If you’re looking to buy and sell a property at the same time, it’s vital you familiarise yourself with the current climate of the market to ensure your timing is right.
When deciding whether or not to sell your home, it’s important to know the best option for your situation. Should you buy, or sell first? Should you upgrade, or just renovate?
The first step is finding out how much equity you have.
“Second home buyers are in a great position if there’s been good growth because they don’t have to go through the process of saving again, like they did for their first home. They’re just leveraging off the equity in the home they own,” Mortgage Choice broker Tim explains.
If you have enough equity, you may not need to sell your first home at all – you may be better off turning one home into an investment property. However, if you don’t have the equity up your sleeve, you may need to sell in order to buy the home you want. So, how do you do that?
Follow Tim’s home loan boot camp to discover whether you should buy first, sell first, or renovate.
Tim would recommend considering buying first to avoid getting locked out of the market – which can be a risk if the market is on the rise in your city or suburb.
“I’ve seen it with many clients before, where they’ve sold and haven’t got back into the market for a year because they haven’t been able to,” Tim says. “They’ve gone to auctions, they keep losing, they can’t buy – it’s an aggressive market, a competitive market, and next thing you know, they’ve paid a couple hundred grand more [than they should have] because the market has jumped so heavily while they’ve been looking.”
If the market is on the up, you may even be able to sell your home for more than you originally thought if you hold onto it for that extra six months.
The other bonus is that you can move directly into the home you’ve bought, and avoid a bridging period that requires you to rent or move items into storage.
However, buying first requires you to have the funds to service two mortgages or two properties at once. If you’re not in this position, you will need to sell first…
The only scenario in which Tim would suggest selling first is if the market is in decline.
“You could sell at the peak of the market and then two months later buy in a declining market, in which case you’ve won,” Tim says.
In other words, if you sell your home for $1 million, and then the market drops, allowing you to buy a better home for a similar price or less – this is the ultimate real estate jackpot.
Buying your home before you sell up may require extra saving, but it could be worth it. Picture: Caroline McCreddieHowever, predicting a declining market is very difficult, which is why Tim would recommend buying first, if you can afford to.
“Some clients don’t really have the confidence or the cash buffer to [buy before they sell],” Tim explains. “In the case that you can’t sell and have to hold two properties for a period of time, you need cash up your sleeve.”
The other option is not to sell at all and renovate instead. If you’re selling for an extra bedroom or bathroom, Tim suggests renovating to save on stamp duty and agent fees.
“If you’re going to do that, you’re going to burn that money, plus buy a property worth $200,000 more and increase your mortgage by close to $300,000, all for an extra bedroom,” Tim says.
“Why don’t you look at doing an extension on your house? That might only cost you $100,000 and you’ve done a bathroom, and a bedroom and a laundry – and you haven’t had to move.”
If you can’t renovate, Tim would also encourage you to ask yourself if you can hold on to your property as an investment.
“Rent the one you own now,” Tim encourages. “As a broker I would rather see you accumulate property, than sell one property to buy another.”
Click here for more information.