Selling your home and buying a new one: which comes first?
Should I sell my old property before buying a new one? Or vice versa? Both have pros and cons. Comparis provides the answers.
04.10.2022
iStock/PavelIvanov
1. Strategy 1: Sell your current property first
With this strategy, you are opting for a sales process that is focused on security. The idea is simple: you release the equity from your previous property and buy a new one with it.
Many homeowners prefer this variant for reasons of secure financing and affordability.
The advantages and disadvantages at a glance:
| Pros | Cons |
|---|---|
| With the sale of property, you create equity for a new property purchase. Secured financing of the new property through the sale of the existing one. Financial benefits of selling if selling prices fall in the future. No double charge: there is always a mortgage charge on only one property. You have a good negotiating position when selling, as there is usually little pressure to sell. |
You might miss out on attractive buying opportunities on the current property market. Financial drawbacks of selling if selling prices rise in the future. You must find temporary housing for the phase between the sale and purchase. This usually means:
|
Selling first means: finding an interim solution
If you sell your current property first, you will need a suitable interim solution until you buy another property For example, you might consider renting an apartment for a short period.
Tip: it’s best to look for a new home immediately after the sale. This will help you better assess how soon you intend to buy again and which interim solution fits your circumstances.
Do you know how much your property is worth?
With the Comparis online property valuation tool, you can get a free valuation of your apartment or house. This will give you an initial idea of the possible market value of your property.
Leaseback as a second option
Another option is after selling your home, you continue to live in the house or apartment as a tenant for the time being. This is known as a leaseback. However, the buyer must agree to this arrangement.
As the seller, you can, for example, negotiate a minimum rental period of twelve months and stipulate this in the purchase contract. However, the catch is that you will probably receive fewer purchase offers as a result of this requirement. In addition, you have only limited time to find a new home.
Deferring property gains tax
If you sell a property and make a profit, you generally have to pay property gains tax. But if you buy a self-occupied property again within two years, the property gains tax will be deferred.
This means that if you make a profit when selling your apartment or house and only buy a new property after more than two years, you will have to pay property gains tax.
On the other hand, if you buy a home again within the time limit of two years, you will not have to pay the tax for the time being. Only in the event of a later sale of your new property (without subsequent purchase) would property gains tax be due.
2. Strategy 2: Buy a new property first, then sell the old one
With this strategy, you can decide to buy a new home flexibly and without time restrictions. Selling your current property is not the first priority. In order for this strategy to succeed, you need sufficient funds or interim financing from a bank.
The advantages and disadvantages at a glance:
| Pros | Cons |
|---|---|
| You can freely look around for your desired property and then buy if it suits you. Financial benefits of selling if selling prices rise in the future. There’s no need for an interim rental solution as you can move directly into your newly purchased property. You only have to move once – when you move into your new home. Possible price advantage with rising property prices. For the time being, you will remain the owner of your existing property – with all rights and obligations. |
You need additional own funds for the purchase. The capital from the previous property remains tied up. Banks place high demands on liquidity and income. Check with your bank if you can take out a new, second mortgage. You will face a double financial burden, such as for the mortgage interest, property maintenance and taxes. You need to maintain two properties. Financial drawbacks of selling if selling prices fall in the future. The financial burden could put pressure on you to sell your existing property quickly. High time pressure tends to lead to the property selling for less. |
Buying your new house first means: more capital is needed
Do you have sufficient income and equity to purchase a second property? If so, you can purchase your dream property before selling your current property.
High requirements for capital and income
Banks place high demands on liquidity and income conditions if you follow this strategy. Depending on the situation, it is therefore not easy to obtain additional financing. It’s best to talk to your bank and ask what financing options are available.
Interim financing as an alternative
Are you lacking capital, but you still want to buy a new house or apartment before selling your previous property? Banks offer interim financing in this situation – also known as double financing.
These are temporary loans of up to 90% of the value of your old property. Interest rates and terms may vary from bank to bank. The borrower’s creditworthiness usually also has an influence on the conditions. Currently, for example, loans with interest costs of between 4–7% are common for two-year interim financing.
As a rule, it makes sense to sell your old property promptly after the purchase of the new property to keep the bridging phase short.
3. Strategy 3: Rent out your current property
Do you want to buy a new property but not (yet) sell the old one? Renting it out is an attractive option. You have the same advantages and disadvantages as with the second strategy – with one difference: Your previous property is not empty and you earn a rental income.
The advantages and disadvantages at a glance:
| Pros | Cons |
|---|---|
| You are under no pressure to sell. You earn a monthly income from the rent. You only have to move once, from your previous to the newly acquired property. Financial benefits of selling if selling prices rise in the future. You are still the owner of your current property – with all rights and obligations. |
It can be difficult to find tenants and manage a property. Double tax burden: You must pay tax on the rental proceeds as income. In addition, there is tax on the imputed rental value of the new property. Financial drawbacks of selling if selling prices fall in the future. You need additional capital to purchase a new property. Banks place high demands on liquidity and income. Check with your bank if you can take out a new, second mortgage. |
How to become a landlord
If you have experience in property management, you can probably estimate the expenses and returns well and weigh up the pros and cons.
Do you lack the necessary knowledge about managing a rental property? Then you can either acquire the knowledge or entrust a competent person with the management of the property.
4. Summary: what strategy should I choose?
There is no right or wrong strategy. Influencing factors include your financial circumstances, your family situation, your living arrangement and your personal preferences.
Comparis tip: it’s always worth taking a look at the property market. If property prices in your region rise or fall significantly within a short period of time, following the wrong strategy can have serious consequences
Generally speaking, rising prices (high demand) tend to favour buying a new property first and then selling the old one. With falling prices (low demand), it is usually better to sell the previous property quickly.
Value your property
Want to learn more about your options? With Comparis, you can get a free property valuation in just a few minutes.
This article was first published on 07.05.2019
