What to consider when you’re thinking of selling
One home, many options
There are a few reasons to consider selling your property. Maybe you bought a modest first home because that’s what you could afford, and now you’re ready to upgrade. Maybe you’ve had a kid or two since you bought, and you need more space. Maybe you want to move suburbs to be closer to your work, or your parents, or your child’s school.
If you’re thinking of selling for any reason, start by seeking expert advice. A financial advisor or mortgage broker will be able to look at your current situation, lay out your options, and help you work out what’s best for your finances and your future. That way, you avoid making the wrong decision and losing money – or worse, finding yourself just as dissatisfied with your next purchase.
Sell up or rent out
When you’re ready to move on from your first home, selling isn’t the only option. If you’ve built up enough equity and you have a reasonable income, you may be able to keep the property as a rental and buy a second home to live in. This has obvious benefits in terms of rental income and long-term capital gains but can be risky if you can’t keep up with extra mortgage payments. It could also limit your options for a second property, depending on what you owe, what you earn, and how much your bank is willing to lend.
If you’re considering turning your first home into a rental property, talk to our property investment experts. They’ll be able to look at your finances and tell you whether it’s an option – and help you figure out how to talk to your lender as well.
Upgrade or Upsizing home
Most buyers start with a modest property in a relatively affordable suburb, intending to move up in a few years. This might mean looking for a larger home, a ‘nicer’ house in a better street, or moving to an entirely different suburb.
Upgrading is easier if you have built up equity in your current property – that is, if you’ve worked hard to pay off some of the mortgage, and if the property has increased in value over time. For example, if you bought your property for $500,000, with a $100,000 deposit, you’ve paid off $25,000 and it’s now worth $750,000, you have roughly $375,000 in equity to put toward a new property.
Of course, if you end up buying a property for $900,000 your mortgage will still increase, but that equity means your new mortgage will make up a smaller proportion of the value of the house. Rather than owing $400,000 on a $500,000 property, or 80% of the value, you’ll owe $525,000 on a $900,000 property, or just over 42%.
Buy first or sell first
Buying your second home is a bit more complicated than buying your first. When you’re a first home buyer, you tend to have your deposit and loan approval ready before you attend auctions or make offers. You can go unconditional straight away, without waiting for finances to come through.
If you already have a home, you have two choices: buy first, or sell first. Neither option is entirely straightforward.
Finding your new home
Buying first means you know you have a home to move in to but can also mean selling your first property in a rush before the settlement date. You don’t know how much your home will sell for when you’re bidding or making offers, so you don’t know exactly how much your new mortgage will be. If you fail to sell your first home in time, you could be stuck paying for bridging finance for months or be forced to accept a lower price to get the house off your hands.
Buying first also makes auctions complicated, which is difficult when the majority of homes go to auction. You can’t bid at an auction unless you’re prepared to pay the deposit and go unconditional on the purchase immediately, and many banks and lenders are wary of approving loans before the first property is sold.
Putting your old home up for sale
Selling first seems to make more sense, but it has downsides too. When you sell, you can set a long settlement date to give you time to look for a new home. But if you don’t find the right property in that timeframe, you might end up having to move in with family or rent for a time. Although you’ll know exactly how much you have to spend, having a limited time to house-hunt could also mean that you end up settling for a house that doesn’t tick all the boxes.
If you’re not sure what’s best for you, talk to a mortgage broker, who can help you figure it out and deal with approvals and bridging finance if and when you need them.
Getting the timing right
You may be itching to get into a new home, but is it a good time to sell? Timing can make a big difference when it comes to selling property, so it’s smart to consider before you jump in.
If property prices are stagnating in your area, it may seem like a bad time to sell – but if you’re buying in the same market, that’s not necessarily the case. Whatever prices are doing, you’ll end up adding the difference between your first home and your new property to your mortgage, so a plateau may not make much difference.
Look at interest rates as well – if they’ve fallen significantly since you last fixed, it could be a great time to get into a new mortgage. If they’re on the rise, it might be smarter to wait for six months.
Finally, consider the season. More houses are sold in spring and summer, with a downturn in the cold, wet winter months. Having said that, the Christmas and New Year period is usually slow, and some people swear by selling in winter because fewer houses on the market help their properties stand out.
Get the best possible outcome for you
Selling your home isn’t as simple as it seems. Before you start browsing real estate listings, you need to consider your options – renting, upgrading, upsizing, selling first or buying first, selling now or in six months. It’s all about making the right decision now, so you can get the best possible outcome when you do sell.
Ready to get started? Get it right with expert advice from Global Finance.