How To Buy A Home That You Plan To Sell In Two To Three Years
I received an email from a reader who asked for advice about buying a home in Tallahassee for when he relocates here.
Specifically, he only plans on living in Tallahassee for two to three years, so he wants some expert advice.
Moving To Tallahassee
Here's the questions that I received from "JW":
My wife and I are moving to Tallahassee early next year and we are considering buying a property in an area near work. Due to career reasons, I anticipate we will be moving again in 2 to 3 years, at which time we will either rent or sell this property. So we have a few questions for you:
- Which neighborhood areas do you recommend for us to look at? I will be working near I-10 and Thomasville Rd. Our ideal budget would be around 200k (250k max), for a property that's not too old (prefer built after 2000)
- We don't have kids so school zones aren't a factor for us, but I think in the future, it might be easier to rent/sell if the property was in a good school zone. Is that assumption correct?
- In your experience, between single family homes and condos, which is easier to sell, which is easier to rent, in Tallahassee?
- I know that you've written that if the property is priced right it would sell quickly in the market. All else being equal, would a single family house or a condo sell faster?
- At what rate do you anticipate property values to increase in the next few years?
I really appreciate your time in answering these questions. I look forward to your reply. Thank you and best regards,
I will answer each question above in due order, but there is a more important issue that should be addressed initially.
JW should consider renting. Why? Because (as a general rule), he will pay 3% to 5% in closing costs when he buys, and he'll pay 7% to 10% when he sells. That means he should budget about 12% in costs that he will occur to buy and sell his home in Tallahassee, so if he only lives here two years, he needs to have 6% appreciation to recover his costs. Of course, at 3 years, the number drops to 4%.
Historically, the average appreciation rate in Tallahassee is just over 3%, thus historically JW would be better off financially to rent.
If financial investment were the only consideration, JW would be far smarter to avoid the risk and simply go rent a house while he is here.
Of course, home selection and quality of life are considerations as well, so we know it's not purely a money decision.
The area where JW wants to live is very popular (the Thomasville Road Corridor), so I would focus more on price range than neighborhood. The following map and list shows all homes for sale priced from $200,000 to $275,000 within a few miles of the I-10 - Thomasville Road intersection.
I 10 Thomasville 200 To 275 Idx
JW makes a smart observation. He knows that schools are important with buyers of school aged children, thus wouldn't it be smarter to buy a home in the "right" school zones so that he'll have plenty of buyers when it comes time to sell? Surprisingly, the answer is "NO!" Here's why ...
If JW specifically chooses a home in the wrong school zone, then he'll get a lot more home for the money. When it comes time to sell, he will likely have to sell a lot more home for the money. In other words, the current state of the schools has caused homes to be discounted in some areas. If he buys discounted and sells discounted, then he will lose nothing (the money has already been lost by a previous buyer). Now if the schools improve during his ownership, JW can buy discounted and sell at market (sounds like a win to me).
Similar to our answer under school zones, property types also have differing markets. Currently, JW can buy an attached home significantly cheaper than he can a detached one. The rental market for each is more location dependent than type dependent, and it is an analysis a good buyer's agent will help JW conduct during his home selection process.
So the short answer on property type is "ask your buyer's agent about the supply and demand for homes by type" to ensure liquidity in the "attached" market, but you will likely find the answer is "buy the best buy you can find, as the future will either require you to offer the same discount to your buyer ... or it won't." Buy smart now, it will not hurt you later!
Speed Of Home Sales
Well priced property sells fast. Well priced condos sell fast. Well priced town homes sell fast. Well priced single family detached homes sell fast. The key is to get the price right. Price it too low, you have the wrong people bidding on it. Price it too high, nobody is bidding on it (you might dig up a bottom feeder who will NOT buy the home).
Supply and demand determine your pricing strategy, thus there is not "best" type of property to buy without looking at the current state of supply and demand by type. And this changes. Always. You have to know when you are shopping. Here's a good analogy ... what's a better commodity to own, Oil or Wheat? Where do you find the answer? The answer can be found by studying the commodities market and to see which one is likelier to perform better over the period of time for which you plan to hold it. Your home purchase decision should include similar considerations.
Appreciation Rate In Tallahassee
If I were buying a home, I would assume long-term appreciation to be around 3.5% (based upon my experience, this is a sound assumption).
But if you have read any of my recent market reports, then you know I'm expecting double-digit appreciation for the lower 90% of our market over the next year or so. Our supply is too low. Demand is growing as credit is restoring from the housing market collapse. Builders have a hard (impossible) job of bringing sub $250K homes to the market, thus values will move higher at a faster than normal rate.
Advice To The Homebuyer
JW, I started off my response by saying you should consider renting ... and I stand by that. If you own for only two years, why burden yourself with the risk?
But as a "math guy," I feel you are considering this at the best time in Tallahassee's history, as I am confident in faster-than-normal appreciation rates. If you felt that you would be here 4 years, "buy" is the answer as I just don't see the risk if you buy wisely.
My final advice is this. Sit with a buyer's agent and discuss what you want. Compare your rental options with your purchase options and then identify the likely financial risk you take by buying and compare it with the benefit of getting your own home. I am confident you'll enjoy a nicer home that you can buy in this market versus the one you can rent for the same monthly cost.
As always, simply drop me a note if I can answer something not addressed in this post.