Buying One Property While Selling Another

|

Most people don't stay in their first house their whole life. At some point, they want to move to a different home.



There are several ways to approach the transaction, but you have to decide which way fits you. You can approach it with an idea to maximizing profit, maximizing cash flow, maximizing speed, minimizing stress, or minimizing inconvenience. You really only get to choose one, but it's a good idea to rank them from most important to least important so that both you and your agent know where your priorities lie, and perhaps you can do some things from your lesser priorities.



Now, if this was a commercial site, looking to seduce you into listing with me, I'd probably have some corporate salespeak flack telling me to say you can have it all, but instead I'm going to tell you the blunt truth: You can't, not reliably, and any representation to the contrary is a lie, the words of a fool, or both. You can certainly do things in each of the categories (and others) but if you don't go into the transaction with a clear view of what is most important to you, chances are you won't get whatever it is that is important to you. Some people do luck out, especially in hot markets, but when the market is cooler, the fact is that you take what you can get, and the probability is better that you will get what is most important if you decide what is most important and stick to it.



If you choose to maximize profit, move out of the old property and into a rental unit, and make whatever cosmetic alterations you're planning before the property hits the market. Newly renovated vacant units show better, and therefore sell better, than anything else. Your time of highest interest is typically for the time period immediately after it hits the multiple listing service. Particularly if you have pets or children, who are both highly efficient entropy generators, you want to move out if you can afford to. Since this is very costly in terms of cash flow, many cannot afford it. Nonetheless, in most markets under most conditions, the return you will get will repay your investment, as there are few obstacles and conditions to your prospective buyer moving in as soon as they can consummate the sale. Furthermore, because the property is vacant, they can more easily picture themselves living in it. Ask any artist which is easier to work with - a blank canvas, or one that already has a painting on it? Then consider that the average buyer has the imagination of a rock, which is why properties with just a little more oomph are much easier to sell. The less of your family there is in the property, the more potential buyers can picture theirs in it.



Staying in the property causes not only stress from whether the property is clean enough to show every day, but also from prospective buyers and their agents having both a window of observation on your life and the potential opportunity to debark with some material piece. I imagine it happens, but not nearly so much as to warrant the stress sellers put themselves through on this point. As an agent, I'm always aware that my good name is on the line as well, and I'm always watching prospective buyers, even though I've never had anyone attempt to remove anything (that I'm aware of). Nonetheless, many sellers insist upon being physically present, which often has the effect of chasing people away that I, as the agent, could have sold the property to given a freer hand. Given real estate practicalities, your concern over a couple of $15 CDs that might have potentially wandered off could have just cost you tens of thousands. So if you're concerned, move anything valuable or irreplaceable like jewelry and heirlooms out, and resign yourself to replacing anything remaining. You'll likely come out ahead in the end.



If you're looking to maximize speed, moving out is a good idea also, but you're also going to want to price your property significantly lower. The higher the price, the harder it is to sell the property, the fewer people that can be expected to look at it, and the harder it will be for them to qualify. If you're priced 5 percent above anything comparable, the appraisal probably going to come in lower than the sale price, and not many people want to pay a premium for a property. It's going to take longer to sell. If you're priced a tad below the comparables, however, well everyone wants to buy homes with some built in equity, and the bank sees their loan as being less risky, so it's a little easier to qualify (They're still going to stick with the LCM principle, but from experience, they're less sticky about the little stuff if the appraisal is a little above the price).



If you're concerned about cash flow, on the other hand, moving out is not the way to go about things. For one thing, you don't have the money, or if you do, you're going into stress mode about whether some short deadline is going to be met, which can cause you to be forced to accept an awful deal that you would not otherwise have considered because you're running out of money to pay for all the extra stuff you weren't paying for before. If you think ahead, and make your agent aware of your concerns, you've got a better chance to come out ahead in the end.



Suppose your priority is to minimize stress? Then you typically stay put while researching other properties, and ask for a contingent sale, possibly with a leaseback that gives you a certain amount of time to find alternative lodgings. Alternatively, if cash flow isn't an issue, you might start looking right away, either with or without a "bridge loan" (cash out against your current property, as a down payment on the new one). Bridge loans are great, they are wonderful, they can do all sorts of things for you, but they are aren't cheap. Before you do one, consider whether there is a real need. If you have some cash and are a good credit risk, the better option may be to borrow more against the new property. Perhaps the better option is to split finance the new property and pay off the second loan on the new property when the current property sells. Because "bridge loans" are cash out refinances, then all things being equal, it's probably a better idea to get the money through a purchase money loan. It's even possible (albeit rare) that despite paying for two loans, the math may favor getting some money via a bridge loan, and borrowing the rest through the purchase loan on the new property.



If you want to minimize inconvenience, you probably want to stay in the property until it sells, and quite probably for a while thereafter, so you're going to want a short term leaseback as a condition of the sale. Many people do this to avoid moving the kids out of school in the middle of an academic year. If they're staying, it also gives them some time to find another property in the same district, or even that attends the same school. But here again, remember that you're limiting your buyer's options, which has the effect of possibly scaring off the ones who would otherwise have offered you the best price, or causing them to not be willing to pay so much for it ("Darn it, my kids are in the middle of a school year, too!") If it's a buyer's market, you're likely to pay a certain price - or rather, your buyers are likely to be willing to pay less - but if it's worth it to you, you also get what you pay for.



There are other potential factors, certainly, and other strategies to maximize the blend of "goods" that's best for you. But these are the ones that most people need to think about ahead of time, and these are the ones where failing to consider them ahead of time will reliably cost you the most.



Caveat Emptor.

Categories

Delicious Bookmark this on Delicious StumbleUpon Toolbar Stumble It!
 



Buy My Science Fiction Novels!
Dan Melson Author Page

The Man From Empire
Man From Empire Cover
Man From Empire Books2Read link

A Guardian From Earth
Guardian From Earth Cover
Guardian From Earth Books2Read link

Empire and Earth
Empire and Earth Cover
Empire and Earth Books2Read link

Working The Trenches
Working The Trenches Cover
Working the Trenches Books2Read link

Preparing The Ground
Preparing The Ground Cover
Preparing the Ground Books2Read link

Building the People
Building the People Cover
Building the People Books2Read link


The Invention of Motherhood
Invention of Motherhood Cover
Invention of Motherhood Books2Read link

The Book on Mortgages Everyone Should Have!
What Consumers Need To Know About Mortgages
What Consumers Need To Know About Mortgages Cover
What Consumers Need to Know About Mortgages Books2Read

The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
What Consumers Need To Know About Buying Real Estate Cover
What Consumers Need to Know About Buying Real Estate Books2Read

Dan Melson's San Diego Real Estate and Mortgage Website

↑ Grab this Headline Animator

About this Entry

This page contains a single entry by Dan Melson published on November 3, 2007 7:00 AM.

Is This Supposed to be Helpful Legislation? (A bad example from Illinois) was the previous entry in this blog.

What Would I Buy With A Million Dollars? is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.

Powered by Movable Type 4.21-en
******

Enter your email address:

Delivered by FeedBurner


Copyright 2005-2017 Dan Melson. All Rights Reserved