A big decision when you’re looking to move is, should I buy first or sell first? It depends. It depends on the real estate market you’re buying and selling in, your tolerance for risk and whether you can afford to carry both home if possible. Let’s look at the pros and cons of buying first versus selling first to help you decide which is right for you.
The main benefit of buying first is that you can take your time and find the ideal property. If you know exactly what you’re looking for and it’s only a matter of time before the ideal home becomes available in a particular neighbourhood, you might have to play the waiting game until then.
This is what happened with my mother. She knew the condo building she wanted to buy it. Since she was willing to be patient and wait six months for a unit to become available, she was able to get everything she wanted in a condo unit.
The downside to buying first is that you can feel rushed to sell. Let’s say you find the property that you want to buy, but the sellers want a quick close (30 days). That’s not very much time to sell your property. You might have to pass on making an offer on this home because the closing date the sellers want is too soon. Let’s say you do make an offer on the property and it’s accepted. You’ll need to list and sell your own property. If the market is good and it’s a seller’s market, you probably won’t have any problem, but if the market is slower and it’s a buyer’s market, you might run into issues. You might feel pressured to slash your price if it doesn’t sell right away, leaving money on the table.
You can avoid a situation like this by speaking to a mortgage professional ahead of time. In a worst case scenario, you could keep your existing home as a rental property and sell it later, provided you qualify to carry both properties.
You’ll also want to speak to a mortgage professional about bridge financing. You’ll need that in case the closing dates of both homes don’t line up perfectly.
The main benefit of selling first is that when your property eventually sells, you’ll know exactly how much it’s selling for and how much you’re going to be able to afford to make as a down payment on a new home.
Selling first makes the most sense in a buyer’s market. It could take your home quite a while to sell or it might not sell at all unless you’re willing to drastically slash the price. If you’re not willing to do that, you might decide to delay your move. You can do that when selling first since you haven’t bought a home. However, when you buy first, you might be forced to sell for a low ball price if you can’t afford to carry both homes.
If your home ends up selling, it’s a good idea to choose as long of a closing date as possible. 90 days or longer is ideal. That way you’ll have plenty of time to find a new home.
Let’s say you aren’t able to buy a new home in time. What do you do? It’s a good idea to have a backup plan. If you have a family member you can stay with and put the rest of your stuff in storage that would be ideal.
If you aren’t so fortunate, you can find a place to rent on a month-to-month basis. You’ll want to start looking for a place to rent sooner rather than later because if you leave it until the last moment, you might not be able to find somewhere to live on time.
About the Author: Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.
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Writer: Sean Cooper
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