#364 Navigating A Hot Real Estate Market

Housing Costs

Today we want to discuss the real estate market. As the spring and summer months are heating up, weather-wise, you have likely noticed that the real estate market is heating up as well. There are many factors that contribute to the rise in the real estate market this time of year. People with kids that have been considering moving, now, have more free time to search for a new home with school being out. With the warmer weather people are more eager to get out of the house. Whatever the reason may be, the real estate markets seem to historically increase this time of year. From a financial planning perspective, the purchase or sale of a house is the largest transaction that most Americans will ever deal with in their lifetime. When buying or selling a house, you always want to make sure you have done all your research in relation to your overall financial wellness and goals. There’s a lot of costs associated with buying a house. Up front, you might have the initial realtor fees and moving costs but there are also other ongoing costs such as the mortgage payment, principal and interest, real estate taxes, insurance costs, maintenance and many more that things that you want to be sure you’re including when making the decision. Also, if you’re moving into a larger house, there can be considerably higher bills such as an increase in utility cost from what you’re used to. Making sure that the move fits into your overall financial plan and doesn’t prevent you from reaching your other goals is paramount when making this type of decision.

Taxable Gains

A lot of times, when people sell their houses, we are asked questions on whether they will have to pay taxes on the money they gain from the sell. Anytime you sell something and expect to make a gain on it, you naturally might think you would have to pay taxes on it. However, in this case, as long as you have lived in the house and have used this property as your primary residence for at least two of the last five years, you get an exclusion on the gain that you realize after the sale. For married couples filing joint returns, that gain is up to $500,000 and for single filers, the gain is up to $250,000. To determine that capital gain you would look at the sell price of the house less your tax basis. To calculate that you would need to determine the price that you initially paid for the house and add any deductible sales expenses. On top of that, you can add in any capital improvements that you have made to the house over the years, which can be very significant. We tell people when you’re doing these projects even though you don’t plan to sell your house for several years make sure to keep a good record of how much you spent so you when you do sell it you can have documentation of those upgrades.


One question we often get is about taking equity out of a house you’re selling to purchase a new house. Often you see houses going on the market that sells immediately and is under contract in a couple of days. People have asked if they can get money out of the house that they currently own in order to buy the next house before they have sold the current house that they’re living in and the answer is yes. If you have equity in your property, you can work with a banker to get either a home equity line of credit or a bridge loan to pull money out of your existing house before you sell it in order to put down on the new house or buy it outright. There can be some risks associated with this. There are costs and interest that you must pay on these loans, but they’re good options if the need arises.


Jay McGowan, CFP®, CPA, PFS
Senior Vice President
Director of Financial Planning
Email Jay McGowan Here


Jason Hatley, CPA
Senior Vice President
Director of Financial Planning
Email Jason Hatley Here


Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Economic forecasts set forth in this presentation may not develop as predicted.

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Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.

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