Should you buy before you sell?

Whether it’s having to constantly ensure your property remains clean and tidy, getting the family out of the house for inspection after inspection, and waiting and negotiating until you get the best price, anyone who has sold a property will tell you how stressful and time-consuming it can be - now imagine buying a new property and selling your old one at the same time.

A recent report in the  Daily Mail on the most stressful things in modern life put buying or selling a property at the very top of the list, ahead of often emotional and traumatic experiences including divorce, the death of a loved one, and bankruptcy. With the amount of money at stake in the buying or selling of a property, it’s not hard to understand why.

While some homeowners might live in the first home they bought their whole lives, others choose - or may be forced due to circumstances - to sell and move to another.

If you’re contemplating selling up and buying a new property, you might also be tossing up whether you should take the plunge and snap up that dream home you found before the sale of your current property is finalised, or before it’s even put on the market.

Like any big, stressful question, there are a number of pros and cons to consider, but at the core of the answer is examining what it is exactly that you want to get out of both the new acquisition and the sale so you can determine the best course of action to help you navigate the current state of the housing market.

Perhaps the most important factor to consider is money. Buying before you sell can be financially strenuous, as it means you would not have the capital from the sale of your current home to assist in the purchasing of your new one. Homeowners with an existing mortgage who make the decision to buy first usually go through their bank to secure a bridging loan. Bridging loans cover the difference between the two transactions, typically over short periods between six to 12 months to give borrowers a solid amount of time to sell. However, like any money lent to you, a bridging loan is not free, and in fact can cost more than your average home loan when it comes to interest rates, so it’s wise to discuss your financial situation with your real estate agent so they can take this into account when planning out your course of action.

If taking out a bridging loan, it’s also important to keep in mind that this means a commitment to repayments for both properties until one is sold. Due to the amount of time a property typically spends on the housing market before even reaching the settlement process - an average of 45 days -  the costs can add up and leave you worse off financially than you would have been had you sold - given the amount of money involved in these transactions, this could set you back in the long term.

Similarly, stretching a partially paid off mortgage across multiple properties can put you in the position where you might be in a hurry to sell in order to avoid paying too much in fees and repayments. This can put you at a disadvantage when negotiating the sale of your current home; with time a factor a quick sale might be at the top of the wish list, leading  you to accept a less than ideal selling price. According to the Moody's Australian Housing Affordability Measure, the average Australian household spends 27 percent of its income on its mortgage repayments, with this rising to up to 35 percent in Sydney - imagine paying off two.

While selling before buying can free up much-needed capital to assist in the buying of your next property - the property boom in markets like Sydney would also mean homeowners selling a property they bought several years ago would also be raking in a tidy profit - there are also pros to buying before selling up.

If you are someone with enough capital to simultaneously own two properties you might find it rewarding to temporarily rent out your old home while your agent looks for the ideal buyer. Between 2013 and 2014 the percentage of households renting privately has increased from 18 to 26 percent, according to the Australian Bureau of Statistics, which may be a growing trend among homeowners unsure whether they want to sell their property due to its potential to increase in value. Renting out your old property might help cover some of the agent fees, stamp duty,  and mortgage repayments, and help you hold out for the best price possible.

While it may feel overwhelming, making the decision of whether to buy again before you sell doesn’t have to be as hard as it seems. Just like the right real estate agent can help you find your dream home, an agent who truly understands you and your state of mind, your needs, and your financial situation can help you make the decision and from there, figure out your next steps.

Of course, finding the perfect agent is the first step - but that’s easy. With a complete catalogue of reputable agents throughout Australia OpenAgent can help you find the best agent for you.

For more information on the ins and outs of using a conveyancer or everything you need to know about online real estate check out our blog.

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Peter Kosmina

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