Are you nearly ready to upgrade your home?
It’s often a natural progression – we come to a point where the house is just too small to fit everyone comfortably. Maybe it’s got to the stage where you really need a home office.
When you decide to make the move, one of the biggest questions will be – ‘should I sell my home before I purchase the next property, or buy first and sell later?’
Selling first…
One of the biggest benefits of selling you home first, is that you won’t commit to a new home until you know how much your old home has sold for. It’s difficult to shop for a property without knowing what your budget is, so this method is safest if you want to avoid getting yourself in some hot water financially.
It’s easier to get finance when you sell first, because you will ideally have some equity from your original home ready to contribute to the purchase of your next home.
If you sell your home first, you won’t be trying to cover the cost of two loans if your home doesn’t sell as quickly as you thought it would. You could also request a long settlement period when you sell, to give yourself time to search for a new property.
One the flipside though, if you aren’t able to get a buyer to agree to a long settlement, you might be forced to rent while looking for a new home. This means moving twice, unpacking and repacking, and going through all of the fuss of sorting out utilities, internet and other services.
If it takes a long time to find another home, there could be upward movement in the property market, leaving you with less purchasing power to buy the type of home you want.
Buying first…
If you’re financially able, buying first can be a lot more convenient. There’s no need to rent between homes. You might even be able to move into the new home before you sell the other, making it a lot easier to keep your original property looking nice for inspections.
Many people find their dream home before they sell. If you have already stumbled on ‘the one’ it probably won’t be on the market by the time you sell and settle on your home.
However if you take out bridging finance, you will be paying a loan on both homes until your old home is sold. So depending on your financial capabilities, this could be a risky decision.
It might take a lot longer to sell your home than what you estimated. Sometimes there is no good reason why some properties sell almost immediately and others take quite some time to move.
You might feel pressured to sell quickly if you already bought, and you could end up accepting a lower price in order to get it over and done with.
Renting your home – the other option
This one is definitely a conversation to have with your accountant, but if you can afford it – the other option is to keep your existing property and rent it out.
This could get you on the fast track to creating wealth through property investment – just make sure you get the right tax advice and check that you can cover all of your costs.
It’s particularly important to budget for times when you might be in-between tenants for a few weeks or more. Could you cover both loans while there is no rent coming in.