Grab Your Big Real Estate Gains and Run?

If you bought a home two or three years ago you are a financialgenius. In many areas real estate values have blasted up, up andaway and left you sitting pretty.If you have resisted the temptation of easy money home equityloans, chances are that you're sitting on a big, fat profit.Perhaps it has crossed your mind that the big run up in pricesis nearing a peak and values could come tumbling down. If thatwere to happen your big, fat profit would become very skinny ina hurry. That kind of financial weight loss you just don't need.This article is not meant to promote the idea that we areactually experiencing the effects of a real estate bubble andthat inevitably that bubble must burst. That could be the case,but honestly, who really knows? But if a reversal is ahead, whatcan you do to avoid watching the value of your home plunge andyour equity profit vanish?Across the country, in the real estate markets that have beenthe hottest, some homeowners are selling and temporarily movinginto apartments. They feel that they are selling at the peak ofthe real estate cycle and it could be years before they everhave a chance to sell for as much profit as they can get now.They just co...

...uld not tolerate doing nothing and then watch amajor decline in their net worth.Their thinking is that over the next 24 months or so, interestrates will go up. If interest rates go up one or two percentmany people will be priced out of the home buying market. Thatmeans less demand for homes and less demand means lower prices.That and other factors could result in falling home values. Theywant to pull their big profit out now, bank it and wait forprices to fall. As real estate prices move to the lower end of the cycle, thesesellers will then buy another home. In a way this will allowthem to have their cake and eat it too. One of their choiceswill be to buy a home equivalent to the one they sold, but at alower price. In this case they can allocate the remainingportion of their profit to other investments.Another option will be to use all of the cash they received fromthe sale of their original home to buy a more expensive house. Still another choice would be to sell and take their money toanother area where real estate prices have not skyrocketed andbuy a much nicer home. Family and employment obligations preventmost people from doing that.What could go wrong with any ...

...of these plans? Home prices couldjust continue to climb. Then these sellers would be left sittingon the side lines, unable to even afford the house they justsold. Even if home prices just stayed flat without declining,they would still be stuck. The cost of an equivalent home, plusbuying expenses would exceed the profit they earned from thesale of their original home.The other challenge to their plan is what to do with that big,fat profit once they had it hand? Can they find a safeinvestment that could earn more than real estate? Due to theeffect of inflation the buying power of the cash would diminishevery day if they just sat on it.Finally, you can do as most home owners certainly will. Nothing!That's fine as long as you have not refinanced all of yourequity out of the property. Then if values drop you will be "upside down". That means you will owe more on your mortgage thanthe home is worth. That thought may scare some home owners intoselling just to get out even.Now that you've come to the end of part one of this article youare ready for the perfect solution to this potential situation,right? You certainly are an optimist. Sorry, not enough roomhere for solutions.