“Should I sell my property before buying my next dream home?” It’s one of the most common questions a real estate agent is asked by owners.
There’s no right or wrong answer, of course. The process of whether to buy or sell first is often dictated by circumstances, your financial position, risk threshold and local market trends.
Why is there risk? Put simply, there’s always a possibility your existing property doesn’t sell as quickly as you’d hoped, or you couldn’t achieve your desired price.
Many people are willing to embrace a level of uncertainty if they find their dream home.
The alternative is to wait until you sell, which might take between four to six weeks on average. By that time, your target property may have been won by another buyer.
It’s not the end of the world if you find yourself in a position of owning both your new and old homes. A bridging loan from your lender will get you through this period, but it can hit the household budget pretty hard. You’ll be servicing two mortgages.
Alternatively, you can rent out your existing home. While this is quite a complex and possibly short-term solution, it gives you the opportunity for an extra revenue stream to service the bridging loan.
However, we would recommend talking to your accountant or financial adviser before going ahead with this option, as there will be tax implications.
A cleaner approach may be to negotiate a longer settlement period when you buy. Most settlement periods are between four to six weeks, often depending on the speed at which your bank can process your new mortgage.
It’s quite common for buyers and sellers to negotiate a settlement period of 12 weeks. Below, we’ve given you a list of pros and cons for buying your next home before selling your existing property.
Pros of buying before selling
Perfect match – If you’re going to buy before you sell, then you want to do this for the right reason – that is, you’ve found your dream home!
Quick relocation – There will be no need to put your furniture in storage or rent a home if you buy first. Moving in will be a snip.
Less pressure – If you sell first, you can feel intense pressure to find a new home in a matter of a few weeks.
Cons of buying before selling
Different kinds of pressure – With your finances committed to a new home, you may feel you need to sell urgently. Circumstances may persuade you to take the first offer, or a lower offer than you had anticipated. In this situation, you may feel you have to hold your nerve. This is where the value of an experienced agent really comes into play.
Two loans – Even if it’s only temporary, you may find yourself servicing the mortgage for your new property and a bridging loan for the old one. You need to justify to yourself that the new purchase is worth risking this scenario.
Changing market – The real estate market can change quickly. Right now, it’s resales are increasing but that’s no guarantee you will sell quickly.
Rental overhead – If you take the option of renting out your old home, albeit temporarily, you need to be aware of the additional work involved. Seek professional financial advice and hire a property manager in a real estate agency to help you.