Should You Sell Now Before the Bubble Pops?

There are lots of unsettling happenings going on in our world right now, and on the tip of everyone’s tongue is the thought that maybe we are in for another Bubble Pop, or market crash. Though we personally believe Nashville will stay strong, there are many factors to consider when weighing out the timing of selling. This is an article our owner and Broker, Liz Gatlin, wrote last summer before she sold her own home (For MAXIMUM profit of course) and it speaks true even more today than ever. Let us help you weight the pros and cons of listing, and also figure out that other ominous Nashville question, “But where will we go?”. Trust us, there are opportunities everywhere, you just have to be open to them.

Over the past month or so, my husband and I have been talking a lot about selling our Nashville home. After all, it’s a seller’s market and our investment has already met and exceeded our goals in half the expected time. So why wouldn’t we capitalize on Nashville’s hot real estate market, cash in, and sell before summer’s end? I would tell my clients it’s a no brainer! But then there is that ominous question on the top of everyone’s tongue – “But where will you go?” So here I am, tackling the tough questions, and taking my own advice with these tried and true #southernathenatips. Let’s start from the beginning of the entire thought process. *Warning: Get ready for a long read!*

Investing 101: The Day You Buy Should Be the Day You Start Planning to Sell

I know you hate hearing this, but it is true. I’m such a real estate dream crusher. It’s like saying, “Get a prenup.” for your property. It may be your dream home or property now, but things can change. If you are investing, you need a game plan from day one for change.

“If you must play, decide upon three things at the start: the rules of the game, the stakes, and the quitting time.” – Chinese Proverb

One Quick Reason Why You Shouldn’t Sell: Long term wealth is built by a long term game – building a portfolio, holding through the market ups and downs to assume an adequate amount of equity, diversity, monopoly, and income. This will ensure your assets are diverse enough to equalize during market downturns. We very often encourage clients to play THIS game. With the right moves, it will ensure you are always steadily gaining and not spending or being heavily over taxed on your liquid assets. Plus cash flow, hello!

Our friends at Renters Warehouse have a great tool to compare renting opportunity vs. selling costs. Full property portfolios also usually take decades to amass, and decades to manage. Just look to any big name wealthy family or trust and you will find some of that wealth came from having a hand in a long term real estate portfolio – H.G. Hills, Turner, Ingram, Johnson, etc.

My 5 Year Property Investment Rule

When we purchased our home a little less than 2 years ago, we planned to stay for a minimum of 5 years. I suggest the minimum 5 year timeline to all of my clients who invest for many reasons:

  1. It is really hard to make your money back in less than 5 years.  Duh. (Appreciation minus interest, the costs and fees associated with selling, closing, moving, etc. usually doesn’t balance out and could put you at a loss.)
  2. Neighborhoods, even those in transition, take a long time to be redeveloped. Counter to what you may have heard, gentrification, hot developing neighborhoods, and revitalized areas take years in the making! Often you won’t see significant impacts on value until the 8 – 10 year mark or more depending on growth factors.
  3. The market tends to cycle every 8 years associated with an election. Therefore if you want to buy at the lowest point in a market, you would want to sell closer to the 8 year mark at the top of the market, not sooner.
  4. Life needs tend to change every decade, not every 5 years. Someone purchasing in their 20’s will have different needs in their 30’s. An empty nester is going to desire transition at intervals aligning with retirement and the kids moving out. Significant impacts on your housing usually don’t change too much in less than 5 years. But every 10 years = Game on. New job? Getting married? Having a Baby? Retirement? Then all bets are off!
  5. Development values transition with the associated values of the demographics. There is a reason demographics are pulled every 10 years, not every 2 – 5. As a neighborhood’s demographics change, so does the value of your property, for good or for worse. If you are selling before the 5 year mark, you may not reap the benefits of such changes better aligning with why you purchased in that area in first place. Real change is slow, even if it seems fast.
  6. How do you expect to make an impact on your community in less than 5 years anyway? Give back y’all. You can’t change the world quickly. It takes time.

So there you have it, there stands one of my fundamental issues with Selling our home now, just 2 years in. I’m breaking my own rules. I also know, if we wait another 10 years, the value and neighborhood will be even better, I could rezone it commercial, or rent it and build even more long term wealth in the middle of the city. What an opportunity! There is tremendous amounts of development slated around us that would be game changers.

