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Real Estate Roller Coaster – Should you sell now and rent?

rollercoaster ride

You may have read Steve Lopez’s article in the LA Times: Cash buyers and premium prices leave middle-class home seekers locked out.  Now that real estate prices have skyrocketed, I am learning of homeowners wanting to sell now and rent until the market changes. Their thinking is that prices will drop and they will reenter the housing market at the bottom. Real estate is cyclical but is it reasonable to believe that you can sell your home at today’s high prices and buy back a similar home at a later date for substantially less?

Should you sell now and rent? I am not much of a risk taker. If wrong; you could be priced out of the Los Angeles real estate market – forever!  But if you were to time it right, this strategy is great. Over the years, I have known numerous couples who do it; they cash in – take their $500,000 capital gains exclusion (for married couples) and move. This strategy is not for me. My home is my home, and I don’t want to move every time there is a different real estate cycle.

The real estate market can be a roller coaster ride, with highs and lows, if you feel confident about the timing, go for it!

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It may sound like a great idea in theory but in practice it can be horrible. We have friends that did just this. But due to some hard financial times they found themselves dipping into the proceeds of their sale to make ends meet. By the time housing prices dropped they no longer had enough money for a down payment and they have been renting now for over ten years.