Factors to Consider when Buying and Selling a Home Simultaneously

Under the main residence exemption, you are not required to pay capital gains tax (CGT) if you sell your primary residence. You also don’t have to pay goods and services tax (GST when you sell your home and you’re not entitled to GST credits on related buying and selling costs, (unless you’re involved in the business of constructing or renovating properties).

Purchasing a home can be difficult. Aside from the legwork, there’s also paperwork, confusion, deadlines and running around to deal with.

Whether you’re moving into a larger house, or exchanging your house for an apartment or living in a new suburb, buying and selling a home simultaneously is no easy matter, but many Australians successfully do this each year.

However, given the unpredictability of the current property market, it is not often that you can buy and sell at the same time, as the constant fluctuations in the market will favour either the buyers or the sellers at any given point. To make sure the transaction goes smoothly, make the timing of buying and selling occur as close together as possible.

Sell first or buy first?
The decision will depend on the market and your financial situation and targets. Here are some tips to help you decide:

Advantages of buying first
There are many potential benefits from buying first, provided you have sufficient cash to pay for the mortgage on the two properties until you are able to sell your old home.

  • You have enough time to set up the house and move. You also have more time to prepare your old home for sale (consider smart renovations to boost the value of the house).
  • If you’re savvy, you can rent out your old home until you find a buyer. This offers two benefits: you can pay for the mortgage using the rental payments, and you’re not compelled to sell until a buyer comes along willing to pay the right price for it.

If you decide to rent out your home, seek your accountant’s help on the tax deductions you are entitled to for your rental property.

Advantages of selling first
Selling first will give you time to make sound financial decisions, as you’re aware of the amount you can allocate on the property.

  • You can get in trouble if you overestimate the price of your existing property, so selling first will help you not to overspend in your new purchase.

However, a major drawback of selling without buying could mean you have to rent a home, bringing with it financial burden in the form of rentals and the stress of packing and unpacking twice. Not knowing if you’d find the right home can take an emotional toll on you too. In this case, it would benefit you to ask for a long settlement period. It is also a good idea to include a special provision in your sale agreement letting you bring forward the settlement date in case of a contingency.

Furthermore, property values are constantly moving up, so selling first means you are losing money while you are still looking for your new home. Invest your money until you find your next purchase will earn you higher returns than putting your money in the bank.

More tips

  • Research: Learn about the neighbourhoods where you are considering buying or selling. When it’s a buyer’s market, it is best to sell first and vice versa.
  • Spend money on a fresh coat of paint or new rug to jazz up the home and make it more attractive to buyers. Add value to the house by doing some DIY upgrades; avoid full-scale renovations.
  • It is important to have the selling and buying dates as close as possible, but a bridge loan can help you financially if you decide to buy first.
  • Keep your finances in line and watch the market for home loan deals. Maintain a high credit score and compare home loan deals to obtain the most competitive rates in the market.

Choosing between a variable rate and a fixed rate mortgage can be confusing.  Talk with a specialist like Margaret Godfrey, a personal mortgage advisor at Smartline, to help make things clearer.