What are the risks involved when buying and selling in the same market?
- If you find the property of your dreams and exchange contracts without selling your property first, you may risk your property not selling for the price that you need in order to fund the purchase of the replacement property including associated expenses.
- The market will determine the sale price of your property. You may be left short of funds to complete the purchase of your new property if you have purchased before you sell. Our best advice is:
Sell first and then buy! - When purchasing a property, you need to make sure that you have enough funds to cover the full purchase price plus stamp duty (if any) and associated expenses.
- If you find a property to purchase before your house sells, you may need to consider applying for a bridging loan to cover the purchase price until you sell your property and receive the sale proceeds from that settlement.
- You may consider buying before you sell if there is a lot of competition in the market and property prices are rising. You may consider negotiating a longer settlement period on your purchase to allow you time to sell your own property. You need to consider and ensure that you will have adequate funds to purchase the replacement property before you sell your existing property.
- Bridging loans are short term loans that provide funds to purchase when you are waiting to sell your property. Bridging loans take away the pressure of trying to match up settlement dates. It allows you time to sell your home without worrying about losing out on a property to purchase.
- Bridging loan interest rates can be a lot higher than interest rates on a normal home loan. This should be discussed carefully with your broker to ensure you know what fees and charges you will be up for and whether you will be able to service the bridging loan and the loan which may be in place in relation to the property you are selling.
What are the best options when buying and selling your property?
- The best option is to sell your property first. You then know exactly how much you will be receiving from your sale so you will know what your budget is when looking to purchase a property.
- Upon the sale of your property, you must pay out your loan to your lender. When you are ready to purchase, you will be able to approach lenders for a loan confidently knowing what your budget amount is available to you to fund the purchase of the new property.
- Ask your solicitor when preparing your sale contract to insert a condition in the contract to allow for a longer settlement period. This will enable you to start looking for a property once you have sold your property and once the contract becomes “unconditional”. A good timeframe would be 12 weeks.
- Another option for you to consider is to sell your property and get the best price in the rising market and then consider renting until the market falls. This will allow you to invest your sale proceeds and earn some interest on the invested funds. Waiting for the market to drop provides you and your family with the opportunity to explore where you would like to live. You may be fortunate to buy a more suitable property for a lower price than what you sold your property for.
If you are buying an investment property, there are other issues to be considered which will be discussed in a later article.
If you have further questions please contact us at frank@franklaw.com.au.
This is not legal advice.
