Quote:
Originally Posted by Alex from Montreal
To make a profit, you got to trade down (i.e. buy the next house less than the one you sold). Unfortunately people tend do the opposite.
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incorrect.
Here's the thing. If you put 20k down on a 200k house, and sell it for a 20% profit 2 years later, you make 20% on 200k (40k).
Now, if you use all of that money to buy up, your next 20% profit will be on 240k, not 200k.
You do this by (surprisingly) buying low and selling high. You sell for the best money on that level, and buy for the lowest dollars on the next level up. You keep leveraging yourself up, and you keep increasing value.
So you buy at 200k, sell at 240k, buy at 240k, sell at 300k, buy at 300k, sell at 350k, etc. Done right, you stay ahead of the market, and you continue to get better and better properties at each step. You may have to trade away some location, or be first one to buy into a new project to truly make this work, but it can be done. It is one of the reasons buying new can be such a boost, because you avoid renovation costs up front, and it you can tolerate living in a construction zone early on, you get the benefits of steadily increasing property values as the community fills in.