Bridge-houseThat is the question for a lot of people poised to take the next step up in Auckland’s ever steepening property ladder.

More conventional thinking says that selling your home first is the smarter thing to do.

Why? Well, imagine you’re selling your house and two punters make an offer. They put the same amount of money on the table, but one offer is cash and the deal can be completed immediately, while the other offer depends on them selling their house. Most sellers would take the first offer as it can be done and dusted more or less on the spot and without any hassle. Makes sense then that selling first is better because you’ve got cash in hand – you are the real estate agent’s dream, the fabled ‘cash buyer’.

But in a market where things are moving quicker than a fart in a hurricane and rising fast, selling first may not be the best thing to do.

We see many people missing out on houses either at auction or because they simply weren’t quick enough to make an offer. This could leave you in a position of having to rent, or move in with the in-laws for a short time – depending on your in-laws, that’s often less than ideal. It also means having to move your stuff twice, which is a probably a bigger pain.

Even worse, the possibility of not getting top dollar for your home. When the market moves quickly – as it is now – selling too soon could cost you anywhere from $10,000 to $50,000 over a couple of months. Slightly sobering when it comes to coughing up the cash for your next property.

And buying too slowly could hit you similarly as the market takes off. The truth is that first home buyers are not the only ones getting left behind in the current market melee; existing homeowners who sell too quickly and have nothing to go to are getting dust up their noses too.

In the Auckland property market right now, my advice to existing home owners is to consider buying first and then selling to avoid those problems.

Yes, you need to consider the likelihood of bridging finance and face the possibility of double the mortgage for a short period of time. But, with bridging finance ready to go (if needed) you’re able to purchase unconditionally – almost an essential in this market, especially if your dream property is up for auction.

What exactly is bridging finance? As its name suggests, bridging finance fills the gap between selling and buying. It gives you the ability to carry the mortgage for your new property, and your existing mortgage, should there be any crossover. For example if your old place doesn’t sell in time, or you just can’t agree on a settlement date that works for both parties.

And yes, you may have heard rumours about huge costs involved in bridging finance that leave you quivering in fear, but in almost all cases bridging finance is worth paying the price for. It makes sense financially, and practically – moving twice in the space of a few weeks is enough to give you a hernia, or at least a hefty headache. And NO, bridging finance does not attract a higher interest rate. The sheer fact of having twice the mortgage is what makes the interest cost fairly weighty… but only for a short period. You’ll find bridging finance is interest-only too – you don’t pay any principle – making those payments that little bit easier to meet.

Bridging finance is something you need to prepare for at the same time as you consider putting your house on the market. A good mortgage broker can talk you through it all. And while you’re in that prepping zone, get out and canvass the market to see how quickly your house might sell. In Auckland right now the answer to that is ‘quickly’ so we often see a very short period of bridging (say a week to a month) – and often there’s no need to bridge at all because the settlement dates line up. Handy for some!

Buying first may just stretch your comfort levels that smidge too far in the way of finances. So here are a few final things to weigh up in making the decision of what route will be the smoothest for you:

  • Is what you’re looking for on the market or likely to come on?
  • How long will it take to sell your house?
  • How long could you handle bridging finance for?

 

We’ve helped many people bridge that gap and successfully get to the other side – so call us for a chat if you’re about to hit the sell or search button.

 

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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