Best time to buy is right away

With home prices in decline, many prospective buyers are trying to decide when would be the best time to take the plunge.

The question comes into play especially for buyers who have an existing property to sell and want to scale up to a better property. Do they go ahead or wait for prices to perhaps decline further?

For such buyers the best time to buy may be right now because the longer they wait, the lower the price of their existing home may fall. The argument for quick action is that the price reduction on the new home will be greater than the sum "lost' on the sale of the existing property.

For example: If the market value of your present home is R500 000, but because there is a lot of competition in the market and fewer buyers, you have to offer a 10% discount to attract buyers and ensure a successful sale. You will thus "lose" R50 000.

However, if the home you want to buy is priced at R1m, you can, in turn, realistically negotiate for a 10% discount because the same market forces are in play. If you succeed, you will pay R900 000, a "saving" of R100 000, which is double the amount you have "lost" on your own sale.

Also consider the real profit you will make on the sale of your existing property. Subtract the original purchase price from the discounted sale price to calculate the real profit, for example, if you paid R200 000 five years ago and sell for R450 000, your real profit is R250 000, less sales costs such as commission. This calculation ignores any bond repayments since you would in any case have had accommodation costs during that period.

A word of caution though: Although the interest rate cycle is on a downward curve and is expected to bring about lower bond repayments in the course of the next year, it is always prudent to make sure that you include a safety buffer in your calculations in case the unexpected happens and rates increase.

Article by: www.chaseveritt.com