06 May Downsizing From a Million Dollar Home
With the current Coronavirus pandemic, many people are taking a harder look at their finances to better plan for the future. For some, it may even be a survival plan. You or someone you know, may be laid off, furloughed, or waiting to see if their job will last through the shutdown. Some are wondering if they should sell their homes “while it may be their last chance.” In the last few years many homeowners have seen equity in their properties rise substantially, especially in the Bay Area and the Pacific. If you want to stop paying such a large portion of your income towards your mortgage, one option could be to use your equity to downsize and invest from your million dollar home.
Bay Area Vs Pacific Northwest Home Options
Let’s compare the options. In Seattle, the week of April 28th during Coronavirus, there were 116 single family homes for sale within 5 desirable miles of Seattle under a million dollars. These areas are walkable, near transit, jobs, and entertainment…once we come out of Coronavirus lockdown. During this week, the Average List Price in Seattle was $733,448.
In the Bay Area market, you will find the Average Home Price in San Francisco sitting about $1.65 million. Santa Clara and San Mateo have an average home price of around $1.4 million. For almost half of the price that homes are in San Francisco, you could find yourself a nice property within 5 miles of Seattle.
Taking advantage of your equity, could be used to transition into a stunning home in the Pacific Northwest. Seattle has been one of the desired places to move to for California residents. The Puget Sound area of Seattle has opportunities amidst the construction boom, explosion of Amazon, and expansion of many other tech companies such as Facebook, Google, Microsoft, and Zillow to name a few. The Pacific Northwest has attracted many individuals from all over the country to come enjoy the beautiful scenery and opportunities of our area.
Ways to Take Advantage of Your Home Equity
- Talk with a seller’s agent to get a seller’s proceeds estimate. This will give you a breakdown of taxes, fees, commissions, and other costs that may contribute to selling your home. Once you have the estimated proceeds, you will want to talk to your agent to see what other expenses you may want to consider to spice up your home before it hits the market.
- Talk to your buyer’s agent in the desired area you like. Find out the price range, type of property, and location you are looking to purchase. If you are looking for an investment property, a good agent will help you figure out rental comps and strategies to help you with your needs.
- Add to an Emergency Savings. A rule of thumb is to have 3-6 months of mortgage payments and household expenses saved.
- Invest some proceeds in an indexed mutual fund. Diversifying investments help build wealth that can help address future health care, retirement, or unexpected expenses.
Let’s take a look at the time value of money of what putting $10,000 and $100,000 in an Indexed mutual fund for 15 years will look like with the range of returns below:
ROI ON HOME SALE PROCEEDS
|
Proceeds |
Return Rate (%) | Duration (Yrs.) | ROI |
|
$100,000 |
4% | 15 Years |
$180,094 |
|
$100,000 |
6% | 15 Years |
$239,655 |
|
$100,000 |
8% | 15 Years |
$317,216 |
|
$400,000 |
4% | 15 Years |
$720,377 |
|
$400,000 |
6% | 15 Years |
$958,623 |
| $400,000 | 8% | 15 Years |
$1,268,867 |
- Donate. A personal preference, I recommend giving back in some capacity. Maybe it does not have to be monetary, but taking time to help someone out.
The bottom line is to diversify your equity. As you can see with this pandemic, an emergency savings account can ease anxiety in the short term and investing into a diversified portfolio of investments can help in the long term.
If you are looking to downsize and transition, I can help. There are many ways to help increase your savings, revenue, and find your next transition during this Coronavirus situation. Downsizing and Investing may be the next move for you.
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References: Bay Area Market Report, SamCar.org, Investopedia, NMLS
Disclaimer: I do not guarantee any “potential” returns above. The buyer or purchaser must know that any investment has risk. Consult with an investment broker to learn more about indexed mutual funds.