The pros and cons of selling before buying property

The pros and cons of selling before buying property

[lwptoc]

It used to be common for people to sell their properties before buying another one.

The main reason was that they needed the funds from their home to finance their next one.

Over the years, though, as more people have become property investors, we have seen an increase in buying before selling.

Property owners have either drawn on the equity in their current homes or in an investment property to fund their next purchases.

Often, they would then sell that property, but sometimes they simply added it their portfolio and rented it out.

However, both of these strategies depend on particular market and lending conditions for optimal results.

Here are some reasons why.

1. More time to find a new home

Buying before selling provides more time to find your new home.

This is because you don’t have the time constraints of a looming settlement hanging over your decision-making.

A downside to this strategy is you do the need the funds available to finance the new purchase, which is not an option for many people.

This strategy provides the best upside in strong market conditions.

2. You know your budget

Selling first allows you to understand the budget you have for your next property.

This means that you can start your search in particular property price points, knowing that you will have no problem securing finance for the purchase.

This strategy works best in slower market conditions as you’re not waiting on the sale of your home to buy another one.

3. Lending considerations

Either of these strategies can come unstuck depending on what is happening in the lending landscape.

If banks are eager for business and are approving borrowing applications quickly then selling before buying is your best bet.

That’s because if refinancing to buy a property, instead of selling first, is taking a long time, such as it is at present, you may miss meeting the finance condition period set out in your sales contract.

Selling before buying, therefore, means you can submit an offer on a property with the funds already available to secure finance.

4. Know the market

Understanding your local property market is vital for either strategy, which is why it’s important to engage local experts such as sales agents to provide advice and guidance.

They will know whether the sales market is going gangbusters or is sluggish, which will ultimately have an impact on the potential sales price you can achieve as well as the potential purchase price of your next property.

There is a long-held concept in property investment about buying and selling in the same market, which means you are getting the same bang for your buck on both sides of the transaction.

That’s why knowing whether you should sell or buy first is a decision that needs careful consideration, so it aligns with your personal financial situation as well as your property investment hopes and dreams.