Can you remember the experience of buying your first house?
I can’t speak for you, but I know that for me personally, it was a pretty big deal.
When you become ready to move up in the world by upgrading to a bigger or more suitable home, that process can double – in time, in complexity and in stress.
According to the ABS data from the last Census, 43 per cent of Aussies have moved house in the last five years, and 84 per cent of the movers did it while they had a mortgage.
In other words, for the majority of us, buying and selling is something we will have to deal with sooner rather than later and because of the mortgage we are usually bound to, we will have to be smart about how we do it.
There are pros and cons to every decision you make regarding buying and selling but ideally you want to make money and avoid stress.
In a perfect world, selling your current home would smoothly align with your offer being accepted on your new dream home, resulting in a speedy exchange.
But of course, as we know, the world is not perfect and this is rarely the case.
Instead, we frequently are left with the million-dollar question: what comes first, buying your next property or selling your existing one?
The safest option, in my opinion, is to sell your current home first
It is less stressful and less expensive in the long run because:
a) You know exactly how much money you have to spend on your new property.
b) You are under less pressure to sell by a deadline and won’t have to accept a sub-par offer.
c) You won’t need bridging financing and the resulting stress and cost of financing two mortgages at once.
d) In many instances, it is possible to negotiate a delayed settlement to give you time to buy a new property
Of course, the safest option isn’t always the most viable one for your particular situation and there are a lot of variables to take into account.
1. How much you have to spend
If you already have the cash for a new property or enough to afford a bridging loan than the timeline for selling your previous home isn’t quite so pressing.
If you are relying on the equity in your current home to afford a new house though, then selling becomes the priority – especially if you are upsizing.
Overestimating the value of your home and buying a new home based on that optimistic figure could be a recipe for disaster.
2. Your reason for moving
Sometimes personal circumstances necessitate buying a new property before selling your old one.
For example, if you have to relocate because you are starting a new job, need to care for an aging relative, or want to downsize, it impacts the order of buying and selling.
Moving to a highly sought after area could also influence your decision – if you don’t buy when something comes up, you might miss out.
Buying first can also be convenient as it makes for a more seamless move and eliminates the need for renting in the meantime.
On the other hand, if you don’t have a compelling need to buy elsewhere, you could be putting yourself under a lot of financial pressure to sell your current house for less than it is worth because you have mortgage bills on two properties piling up.
3. Your appetite for risk
Some people are natural risk takers and seem to be able to take the associated stress in their stride.
Others need more control and want to know exactly what they are walking in to before they make any decisions.
Your personal risk threshold can have a significant influence on your decision to buy or sell first.
People with a high risk threshold are generally more comfortable buying first.
They are people who can a) financially afford to take the chance or b) are astute investors who are finely tuned to the property market – willing to take risks in a rising market but err on the side of caution in a falling market.
One attempt to control the variables – and minimise the risk – in the buying and selling process is to enter into a conditional contract.
4. The property market
If you have the luxury of time – and even if you don’t – researching the property market for both the property you are selling and the one you are looking to buy is important.
It will give you confidence to make a decision about whether to buy or sell first.
If the market is hot and property prices are rising then buying first can be a smart way of getting more for your money and making more from your current home sale.
In a hot market, selling first could actually work against you. If affordability is tight, it is possible to actually get priced out of the market if you wait too long.
When the real estate statistics indicate falling property prices, however, it is likely your home will sit on the market for a while.
During this phase of the property cycle, it makes more sense to sell before you buy your next home.
While individual circumstances largely dictate your decision to buy or sell first, it is rarely advisable to buy first if you are just hoping to get closer to the beach or you have found your dream house.
Getting good advice and keeping a close eye on the property market can help you make a wise and well-timed decision.