Wednesday, March 23, 2011

Sell before you buy - the better option

The housing market is a similar type of ‘beast’, regardless of which state you live in. Varying dynamics, resources and economics affect each of the states in different ways – that’s a given. Yet people’s needs to have a roof over their heads, desire to upgrade, downsize or simply live in a different location rings true wherever you are.

In South Australia there’s a noticeable trend amongst consumers that’s quite different to those on the Eastern seaboard. It’s the need to buy first, and then sell.

Perhaps this is well founded in a boom market when property is highly contended, prices are escalating and the good homes are sold in a matter of days. But right now there is certainly no shortage of beautiful homes available and this approach to transacting property makes little sense.

While the knowledge of having a roof over your head may offer much needed security, the financial burden imposed by buying first can be far from comforting for most.

First there’s the real risk of spending more than you have.

People move homes for a multitude of reasons, with the most common being to upgrade and therefore take that next step up the housing price ladder. This often means tightening the budget that little bit more for the first 12 months or so, while you build up the equity in your home. The last thing you want to do is over spend.

When buying first you are virtually ‘guessing’ how much cash you’ll get in your pocket from the sale of your current home. If you find yourself saying “Well if we get an extra $30,000 for our property, we can afford this one – let’s buy it”, then batten down the hatches and cut up the credit card. In a market that’s slowing, getting ‘top dollar’ by boom standards is a lottery ticket you simply can’t rely on. What you can rely on, is the cold hard cash from a completed sale.

Then there’s the topic of bridging finance.

If you’re downgrading, go for it! It’s highly likely that your sale will cover any of the outlaid costs and you’ll still come out better off. When you’re upgrading this exercise can be an additional un-wanted cost on top of an already pricey process. Really, this is a last resort. Like mortgage insurance, if you can avoid it, do!

Now that’s all assuming you buy your new property cash unconditional. If you buy it ‘subject to the sale’ of your own home and your current property doesn’t sell, then you could risk loosing the one you had your heart set on.

Of course there’s a risk to selling first as well, and that’s not being able to find the home you really want. A longer settlement or short term rental can easily solve this problem, plus the added attraction of you being a ‘cash buyer’ will put you at the forefront when making any offers on a new home.

From my view, the pros far outweigh the cons when it comes to selling first and then buying. What do you think, is the financial risk worth it?

Mandy Wurth, General Manager
© Toop Real Estate Group

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