Is it time to sell your second home?

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By Whitney McDaniel

You’ve seen the headlines lately: The U.S. real estate market is beginning to show signs of recovery. Existing home sales ticked up more than 9 percent during the 12-month period ending in January, while median home prices rose more than 12 percent, according to a study by the National Association of Realtors called “January Existing-Home Sales Hold With Steady Price Gains, Seller’s Market Developing.”

Whitney McDaniel
Whitney McDaniel

The improvements in housing turnover should make it easier for Americans holding on to second homes to monetize those investments. Real estate markets in much of the country have transitioned to sellers’ markets, Lawrence Yun, chief economist for the National Association of Realtors, noted recently. Home buyer traffic is up 40% from a year ago, while the number of sellers is holding steady. The tight housing inventory, coupled with plenty of demand, has created a sellers’ market in pockets of the country.

You don’t have to be an economist to determine when you should sell your second home. Just watch your neighborhood and region closely for signs that you should make a move. For starters, recognize that real estate is an extremely local business today. Conditions can vary markedly from one location to another, says Brendon DeSimone, a real estate expert and syndicated columnist for Zillow.com.

“Don’t assume that just because transactions are up, the market is up everywhere,” DeSimone cautions.

If you are willing to research your local area diligently, recognize the conditions that are favorable for a sale (or purchase) and wait patiently, you can benefit from the upturn.

 

Exploring the Market

The recovery is patchy, and coming off several stagnant years, when sellers stayed on the sidelines, reining in supply for all property types, from lakeside retreats to income-generating city rentals. Also, rates are still low, and an increase in supply will give prospective buyers more properties to choose from.

• Get expert help. A licensed real estate agent can help you gauge the health of your target market and decipher pricing and supply trends. That groundwork can play a critical role in helping you determine whether to buy or sell in a particular market. Make sure your agent is willing to offer an honest estimation of the best selling price. If you receive an offer that is far below what you need to earn, wait to sell, DeSimone advises. Instead, consider renting out the property to cover its operating costs until the local market improves.

“When people hear that the market is up, they assume prices are up,” DeSimone says. “But the market is up because there are finally buyers again. That does not mean you’ll get a price that is comparable to those seen during boom times.”

• Weigh your options. Your family’s goals are also an important factor in deciding whether to sell a property. Your Wells Fargo Financial Advisor can help you consider the financial effects of buying or selling and how to balance the financial and emotional decisions you’ll need to make.

 

Counting the Costs

If you are selling a rental property, consider unique issues such as its income history and potential future return on investment. Also, be sure to weigh the local market’s potential for growth. For example, there are surprising real estate opportunities in areas of the country where strong economic growth is under way. In North Dakota, a surging oil industry is driving a local housing boom.

“It’s no different from researching a company to invest in,” DeSimone says. “If you notice that a market is experiencing an uptick in demand but has insufficient housing, it may be worth a closer look.”

As with equity investing, timing the market is difficult at best. Avoid speculation! Your long-term life and money goals should dictate how you approach housing opportunities in your area.

“The market is going to go up, but that trend will play out differently, market to market,” DeSimone says. “Do your homework — and get help you trust — to figure out whether it’s time for you to buy or sell.”

This article was written by Wells Fargo Advisors and provided courtesy of Whitney McDaniel, CFP®, Financial Advisor in Beaufort, SC at (843) 524-1114.

Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.

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