So, you’ve made the decision to put your property on the market? It’s an exciting time, but there are a few boxes that need to be ticked to ensure the process is as smooth as possible – and you don’t miss out on securing your next home.
Before you do anything, it’s important to be clear on your selling strategy upfront. To help you decide on an approach, here we look at the reasons for selling your current home before buying your next one, or whether you should do it the other way around.
What are the benefits of selling first?
Depending on your financial circumstances and the urgency of your next property purchase, selling your home first makes sense for so many reasons:
- Know your purchasing power. Once you’ve sold your home, you’ll know exactly how much capital you have available to purchase your next one, plus you’ll have these funds ready to go once you’ve made an offer.
- Try before you buy. Just because you sell your home first doesn’t mean you have to buy your next one straight away. To see if you like a particular suburb, you can always rent for a while in that area and get a feel for the location.
- Extend your settlement date. So, once you’ve accepted an offer on your home, you could negotiate with the buyer to extend your settlement date and give yourself more time to find your next property.
- Enjoy a simpler selling process. If the housing market is ‘soft’ it often makes sense to sell your property first as it could take longer for a buyer to come along. While the wait to sell can be frustrating, it does mean you avoid the stressful situation of managing 2 home loans at the same time.
Although there are many benefits to selling your home first, there are a couple of potential downsides that are worth bearing in mind:
- Rising property prices. If you do sell your current home before buying your next, there’s always a chance that property prices will go up between the time you sell and buy. This could mean that you end up spending more on buying your new home than you anticipated.
- Potential rental costs. If you don’t manage to find and buy a new home by your settlement date, you will need to rent a place over the short term. Not only can this be expensive -- and eat into your house sale profit -- but it can be stressful too as you’ll be moving your family and possessions twice within a relatively short period of time.
What are the benefits of buying first?
Buying your next home before you sell your current one is often seen as a riskier strategy.
If you decide to purchase your next home while still owning your current property, it’s worth noting some of the potential downsides:
- Softening housing market. Let's say for instance you overestimate the value of your current home and then proceed to buy your next home from an over-optimistic position. The potential risk here is that the market softens in between and you end up selling your current home at a price significantly below what you anticipated.
- Managing 2 home loans. Owning 2 properties at once means that you will need to manage 2 home loans with different monthly repayments. Often, both repayments combined can amount to a significant value. Therefore it’s important you do the calculations upfront to ensure you can comfortably manage both loans.
- Reduced borrowing power. Your borrowing power could be reduced if you have an existing mortgage while applying for another home loan. Speak to your Home Finance Manager to understand exactly how much you can borrow. If you have accumulated usable equity in your current property you may be able to use this to purchase your next home.
While it’s good to be mindful of the above, it doesn’t mean you should never buy your next home before selling your current one. In certain circumstances, it does make sense and there are benefits, like when:
- Market conditions are favourable – if the property market is buoyant, it could be OK to buy first, as you may be able to sell your current property quickly. You might even plan to line up the settlement dates for the sale of your current home with the purchase of your next property.
- You have greater financial flexibility – if you’re in the fortunate position of being able to access a large pot of cash, have time on your side, and can manage 2 home loans at the same time, then buying your next home first is definitely an option.
- You have built up equity – if you have built up significant equity in your current home, then you’re in a stronger position, as you can use it to secure finance on your new purchase.
Things you should know
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This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.