The Art Of Buying Before Selling

You need to sell your current property to purchase your next property. 

Where do you start? What is the best strategy? How do we get the money that’s tied up in our current property (equity) into the new property? 

All good questions, and all questions that will depend on your specific situation. These will be simultaneously analyzed by your real estate agent and loan officer, because let’s be honest, the money drives many things, and buying & selling real estate is no different. There are a few ways to go about this, and we’ll dissect a few, but keep in mind, depending on whether it’s a buyers’ or sellers’ market, will drastically affect how it’s negotiated and structured, and either way, your goals are very much a reality with the right plan in place!

For many buyers, selling first is necessary to access the cash/equity that’s tied up in your current property to use as a down payment on your next property and/or to decrease your debt-to-income ratio to qualify for the loan you need to get the home you want! Either way, you need to close on your current home to officially purchase your next home. The art of it is to do it harmoniously, while never risking your money, and to avoid having to live somewhere temporarily!

One end of the spectrum is to write in your listing that it’s ‘subject to the seller finding suitable housing;’ this will give you complete protection as a seller, and never put you in a position to be forced to sell/move out until you’ve found something that’s satisfactory. This puts all the onus on the buyer to be patient and assume the risk. There will typically be a timeframe that either party can end the contract or mutually agree to extend. This works well if the buyers of your property can be extremely flexible with their timeframe to close/move in, and maybe even a little desperate to secure a property in this competitive market.

The other end of the spectrum is to address the purchase first; and when your offer is written, add a contingency that it’s ‘subject to the buyer selling their current residence before officially purchasing.’ This can happen the same day, as long as the proceeds can transfer quickly enough (your attorney will handle that). In a low inventory/seller’s market that we’re currently in, this is unlikely to get accepted unless the property that’s being purchased is in low demand. The sellers need to not only hope the buyer is qualified to get to the closing table but also, hope the buyer's property that’s being sold, has a strong, capable buyer as well. It’s a domino effect! This puts the risk on the sellers, and since they hold much of the leverage in this market due to the lack of supply, it’s not typically a viable option.

So, what’s the middle ground!? What’s the option for each side, at some point, to assume some of the responsibility (or the dreaded four-letter word: risk), without the option to back out at any point!? Still, without moving into a temporary house, which no one wants to do, we incorporate a “Use & Occupancy Agreement” (U&O). When you’re selling your property, you negotiate a U&O into the initial contract to allow you to sell/close on your property, get your proceeds, and not technically still own the property but still use and occupy the property. You’d rent back from the buyers at an agreed-upon amount for up to 60 days, which is the maximum timeframe allowable if the buyer is getting financing as their primary residence. This gives you a massive amount of strength for that 60-day window to be a buyer that is non-contingent upon the sale of your current property to purchase. Realistically, you wouldn’t wait to close to start acting on purchase but as your buyer gets further along in the process of purchasing your property, you gain confidence as they get through the big milestones that secure them more to your property: inspection, signed Purchase & Sale where the larger deposit is collected, complete appraisal, & the buyer gets their mortgage commitment. Depending on your exact financial situation, your agent can line up dates appropriately so you can offer on properties without the risk of losing deposits if something unforeseen were to happen. 

Real estate can be convoluted and messy but with a proven strategy, and often a combination of many things, capitalizing on your investment while also making another large real estate investment conveniently and profitably is more doable than you may think. 

We love to talk through individual scenarios when it comes to your personal real estate needs and are available anytime to help!

Want to learn more about how you can buy and sell simultaneously? Reach out to us!

Ryan@WilsonGroupRE.com