Should I buy before I sell?
Buying first means that you can take your time with purchasing, with no hurry to sell your current residence. You can make offers without rushing and make them with the seller’s objectives in mind. This includes offering settlement terms that may be attractive for them. Not being desperate to purchase leaves you in one of the best negotiating positions. This is particularly so when buying from a vendor who is urgently wishing to secure a sale.
If you find the perfect home, you may just be tempted to buy first. Not doing so can risk you missing out on an opportunity. In fact, purchasing another home before selling means that you can also benefit from any subsequent capital growth in those area. This goes for both your current home and the one you buy. You can also take your time moving from one home to the other.
Yet, there are specific downsides. If, subsequent to purchasing, your home isn’t selling as quickly as expected, then you may face anxiety and financial hardship. This could leave you in the “desperate vendor” position you benefited from before, selling at either less than the home is worth or to terms that don’t suit you very well. Holding onto an asset unnecessarily can be a money drain. It also means that you cannot invest those funds in other ventures. Clearly, this is not an ideal situation.
Similarly, your lender will not necessarily provide you the funds to purchase your next home until your current primary place of residence is sold. If this is the case, then your only option is to sell first, or to face adding clauses into your contract ‘on condition of sale of current primary place of residence’ that may be unattractive to a seller wanting a quick sale. Rushing the sale puts you immediately on the back foot.
If the bank does accept that you can hold both assets, ensure that you can comfortably afford it and won’t end up regretting your choice when your cash flow is limited. It may be worth considering renting out one of the homes, even on a short term basis, until your property is sold to counter the repayments. Speak to your accountant about the implications.
If you own your current home outright, then you may be in a better situation to borrow for your next property while holding both.
Another point of consideration is that, just as you may benefit in a rising market, a falling market may see you with two depreciating assets. Of course, markets don’t move overnight. However, holding onto a home for several months may not get you the same result as today’s expectation. If you do then sell for less than planned, then you may find that your overall situation does not align with what you, or the bank, had in mind.
