Let’s say your home is worth $200,000 on today’s market and the home you want is $300,000. Now let’s assume they are in the same neighborhood and appreciating at the same annual rate of 10%. Despite the identical appreciation percentage, after one year the $300,000 home will see a $30,000 increase in value while the $200,000 home will see only a $20,000 increase - the higher base value creates a 50% larger value increase!

Looking at this another way, after one year the $100,000 difference between the two will have increased by $10,000 to a $110,000 difference (your home would be worth $220,000 after a year and the desired home would be worth $330,000). Every year you wait will create a larger difference between the value of your home and the more expensive home. Moreover, many people want to move into nicer neighborhoods that may be appreciating at a faster rate than their own. You may find yourself quickly priced out of your desired neighborhood if you wait too long.

Options Aplenty
One option is to hold onto your current home and rent it out. Many starter homes make perfect rental properties. Most lenders will count 75% of the rental income to qualify you for your next home. This can be to your advantage if you are able to afford your next home without cashing out of your first home. Plus, if you have a higher income or expect to move into a higher income bracket, the tax write-off for the rental home’s mortgage can also be to your advantage. It is best to discuss this option with your accountant to determine what works best for you.

We would be happy to help you determine your full range of options and see how each alternative fits into your long-term personal and financial goals.