The real estate market is a multifaceted arena where various factors come into play when deciding on property transactions. One of the pivotal decisions for prospective buyers is whether to make an offer for a new property before or after selling their current one. This dilemma carries distinct advantages and risks, necessitating a comprehensive understanding for an informed decision-making process.
Why Australians May Choose To Purchase A New Property
There are various reasons why individuals or families might contemplate purchasing a new property despite already owning one. The decision to invest in another property often stems from a combination of practical, lifestyle, and investment-oriented considerations.
Upgrade or Change in Lifestyle: One of the primary motivations for purchasing a new property while already owning one is the desire for an upgrade or a change in lifestyle. As circumstances evolve, such as a growing family, a desire for a different neighbourhood, or seeking amenities that align more closely with one’s current needs, individuals might seek a new property that better accommodates these changes. For instance, moving from a smaller suburban home to a larger one in a family-friendly area to accommodate a growing household or changing preferences.
Investment and Diversification: Real estate is often seen as a valuable investment. Purchasing additional properties can diversify one’s investment portfolio and provide opportunities for rental income or long-term appreciation. Some individuals see real estate as a way to secure their financial future or as a means of generating passive income, hence opting to invest in another property even when they already own one.
Strategic Downsizing or Rightsizing: Individuals might contemplate purchasing a new property to downsize or rightsize their current living situation. Empty nesters, for instance, might want to move from a larger family home to a smaller, more manageable property, thereby releasing equity tied up in their current home for other purposes.
Capitalising on Market Opportunities: Market conditions can also prompt the decision to buy another property. During periods of favourable prices, low interest rates, or advantageous market conditions, individuals might see an opportunity to invest in a property that aligns better with their future goals or has potential for substantial appreciation.
The decision to purchase a new property while already owning one is multifaceted and often driven by a combination of personal, financial, and lifestyle factors. Let’s explore the pros and cons of making an offer on a new property before and after selling your existing property.
Offering Before Selling: Weighing the Pros and Cons
- Securing the Desired Property: The primary advantage of offering before selling lies in securing the desired property swiftly. In competitive markets where desirable homes sell rapidly, this strategy can be advantageous in locking in a purchase before other potential buyers.
- Negotiation Leverage: A committed offer before selling your property can provide stronger negotiation leverage. Sellers are more likely to consider or negotiate on price and terms when they know a serious offer is on the table.
- Time to Plan: Securing a new property before selling your current one grants ample time for planning and organising the transition without the pressure of an impending deadline.
- Financial Risk: Making an offer without completing the sale of your existing property can strain your finances. If the sale of your current home takes longer than anticipated, you might face the burden of handling two mortgages simultaneously.
- Contingency Issues: Some sellers may hesitate to accept an offer contingent on the sale of your current home, potentially putting your offer at a disadvantage compared to non-contingent offers.
- Uncertainty: Until your current property sells, an element of uncertainty persists. If the sale encounters unexpected delays or falls through, it could jeopardise your intended purchase or necessitate reevaluation of financial options.
Offering After Selling: Assessing the Pros and Cons
- Financial Security: Selling your property before offering on a new one ensures financial security. Knowing the exact amount available for the new purchase avoids the risk of managing two mortgages simultaneously.
- Negotiation Power: Having sold your property or having cash in hand positions you as a stronger negotiator. Sellers often favour buyers who have their financial arrangements in place.
- Clear Timeline: Selling before buying establishes a clear timeline. With the pressure to sell eliminated, you can focus on securing the best possible price for your current property.
- Temporary Housing: Selling before finding a new property might result in needing temporary housing, potentially causing inconvenience and additional expenses. This may include multiple mortgage repayments with different interest rates and fees, multiple council and water rates, and multiple ongoing repair and maintenance costs.
- Missed Opportunities: In rapidly changing markets, delaying the purchase until after selling may result in missing out on attractive properties that quickly get snapped up by other buyers.
- Emotional Stress: The uncertainty of not having a new home lined up post-sale can be emotionally taxing, particularly if there are specific timelines or family considerations in play.
Key Considerations Influencing the Decision
- Market Conditions: Evaluate the current real estate market. In a seller’s market, securing a property first might be advantageous, while in a buyer’s market, selling before buying could offer more flexibility. Consider that if property prices in the interim period between selling and buying were to increase, you may find that your new funds do not take you as far as you expected. Or, if you’re considering a new home loan and interest rates were to increase in this period, you may find that servicing a loan is now harder.
- Financial Preparedness: Conduct a thorough assessment of your financial situation. Calculate the equity in your current property, anticipated selling price, and potential proceeds to determine your purchasing power.
- Contingency Plans: Prepare contingency plans for both scenarios. If offering before selling, plan for handling two mortgages temporarily. If selling before buying, arrange for temporary accommodation or explore short-term rental options.
- Communication: Maintain open communication with real estate agents, financial advisors, and potential buyers or sellers. Their insights and market knowledge can provide valuable guidance in making an informed decision.
How Can I Pay For A New Property If I Haven’t Sold My Existing Property?
Several strategies and financial instruments can help bridge the gap between buying a new property and awaiting the sale of the current one, some of these options are:
- Bridge Loans: These short-term loans offer temporary financing, providing the funds needed to purchase a new property before selling the existing one. Bridge loans typically have higher interest rates and are secured by the current property’s equity, offering a financial bridge until the sale is finalised.
- Home Equity Line of Credit (HELOC): Utilising the equity built in the current property, a HELOC allows homeowners to borrow against the equity to finance the purchase of a new property. This flexible line of credit can cover down payments or other expenses related to the new purchase.
- Contingency Clauses: Including a sale contingency clause in the purchase agreement of the new property can offer a degree of protection. This clause allows the buyer to back out of the deal if the sale of their current property falls through within a specified timeframe.
- Renting Out Existing Property: If feasible, renting out the existing property can generate rental income to cover mortgage payments or contribute to financing the new purchase while awaiting its sale.
- Negotiation and Flexibility: Negotiating with the seller of the new property for a delayed settlement or flexible terms might provide additional time to finalise the sale of the current property, easing the financial transition.
- Temporary Housing Solutions: In certain situations, temporary housing arrangements, such as short-term rentals or staying with family or friends, might alleviate immediate financial pressure until the sale of the existing property is completed.
When considering these options, it’s essential to weigh the associated costs, risks, and potential implications on both properties. Consulting with financial advisors or real estate professionals can offer tailored advice to suit individual circumstances and ensure a smoother transition between properties.
Balancing Timing and Preparedness
Deciding whether to offer before or after selling your property involves assessing individual circumstances, risk tolerance, and market dynamics. Each approach presents unique advantages and risks, and there’s no universally applicable solution.
Ultimately, the most suitable approach depends on your specific situation and goals. Careful consideration, extensive research, and consultation with real estate professionals are essential for making a decision aligned with your objectives and minimising potential risks.
Ready To Begin Your Property Journey
If you’re in the market for a new home loan or to refinance an existing loan, contact Reduce Home Loans. They have a team of experienced mortgage brokers who can help you navigate the market, find the best loan product for your needs, and potentially save you thousands of dollars over the life of your loan. With a commitment to providing customers with some of the lowest interest rates in Australia and a range of loan products and features, Reduce Home Loans is the perfect partner for your home buying journey.
Any statements are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.