Pros, our home is brand new, in the city, close to everything, and in a transitioning area. I want to see and reap the rewards of investing wisely in the first place! Now the greed is talking… or wait, it that a gambler talking… or both?

Playing the Market and Gambling with Real Estate

The worst thing for a gambler to do it stay at the table too long. If you own property you also own risk and that is where the gambling metaphor comes in. It is extremely difficult to accurately predict the future, when you should hold, and when you should fold. Data and numbers help. Being able to read people and tells help. Being a veteran in the business with wisdom from multiple wins and losses will also help (hence “Professional Gamblers”). But there is also a lot of unknown and a lot of risk.

Just look at the bankruptcies and foreclosures of the Great Recession in 2008. My number one piece of advice when you do get caught up in this type of game? Get out. Accurately weigh out your assets side by side with their risks. When one column begins getting a lot larger than the other, contact us to discuss the best strategies for your specific scenario. All you need to do is rebalance that scale. Southern Athena Tip #1: Always Hire an Expert. (In every walk of life!)

As I have already mentioned, our goals for this investment have been met. We never did plan on living here through our 30’s. So why are my heart strings telling me to stay longer? “I could make more 10-15 years from now. This property is going to be worth so much more if we keep it!” There is a great quote on this:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffet

Well, I have been seeing a lot of greed in our market over the past couple of years, enough to make me worry. You would not believe the nasty real estate stuff I have encountered in just the past 6 months. As a Nashville native, some of it is downright disturbing. Maybe these hesitations to sell are my brain’s way of being greedy, or rationalizing the simple fact that I don’t want to move right now. *Cry Baby* I hate moving. Realtor or not, moving is a huge undertaking, and exhausting. Fact of the matter is though, if I was giving a client in my exact same shoes advice based on our goals, I would tell them to buckle up, get over it, and sell NOW! And here is why:

We Are Heading Towards Another Bubble POP.

You read that right. I said it. It’s been on the tip of everyone’s tongues. Now I don’t think panic, not purchasing, or not taking action are the solution. Quite the contrary. Stabilization is the ultimate goal. Lending rates are so competitive right now that their benefits often outweigh our inflated real estate market prices. There are also many opportunities to capitalize on when a bubble pops, like income property. You just have to be able to wait out the storm. Plus Nashville has one of the strongest local economies in the country! Even if the US markets crash, people will continue moving here as a safe haven. We most likely wouldn’t feel any pop locally for another 6-12 months after the first big wave hits.

However, if you know you are in an industry heavily affected by market crashes or are independently employed like myself (Architecture, Construction, and Real Estate Sales are usually the 1st to the chopping block)  then cashing in your chips might be a better plan. The leadership at the national Keller Williams convention earlier this year told their agents to buckle down for a long winter, and save every dime they make because we are headed for a market shift. Yikes! If the big boys are warning their agents about a crash, then I take note. After all, they would know about trends in our national real estate market.

So What’s the Worst That Can Happen?

So here are the risks and rewards of Staying vs. Selling that we have discussed:

In our specific case, if the market crashes, then it will be difficult to live one income at our current residence comfortably and for an extended period of time. It would also force us to burn through our savings, just to start from scratch at ground zero years down the road. Could we make it work? Yes. Do I want to? Not really. As couple of Entrepreneurs, we have been down that road, lived it out, and let me just say, it wasn’t fun. It’s like building a grand sand castle just short of the high tide mark. Trust me, you don’t want to lose it all and re-build equity from scratch if you don’t have to. If we stay we run with this risk. Not fun!

If we sell, where will we go? Do we have enough money to actually get what we want somewhere else? I’m already on the hunt for renovation opportunities, but that seems equally risky in another way. But if we did find something that works, then we could stay put for a longer time. (More than ten years please) We could possibly even get more land if we sell, depending on the final purchase price of course. Good thing I can do wonders with a space to make it work for us within our budget. I guess it’s time to list…

Follow Up Update 2017: We SOLD and it was a great decision!

We moved to a fixer-upper in Oak Hill and are loving all of the trees, easy access to everything, and the feeling like we are in a park. I’m still nostalgic about our old home of course, and miss the newness of our home, our neighbors, and quick drive times for working around the city, but selling really was the best decision. We did so that we can continue to build towards the life of our dreams. Our new home is the perfect stepping stone on that journey and we can’t wait. My husband sold me on the idea with talks of working on a remodel together as being “Romantic”. Gosh I am a sucker for romance… So here goes nothing! Wish us luck and lots of love. ;)