Do I Cash Out?

It is no secret that property values in Miami have been increasing steadily since 2008.  In the past few weeks I’ve had several people inquire about whether they should sell their home or investment given how much appreciation they’ve experienced since the market crash.

active price

For those with investment properties, the inquiry is usually followed by asking what to do with their proceeds once they sell. Do they buy another investment property?  Do they move their money into the stock market?  Or do they simply park it in a more traditional, risk averse savings or money market account until the market softens enough to purchase at a discount?  For those thinking about selling their home the inquiry is usually followed by asking wether to purchase a bigger/nicer home today, or rent for a while until the market softens again then buy.

When is the right time?  It’s a very interesting question and in my opinion, the answer is very different for each individual. We are all at different stages of our life and we all have very specific and personal circumstances and objectives to take into consideration, such as our current income, debt obligations, savings targets, current investment portfolio, family planning and other short/long term goals, etc.  Moreover, assessing an investments property is very different from assessing your own home.

If you’re reading this and you’re asking yourself this question, you probably skimmed through several websites discussing tax implications for investment properties, benefits of a 1031 exchange, ROI’s, managing expenses and even changes in retirement age.  If you’re contemplating selling your home, you’re looking over your property’s market value (probably obsessed with your Zestimate!), curious about how much you can sell or rent your home and what can you buy in return.  I came across a few interesting articles that I’ve included below.

In short, everyone’s situation is different and some factors are more important to some than others.  In my personal and professional opinion you need to look at two key items first and foremost before jumping into number crunching mode trying to figure out rates of returns, depreciation, capital gains taxes, etc.

  1. Do you need the Money? If you’re in need of liquidating your assets for immediate cash, then the decision has been made for you, you need to sell.  If you don’t, then keep that information separate from your hold/sell/buy assessment. Why?  Ideally, this exercise should be completely independent and mutually-exclusive from your financial situation and all the other “noise” mentioned above.   I understand that ultimately, what you do with your property will impact your personal bottom line.  Yet, do your best to keep your current situation from forcing you to make a bad, untimely or non-economic decision.
  2. What is TODAY’s market value for your property and TODAY’s market trend (months of inventory) for your neighborhood. This is naturally your first step: how much is your property worth?  It is important to look at what can potentially happen in the future.  Speculate a bit.  While doing so, take into consideration future developments near your property, new city improvements, retail or commercial changes being discussed, interest rates, absorption rates and even keep an eye on that new neighbor that seems to park a massive company truck next to your house every other day.  No piece of information is as important as what is happening today.  Think of it as your balance sheet.  How much can you sell your home or investment property for today?  How much can you rent your property for today?  How long do similar properties take to sell today?  How much is that new home I want to buy today?

Once you answer these two questions you will better understand if you need to sell or should sell and what to expect if you sell today.  As a real estate professional I can help with the latter; How much is your property worth today?  How much can you buy another property for?   For what implications selling your home or investment property will have on your personal finances I would recommend you speak to your CPA or financial advisor.  They can run a hypothetical scenario based on your current salary, years you owned your property, sales price, and overall goals for your money and give you a better idea of how selling impacts the bigger picture and long term goals.

Lastly, assessing the future is more of an art than actual science.  You’ll find tons of opinions, financial models and forecasts illustrating what the market may or may not do.  I think is important to read through these, always questioning the source of course, but as an exercise to forecast the market’s current mood.  I also think that although macroeconomic issues can have severe market impacts (as seen in the 2008 crash), hyperlocal changes will impact your neighborhood substantially quicker and more directly (i.e. a new Walmart near your home as opposed to a Whole Foods grocery store).  Yet, there’s one single indicator we use as an industry barometer to keep track of what more than likely will happen in the near future in the real estate market; how many months of inventory are available.  Less than 3 months of inventory indicates a seller’s market.  If a market has 3 to 6 months it indicates a neutral market with enough properties for both buyers and sellers.  A market with over 6 months of inventory indicates a buyer’s market. As shown on the graph below (attached), illustrating how many months of inventory based on closed sales Miami-Dade county has had in aggregate since 2005, you can see how the amount increased substantially during the market crash with over 50 months of inventory.  Since then, we went down to a healthier 5 months during 2012 and we’re currently in a buyers’ market with 8 months of inventory.  These figures tend to change as you drill down to specific cities, neighborhoods and even buildings.

months of inventory

If you’re curious about the value of your South Miami home or investment property, how much you can sell it for and how many months of inventory are available in your specific neighborhood, let us know and we’ll prepare a complimentary market value report along with facts and trends of your neighborhood.

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