a couple of cars and have freed ourselves from those monthly payments. Basically, by selling our house and being smart with the equity, we were able to both eliminate debt and invest…something we would not have been able to do had we decided to stay put.
Here’s an example. Ten years ago, the median sales price for a home in east Tennessee was $147,000. Let’s say you bought a house then and put 20% down, taking out a mortgage for $117,600. And, you made payments for 10 years, so now your balance would be around $98,000. Today, the median price of a home is $360,365 which is an increase of 145%! If you sell your house for that amount and net $338,000 after selling fees, then you now have $240,000 of equity cash.
Today, you may decide to buy a $500,000 house and put 20% down, or $100,000. While it’s true that your house payment will be higher, you also are left with $140,000 to invest as it serves you and your family best. You could buy an investment property and rent it out. You could pay down debt. Buy a property on the beach. You could send your child to school, play the stock market, put it in your retirement account, etc.
Consider that higher home prices have positively affected existing homeowners, and you may be one of them. For an idea about what your home may be worth, contact your trusted real estate professional for a property review and market analysis. You may be surprised at the gold that you’ve accrued.
*This article was reprinted with permission from the Knoxville News Sentinel in 2024.
