Total cost of buying target house right away
$ (13,583)
As you can see, in a rising market, where the new house is worth more than the old house, there is a
significant benefit to using a private loan to purchase the new home and sell the old home at a later
date. Waiting 9 months to eventually acquire the new house has tremendous opportunity costs, as
compared to a net benefit of purchasing the new house right away and eventually selling the old
house.
Although assuming a 1% per month appreciation of real estate may seem aggressive, the San
Francisco Bay Area, and specifically the Silicon Valley, has experienced such growth. However, even if
we lower the appreciation to ½% per month, we still see a fairly significant benefit to purchasing the
new house now rather than waiting to first sell the old house and then buy the new house.
Scenario:
Does it Makes Sense to
Buy a New House before
Selling the Old One?
Homeowner owns a house worth $1,000,000
Current 1st mortgage $(200,000)
Equity $800,000
Desire to purchase home worth $1,400,000
Available cash in bank $100,000