Strategies When Moving Up or Down from Your Home

Needs change as time goes by. This applies to homes, along with most other things we own in life. When the time comes that you are ready to move up or down from your current home, a strategy for how to sell your home and buy the next becomes important.

It would be nice if you could snap your fingers and suddenly your home was sold, your stuff was packed and your new home was vacant, clean and waiting to be moved into.

Unfortunately, it is not that easy. In order to move up or down into a new home, you will have to choose from a few possible scenarios, all of which have their advantages and disadvantages.

There are 5 main approaches you can employ when moving up or down from your current home. You can find a buyer for your home first and then find a replacement home from those that are currently available. You can find your dream home first, write an offer contingent upon the sale of your home and then sell your home as fast as possible. You can buy your next home without selling yours first and then keep your current home as a rental. You can buy your next home without selling yours first and then sell it after you have moved out. And finally, you can sell your home first, rent for a short period of time and then search for your next home while renting.

Sell First and Then Find a Replacement Home While in Escrow:

Selling your home first will help you get a firm grasp on what your qualifications will be on your next home. For many home owners it is necessary for them to sell their home first, in order for them to qualify for a loan on their next home. Selling first will increase the chance that the seller of your next home will accept your offer and it will increase your negotiating position. Most home sellers would prefer that an offer not be contingent upon selling a home first. The main disadvantage to selling your home first is that you will have to have faith that the right home will be available when you are ready to find a replacement home.

Write a Contingent Offer and Then Sell Within the Contingency Period:

Finding your replacement home first and then selling will allow you to wait however long is necessary before you find the perfect home. Once you have found the home, you will then need to sell your home as fast as possible. Some sellers will accept offers that are contingent upon the sale of a buyer's home, but they will not wait long and will typically require that they have the right to sell it to someone else, while they are waiting for your home to sell. Sellers are less likely to negotiate with a buyer who needs to sell their home in order to buy theirs. The need for haste after a replacement home is found will require that your current home be priced aggressively and marketed to sell fast. This means that you may have to accept less for the home you are selling than if you had a longer period to sell it in.

Buy a New Home and Keep Your Current Property as a Rental:

If you buy your next home first and then keep your current home as a rental, you will be in a better negotiating position than if you needed to sell and you will be able to wait for the right opportunity. Because you are keeping the payment on your first home, you may not be able to borrow as much money for your replacement home.

This technique was popular during the market boom, because it allowed people to leverage themselves with a larger amount of real estate, which increased property owners rate of return as the market increased. During downward or neutral markets this approach has been less popular, because the increased leverage can actually increase losses over the short run. If you are planning on keeping your first home as a rental property for many years, there is much less risk to the downside and there is a good chance you will make money in the long run, so long as you can maintain two payments regardless of short term market conditions.

Buy Your Next Home Non-Contingent and Sell After Moving Out:

The riskiest approach in a downward or neutral market is buying your next home first and then attempting sell your current home after you have moved out. If the market is going up, you can make money using this approach. However, if the market is going down, you can very easily lose money. The advantages to this approach are that it will allow you to move quickly when the right home comes along and it will reduce some of the hassle of living in a home while it is for sale. The disadvantage to this approach is the possibility that you could have to carry more than one house payment, if the property does not sell quickly.

Sell Your Home, Rent for a Short Period and Then Buy When the Right Home is Available:

A popular approach in a downward or neutral market is to sell your home first, rent for a short period of time and then search for your replacement property while renting. This approach will allow you to find the perfect home, while avoiding the chance of not being able to sell your current home. It will also allow you to negotiate more aggressively, because you do not have to move. The main pitfall in this approach is the physical act of having to move twice. For many, this is enough to eliminate this option. Especially those with children and pets. For those that don't have a lot of stuff, it can be a very affective approach.

Summary:

If you sell first and and look for a replacement property while in escrow, you may not find the perfect house, but you will only have to move once and you can minimize the financial downside.

If you buy with a contingency to sell your home first, you will hurt your negotiating position and may have to take a little less for your own home, but you will be able to wait for the right home and will only have to move once.

If you buy your next home and then rent, you may not be able to buy as much home and you risk the possibility of short term losses, but you will only have to move once and you have a possibility of profiting in the long run.

If you buy your next home and then sell your home after your have moved out, you will be able to wait for the perfect house and you will be able to avoid living in your home while it is for sale, but you will have to deal with two house payments while your home is listed for sale and you could possibly lose more money if prices decrease while you wait.

Finally, if you sell your home first, rent for a short period and then buy when the right home comes along, you will increase the chance that you will find the right home and you will not have to carry two house payments, but you will have to move twice.

Once you have decided that it is time to move, you will need to decide which approach works best for you and your family. I have not found a way yet to make it happen instantly, but I have been able to make things easier for those that have sold their homes with me. If you have decided to sell your home and would like to talk over some of these strategies, please feel free to give me a call at 916-728-1981 or e-mail me at pat@patandalison.com.