downsize buyers and sellers

Have your children moved out to start their own path?  Maybe the annual maintenance and monthly bills for running a big home outweigh the benefits.  There are many reasons why one might want to downsize into a smaller home.  Here are some of the considerations facing this transition.

Do you need to sell your existing home?  We always recommend clients to hold on to their real estate investments to help grow wealth over time.  Being a landlord may not be for you, and if you need to sell, these are the challenges usually faced with moving up:

Timing — how to time the move out from your present home and move in to the new home.  Do you Buy First and then Sell, or do you Sell First and then Buy?

Contingent Offers — This is what you do when buying a new home that has a contingency upon you selling your existing home.  When you take this path, you will need to show the Seller that your home is ready to put on the market AND you will need to price it aggressively so it will sell somewhat quickly.  

Sell First — If you think your home will take time to prepare and sell, you may want to choose to sell your home first before you buy a new one.  Also, this may be the safer path if the thought of carrying 2 mortgage payments scares you.

Buy First — If you found your ideal home and don’t want it to get away, this may be the path you take.  When buying first, you will make a Contingent Offer as outlined above.

Bridge Loan Financing — If you have lived in your current home for quite a while and have a good deal of equity, you may be able to arrange a “bridge loan”.  This is a temporary loan you take out on your current home to make the down payment on your new home.  Once your current home is sold, you pay off this temporary loan.

Capital Gains — There is an exemption limit for capital gains on the proceeds of the sale of your home.  If you have owned your home for many years, the equity may have grown above this exemption limit thus leaving you to consider a tax bill.

1031 Exchange — This is a tax-deferred mechanism that is very useful if you are facing a significant tax bill when you sell your current home.  Basically, this section of the tax code allows you to roll over all your proceeds of the sale of your present home into another property, provided you make your present home a rental property for 1 year. 

Property Tax Basis — Depending on your age and where you move, you may have the opportunity to transfer your current property tax basis to your new home.  Rules vary from county to county so you will do best to check with your CPA. 

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