Considering that most homeowners require the equity from the sale of their current home to go towards the payment of their new home, those battling with the decision to either buy a home or sell their current home first might find themselves caught between a rock and a hard place. Luckily, there are a few aspects you can consider to help you decide how to make your first move:
Buy first but possibly face paying two bonds
If you’re in the rare position of not needing the equity from your current home, you still run the risk of being stuck with two properties if you buy a new home before selling your first home. While this could be fine as a short-term solution, it may not work for you in the long-run. In this instance, you’ll need to have a contingency plan in place and could possibly consider renting out the old home as a source of income until you’re able to sell the property.
Sell first & pay occupational rent
If your cash flow is dependent on your current home selling first, you could sell the property and then negotiate with the new owners that they rent the property back to you until you’re able to find a new place. However, the success of this option will depend on how eager the new owner is to move into their new home. This will also mean that you’ll have to pay occupational rent. Alternatively, you could find temporary accommodation with family members or friends or at a short-term rental. In this instance, storage facilities may also become a necessity.
Request an advance on your home equity
Instead of selling first, you can opt to have the money bridged before the sale of the home is concluded. The bridging finance will be based on the equity available on the property, your credit record, and the expected cash inflow. The downside of this option is that most bridging finance schemes will give you around a six-month period to sell your home. This could rush the sales process and force you to accept offers you might not have considered otherwise.
Sign an OTP subject to the sale of your home
It might be the safest option to stay in your current home while looking for another home. Just be sure to request that your Offer to Purchase (OTP) is subject to the sale of your current home. This allows you to have more time to research and find the home that ticks all the boxes before making a move. The only downside to this is that this suspensive condition can make your offer less appealing to sellers, especially if another buyer makes a cash offer on the same property.
Local market conditions can help you decide
The type of home, price range and availability of other similar homes will directly impact how long it will take to sell your property as well as how long it will take when searching for properties. This is where the use of a real estate professional will be incredibly helpful. As area experts, they can provide advice and insight around the specific factors that influence the property market in your particular area. The agent will be able to give your insight into how long homes are sitting on the market for on average, and how much they are selling for. This information will be crucial when gauging time frames and possible equity expected from the sale.
Final Advice
Regardless of whether you decide to sell first, or buy and then sell, each option has its element of risk. You should ask yourself whether it would be better to sell first and possibly have to find temporary accommodation until you find a new home, or buy first and possibly have two bonds to pay until the one home is sold (which is why most choose to have the OTP subject to the sale of their current home to avoid this). Either way, you’ll need to be prepared and have a plan in place to deal with the consequences of each scenario.
