For home buyers, what you want and what may be fiscally responsible may be miles apart. Here’s my two cents on making sound financial decision when buying and selling a home:
- Market value does not equal intrinsic value. Buyers are not going to pay the emotional value you assign to your home. Although market value does not take into consideration the excruciating hours your family suffered through Tiffany’s tuba practices or the way John’s face lit up when she saw her first bike in front of the Christmas tree, the memories you built in your house will be with you long after you’re no longer in it. No one can take those away from you and no price tag can discount them.
- How much house you want may not be how much house you need. Does it make financial sense to continue to pay the taxes associated with a home once accommodated a large family but now all the kids are grown and out of the house? As you get older, are you going to have the time, energy and resources to maintain your home. Does it make more sense to downsize? How much of the house is effecting your cash flow?
- Can the equity in your home be better spent elsewhere? The two main (smart) reasons people draw equity from their homes are for repairs or reinvesting. Say the house you own is paid off. Is there an opportunity to pull equity off of it to reinvest it in rentals that will provide additional passive income? Can you take that equity and invest it in a way that will provide a greater return? Consider owning a home and rental homes as part of your lifelong portfolio.
Bottom Line. Base your home buying, selling and investing decisions on functional need as opposed to emotional instincts.