2-Minute Money Manager: Should I Sell My House While Prices Are High?

Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about real estate; specifically, whether you should sell your primary residence while prices are high to book a gain, rent for a while, then buy back into a house when prices drop.

Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

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For more information, check out “11 Tips for Pricing Your Home So It Sells for Top Dollar” and “12 Ways to Blow Your Home Sale.” You can also go to the search at the top of this page, put in the words “real estate” and find plenty of information on just about everything relating to this topic.

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Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by Money Talks News, serving up the best in personal finance news and advice since 1991.

Today’s question comes from Jill:

“I currently own a home that has increased significantly in value since I purchased it in 2011. I am wondering if I should sell it and rent for a while, or stay put. I am worried the housing prices will fall again, thus losing the equity I currently have.”

Buy low, sell high?

If Jill is retiring, downsizing, moving or needs to sell her house for other reasons, there’s nothing wrong with ringing the register sometime soon. There’s an old Wall Street saying that goes, “You’ll never go broke taking a profit.” So, if she suspects housing prices are topping and she needs to sell anyway, she should take the money and run.

But I suspect what Jill is asking is whether she should time the market: Buying low, selling high, then buying low again.

It’s a question that takes me back.

I bought my Fort Lauderdale house in 2001 for $440,000. By 2008, it was worth north of a million bucks. At the time, I had the same idea: Sell it, make a huge profit, then buy back in when the market inevitably sells off.

I didn’t do that, however. Why? Several reasons: First, I didn’t want to leave the area. Next, moving is a major hassle. Third, I would have been unlikely to find a rental with the same amenities as the house I owned. And finally, the main reason: I didn’t think prices could possibly fall that much.

As it turns out, however, I was dead wrong. By 2011, the value of my house was cut in half. More than $500,000 in unrealized profits had evaporated into thin air.

Now, here we are again. My house has now recovered from the recession; Jill’s got a major potential profit. Should we both sell before the next downturn?

Market timing is hard

It’s possible to profit from any asset that goes up and down in value. And it seems easy. All you have to do is buy low, sell high, then repeat, right?

But whatever the market, timing is a lot tougher than it seems. Things to consider with real estate:

Should I Sell My House? – Key Points

1. You may end up renting a place inferior to what you own, and unless your timing is perfect, you could be there a long time.
2. If you’re wrong and housing prices keep rising, you’ve left money on the table.
3. If prices don’t fall and go up instead, you may not be able to afford the same quality house you sold. Ever.
4. If you pay more in rent than you’re now paying for the house you own, that expense will reduce any profit you ultimately make.

In short, timing the real estate market, or any other market, involves risk.

An alternate plan

When the housing market crashed back in 2009 and I watched the paper profits on my home evaporate, I was understandably bummed. But I held on, and now my house is worth almost what it was at the top of the market. So, I’ve recovered my paper profit.

Better yet, in 2012, when prices were at their lowest, the house next door went up for sale. A friend and I went in together and bought it for $360,000. We put about $100,000 into remodeling it, then turned it into a vacation rental. We collected a ton of rent over the next couple of years, then sold it for $625,000.

So, while I didn’t maximize my profits by selling the roof over my head, I bought an additional property near the market bottom. I never had to move, and I made a tidy sum. And I did the same things with stocks. I didn’t sell all my stocks before the market crash of 2009, which hurt. But I bought a bunch more at the bottom and now I’m a happy camper.

And there’s your lesson. Whether it’s stocks or houses, unless you’re exceptionally skillful or exceptionally lucky, timing the market is tough, because you have to accurately predict both tops and bottoms. So what do you do? You never cash out entirely. You always keep some money in the game and some on the sidelines. Then, when the poop hits the propeller, jump in and make money.

Bottom line? If you sit in the dugout, you’ll never score. If you swing for the fence, you’ll often strike out. So, stay in the game and get the occasional base hit. Over the long term, that’s what wins ballgames.

I hope that answers your question, Jill. See you all next time!

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About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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