Upgrading or downsizing: Buy or Sell Your Property First?

Upgrading or downsizing: Buy or Sell Your Property First?

 

Looking for that next move but facing the dilemma of whether you should buy your new home, or sell your current home first? 

It’s probably the biggest dilemma you face when making the decision to move on from your current home. The catch-22: If you sell, you’ll know your budget, but what if you don’t find the right ‘one’ to move to? Or you have found a property you want but don’t know if you can afford it without selling first. So, what should you do?

 

Selling your existing property first:

 

If you sell first, without having found your next property, you are risking pricing yourself out of the market. 

With the way house prices have been rising, it’s tempting to want to sell your house to realise some of the capital gain you have probably accumulated. However, any property you’re looking at has probably realised the same amount of percentage capital gain. If you jump off the proverbial train, you’re risking not being able to jump back on it at the level you are expecting to, leaving you in a worse position than if you had held onto your property.

This probably seems like an obvious point that you’ve already thought of. However, we see this way too often. You might not intend to wait long for that next purchase, but expectations and emotions can get in the way from quick, smart decisions that can see you slide back down the property ladder, especially if you’re planning to upgrade your home.

The only upside to selling first, is it allows you to have a clear and definite understanding of your deposit available for your next purchase. However, your deposit quickly deteriorates if it is a rising market and you have agents’ commission to pay on the sale of your home, which can cost tens of thousands of dollars.

 

Buying your next property first:

 

Depending on your reason for moving on from your current home, it can be hard to find the right property for your next move. It’s quite the upheaval moving house so you don’t want to have to do it more times than necessary. Purchasing first can give you the certainty of where you’re going compared to selling first, where you may end up having to rent for a while or put all your belongings into storage adding to wasted expenses.

Buying your next property first allows you to stay in the market while also having the freedom and time to find the right next property for you.

The question is, HOW do you get over the hurdle of not knowing how much you can afford for your next purchase? This is where a good mortgage adviser is your best friend. 

A good mortgage adviser can give you a solid understanding of your borrowing power and the finance options available to you. They are your most powerful tool through any purchase process. Once you get a good understanding of your borrowing and purchasing power for your next property, the next thing to consider is whether or not you will have enough time to sell your existing property. 

If you decide to have the sale of your existing property as a condition in your contract for the next purchase, you’ll be very lucky if you ever actually purchase your next home. In a hot market, you have a lot of competition. If you were a seller presented with two offers of a similar price, one an unconditional offer and one that has a condition of sale of an existing property, which would you choose? The unconditional, right?

Your best position is to offer a sure deal, so the seller of a property has certainty for their next move. There are two solutions; one, offer a longer settlement period or two, don’t sell!

 

Don’t sell, just buy:

 

I know it sounds easier said than done, but if you’re prepared and educated, it’s not as scary as it seems. If you have enough equity, you may be able to purchase your next home and keep your old one and not take a hit financially.

When you speak to your mortgage adviser, they can help you understand what your borrowing power is like with the additional income you would receive from rent if you decide to keep your existing house. 

There are so many positives to keeping your existing house…. It’s probably too long for this article (so I’ll probably write another one just on this subject, watch this space!) but I can tell you from my own experience what I’ve learned from buying a home without the certainty of knowing we could definitely keep our existing property:

  1. If the bank trusts you, trust yourself – our mortgage adviser, and my team mate, Lillian Nguyen says this and it’s spot on, the bank makes you jump through hoops to prove you can afford what they can offer you in terms of lending, so don’t be scared of a mortgage.
  2. There’s always a solution – the fear of the unknown is the biggest thing that holds you back for most things in life, not many people are actually willing to take a leap of faith, those that do and succeed reap the rewards of their educated decisions.
  3. The long-term benefits, outweigh the short-term gain – Last year, my husband and I were so uncertain of our ability to hold onto our existing house, after going unconditional on our next home, we put our existing house on the market and went to auction, it wasn’t until the last few days before the auction that we were sure we could hold on to it and settle on our new home. We had set our reserve price high after listening to Lucia’s advice, which was far higher than we would have thought it would actually sell for at that time and let it pass in at auction. So, you can imagine the temptation of an offer post auction, much higher than we had first thought we would get if we sold the property. The extra cash would’ve gone a long way to making our next home our dream home, but we stuck to our guns and kept the property.


Fast forward a few months and our new home did become our dream home with the extra borrowing ability we now have, and our old existing property has surpassed the value of the reserve price we initially thought was outrageous. 

In a nutshell, I feel like we’ve gained ten years’ worth of wealth in this short time (less than one year) that we would otherwise have lost, if we hadn’t taken that leap of faith and held onto our old property.

If you want to fast track your goals, whatever they be, property investment is a powerful way to get there, if you want to learn more about how you can leverage your existing property’s equity come along to our next workshop: FIND OUT MORE

 


Melanie Evans – Property Coach |  support@luciaxiao.co.nz