Denver Metro Association of Realtors’ recent report of a record-low number of active listings for single-family homes and condos (only 3,878 properties were available in February 2017), paired with (slowly) rising interest rates has many Denver homeowners wondering if it’s time to list their homes before buyers get scared—or forced—out of the market by higher mortgages. And let’s face it: Stories of bidding wars, double-digit appreciation, and cash offers make it a tempting prospect. But how do you know if the time is right for you?
It’s a question that often comes up for local investment advisor Rachel Namoff, founder and managing partner of Arapaho Asset Management, when working with clients on financial education and retirement planning in her Denver office. (Namoff’s firm also offers retirement planning seminars, held year-round, through Arapahoe Community College.) “We all have retirement plans in our heads, and real estate is a part of that,” Namoff says. “We try to extract that plan from your head and see if you’re on track to make it work.”
Here, five questions Namoff suggests asking yourself before listing your home in Denver’s white-hot market.
Is Your Home Show-Ready?
The first thing to consider is the condition of your current home. How much time and money would it take to make it ready for an open house? Ask your agent what needs to be done, and listen to his or her professional opinion. “You don’t want to wait until the house is on the market to hear the carpet is dated,” Namoff says. If your house isn’t in top showing condition, consider the cost and stress of getting it there and whether that will pay off in the end.
Where Will You Go Next?
Before listing your current home, do a thorough search of the neighborhood where you would like to buy next: The same conditions that make it enticing to cash out on your residence will impact your buying options. For those downsizing, the search becomes a bit easier, but Namoff says finding your next home can be the trickiest part of the transaction. Know the market value of your next home before listing your current one.
What’s Your Equity?
“There are very real costs to selling a home and moving,” Namoff says. “Will you need to increase your mortgage payment for the new home”—or will the market force you to rent before you buy again? Keep in mind the 20 percent rule (putting down less than 20 percent on a home requires the added cost of mortgage insurance), and if your current home equity won’t translate to 20 percent of the new home price after those closing costs and moving expenses, it may be better to stay put.
Could You Become A Landlord?
If you’ve outgrown your starter home and can afford the next step up, there’s always the option of renting out your home while values continue to rise. But before you opt to become a landlord, Namoff advises taking a hard look at the cash-flow requirements. “Real estate can be a great vehicle for retirement,” Namoff says. “But it’s not just about getting your mortgage covered. There are annual expenses that the rent must cover.” Things like taxes, repairs, insurance, and upkeep should be reflected in your rental rate.
How Much Can You Actually Afford?
Before getting caught up in the home-buying hysteria, Namoff’s key tip is to create a budget. Keeping an honest tally of monthly expenses helps clients from becoming “house poor,” she says. “It doesn’t have to be complicated; you can do it in a notebook or on your phone,” Namoff says. “But for one month, keep track of every dime you spend. If a month is too hard, try doing it for a week. It’s going to give you the clearest picture of what you can really afford.”