Do you know that under the main residence exemption, you don't pay capital gains tax (CGT) if you sell the home you live in? Further, when you sell your home, you do not need to pay goods and services tax (GST) and you can't claim GST credits on associated buying and selling costs (except if you are in the business of building or renovating properties).
Buying a home is not an easy task. Add to it the legwork of selling your existing home, and you can expect a whirlwind of paperwork, confusion, deadlines and running around.
Whether you plan to move into a bigger house, exchange your house for an apartment or hop suburbs, buying and selling at the same time can be a tough cookie to crack, but many Australians successfully sell and buy a property at the same time, every year.
However, in a less than perfect and unpredictable real estate market, it is a rare chance that you can sell and buy at the same time, as the property market keeps fluctuating – favoring either the buyers or the sellers at any point in time. But in order to ensure a smooth transition, it helps if buying and selling happen as close together as possible.
So should you sell first or buy first?
The choice, of course, depends on the market as well as your financial aims and condition, but the following points will help you make a decision.
Benefits of buying first
– Buying first has many potential advantages if you have enough cash to service the mortgage on both the properties until you sell off the old one.
Benefits of selling first
- Buying before selling provides you with ample time to set up the house and shift. It also gives you more time to get your old home ready for sale (think smart renovations that can increase the worth of the house).
- Savvy property buyers may also rent out their old home unless they find a buyer. This has two advantages – Rental payments will help to cover the mortgage, and there is no pressure to sell the property unless you get the right price for it. In case you decide to rent out one property, take proper tax advice to take advantage of tax deductions on investment properties.
– Selling your existing home before buying a new one can help you take sound financial decisions – as you know exactly how much you can spend on the new property.
- Overestimating the price of your existing property can leave you in the lurch, selling it first will ensure you don’t go overboard with your new purchase.
However, a very big disadvantage of selling without buying means you may potentially have to rent a home, resulting in financial burden (rentals) and the hassle of packing and unpacking. The uncertainty of when you’d find the right home can be emotionally draining as well.
Asking for a long settlement period can be really helpful in such a case. Adding a special clause in your contract allowing you to bring forward the date of settlement in the case of any contingency is also a good idea.
Further, as property prices are constantly increasing, selling first also means you are losing money unless you immediately find your new abode. Investing your money until you zero in on your next purchase may give better returns than leaving it in a savings account.
Here are some tips to help you with your deal:
- Research – As always, there is no substitute for this one. Research the areas where you intend to sell or buy. In a buyer’s market, it pays to sell off first and vice versa. Grab a free property report here to understand your suburb better.
- Spare some cash and throw in a new coat of paint or a fresh rug to brighten up the home, making it more appealing to buyers. Do some DIY improvements to add value to the house instead of full-scale renovations.
- While it is important to have the buying and selling dates as close as possible, a bridge loan can literally help you bridge the gap financially if you do decide to buy first.
- A bridge loan, essentially, is a short-term loan leveraging the equity in your existing home to pay the deposit for the new home. However, bridge loans come with high interest rates and attract heavy penalties in case your house is not sold in the stipulated period.
- It is a good idea to keep your finances in line and scan the market for home loan deals. Keep your credit score high and compare home loan deals here to get the most competitive rates in the market.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan
Atul is the founder and CIO of HashChing - Australia’s first marketplace for pre-negotiated home loan deals.
Before starting HashChing, he was successfully running his own digital agency serving small to medium size enterprises. He is passionate about digital transformation of traditional business models and has been helping clients in strategising, building and launching online products since last 9 years.
HashChing is a FinTech business which is transforming the way Australians get their home loans and has been featured in the national media multiple times.