Smart Buying

Time to Move On?

Dramatic price drops are unlikely, but many homeowners are taking their profits anyway.

By Pat Mertz Esswein, Associate Editor

Dave Lindorff

From Kiplinger's Personal Finance magazine, November 2005

"That sale gave me a whole new life," says Walter. "My credit-card debts, car payments -- all gone. Plus, I have money in my pocket." Karen, who was a back-office clerk in a bank, was able to quit her job and stay home full-time with the couple's 12-year-old son, Jason, who's the only family member who misses the old neighborhood -- and the four girlfriends he had there.

Walter says home values in Mayfair have continued to rise to an average of about $175,000, but he has no regrets about selling when he did. He gained peace of mind -- and home prices in his new neighborhood are rising, too. Houses on his street that are identical to the one he just bought are now selling for up to $100,000.

Dial it down

Downsizing usually brings to mind empty nesters trading in large suburban homes often for less-costly condominiums that require minimal effort to maintain. But empty nesters conserving cash for retirement aren't the only ones moving to smaller digs.

Palda, a pharmaceutical sales representative, bought his first house in Burnsville, south of Minneapolis, in 2001. He paid $165,000 for the 2,000-square-foot, three-bedroom, two-bath home. At first, Palda enjoyed the responsibility of homeownership and the do-it-yourself renovations he undertook. But as his duties at work increased, "something needed to give," he says. "I didn't have time to keep things beautiful, and other stuff fell by the wayside. I wanted to be able to come home, walk the dog, then have a drink or go to a movie without getting in my car."

This past spring, following his instinct that his home's appreciation had peaked, Palda sold it for $263,000. For $400,000, he bought a 1,600-square-foot corner loft on the top floor of Tower Lofts, with a view of the Mississippi River. He made a 20% down payment to avoid having to pay private mortgage insurance and financed the balance with a 30-year fixed-rate mortgage at 5.75%. With the rest of his equity, he created an emergency-savings fund.

Palda's building offers such amenities as heated underground parking, a rooftop entertainment area and a property manager who can receive packages. Palda's property taxes have increased, and his condo-association fee is about $450 per month. But that fee includes most of his utilities -- it's about what he paid for utilities when he lived in his house -- and it covers services such as snow removal and landscaping. As a bonus, the cost of his homeowners insurance has dropped by about two-thirds because he needs coverage only for the interior walls and his possessions.

Moving on up

In today's high-priced markets, moving up to your next home may seem like a smart move, a calculated risk or the impossible dream -- or all of those rolled into one. Moving up can be particularly challenging if you want to stay in the same area where you live now. After all, if your current house has appreciated handsomely, so have houses that are a step up.

You could move out to the far suburbs to get more space and amenities for your money. But you might have to give up the lifestyle you're attached to -- a dream commute or ties to friends, family and schools.

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