If you are thinking about buying a home and selling your current home, you may be asking yourself, “Which one should I do first?” It’s like that age-old dilemma, which came first; the chicken or the egg? If you sell your current home first, it could take some time to find your replacement home – a situation that can leave you displaced until you find the right one.
However, if you buy first, you may have to sell your current home quicker than you were anticipating. This can potentially put you in a situation where you feel pressured to sell in order to avoid double house payments. So how can you make a smooth transition from current house to new? Here are four options to choose from:
1. Buy a new home and rent out your current home
2. Buy first, and then sell
3. Buy and sell concurrently
4. Sell first, rent (or live with family), and then buy
The right answer is not the same for every homeowner. It will be important to review your family’s financial situation as well as your personal needs and preferences when choosing the best option.
Keeping Your Old House as a Rental Property
Some homeowners choose to keep their current home and convert it to a rental property. Typically, the homeowner that chooses to rent their existing home has enough down payment without selling their home, will have a positive rental cash flow, and is looking toward building long-term equity. Before making the decision to rent your home, you should ask yourself:
- Would I make a good landlord? (important question!)
- Does renting the home make financial sense?
- Is owning a rental property practical for my family?
- Are there any tax consequences when it comes to renting vs. selling?
- For example, if you lived in this home as your primary residence for two of the last five years, then you may qualify for up to a $250,000 tax-free gain ($500,000) for married couples.
It is important to remember that every situation is unique, and you may not be aware of all of the options available to you unless you speak with a real estate professional.
Buy a Home First and Then Sell
For the buyer who has the down payment and enough income to qualify for two homes, he or she may choose to buy their home first and then sell their current home after purchasing their new home. The advantage here is that you can buy your new home on a non-contingent and pre-approved basis, giving yourself the strongest position as a buyer.
Typically, the non-contingent buyer knows what they want and has the ability to make it happen. The market is extremely competitive in many areas in California, and buyers often must approach their home search with laser-focus. Purchasing without the need to sell your current home puts you in the most competitive position to get the home you want.
Sell and Buy Concurrently
Most move-up buyers would like to sell their home and close on their new home at the same time. This is possible, but the situation must be carefully orchestrated. The two most common options to achieve this are:
1) Sell contingent upon finding your new home – in this scenario, you only sell your home once you actually purchased your new home.
2) Sell and rent back while finding your replacement home – in this scenario, you sell your home but rent it back from the new homeowners while you find your new home.
In both of these scenarios, you can sell and buy while moving only one time.
Sell First, Then Rent
Some sellers choose to sell their home first and then rent or move in with family to save more for a down payment while finding their replacement home. The biggest drawback with this scenario is having to move twice. We’ve worked with many relocation buyers who sell their home and leave their belongings in storage while searching for their new home. The advantage to you, if you choose this option, is being a non-contingent, ready to go buyer.
Choose What is Best for Your Family
Every buyer is unique, and choosing which option will work best for you and your family is a personal decision. We can help you sort through the different options and explore what is best for your family’s financial situation, personal preferences, and needs. If your family has outgrown your current house, is relocating, or is simply looking to make a change in the Orange County area, contact Inspira Group today. We can review the best scenarios to help you transition smoothly from your current home to your new home today!