Dollar Cost Averaging Vs. Not Buying Another Home

It has been said the greatest wealth transfer of our life time since the Great Depression is occurring right now.  The question is do you want to be part of the wealth or transfer your hard earned wealth to someone else?  

The truth is someone is going to buy your dream home and get the best bargain and interest rate they have ever seen.  Hopefully that someone will be you.  The problem is saving won't save you.  The funny thing is owning a new home will save you money.  

Sounds illogical but it's kind of the same way people look at stocks.  When the stock goes down they buy more.  It's called dollar cost averaging and it works the same way with real estate.  

Let's say you buy a home in 2004 for $100K and instead of selling buy almost the exact same home next door for $50K out of foreclosure in 2011.  So then you now have two homes worth $75K.  Let's say the value for your area is $75K then essentially you have balanced your loss to zero. 

Another way to look at it is instead of buying the home next door you buy a home in a great neighborhood and school district for $200K. 

Then, rent your current 2004 house for what your monthly mortgage is equivent too and hopefully in the next few years you can sell for what you owe or even make a profit.

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March 26 2012 - Novi
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Profile picture for sunnyview
Dollar cost averaging can work with stocks, but the stock has to have good fundamentals. Investing in stocks that are in shrinking industries, have bad p/e ratios or are being out competed by other companies is not a sound investment strategy.

Real estate is an investment too. Buyer should be aware of the price per square foot, the days on market, the historical trends of the local market, the local job market, PITI vs rent and keep an eye on who will want to buy their house in 5-10 years when they go to sell. The more you learn about your local market, the better choice you can make in whether or not to buy and which house will be the best in terms of investment down the line.
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March 26 2012
Profile picture for Pasadenan
The "wealth transfer" occurred when people "sold" at the peak of the bubble.  If they waited until now, they missed it.  Of course one could refinance, if one still has a high interest rate.  It doesn't do much good if one has paid off their loan, as most stocks and bank accounts cannot even return the 3.75% annual interest rates of present mortgages.

As for buying back?  Yes, it might be a good time in some areas now, but Zillow's "2012 forecast" indicates most metropolitan statistical areas are still declining this year, only two shown as increasing.  And in California, if one stays in the same house instead of buying and selling, one gets locked in on the property tax with a maximum of 2% annual increase in assessed value.  That "low property tax" alone has been a "wealth transfer" since the 1970's.

And don't forget, every time you buy or sell Real-Estate, it is costing an average "transaction cost" of 16% to 25%.  That alone is a major "wealth transfer".  Stock commissions are no where near that high!  And nominally 6% of that is going to members of "NAR" trying to "earn a living", which is another "wealth transfer" out of your pocket into the pockets of people that are trying to sell you propaganda.

Long term, housing rarely beats inflation as an "investment vehicle".
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March 26 2012
 
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Dollar Cost Averaging Vs. Not Buying Another Home
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March 26 2012 | 2 answers
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