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Buying Real Estate Before Selling: A Good Idea?

Posted by Sextant Properties on December 15, 2020

In your view, a real estate project is emerging and you can imagine the process to be followed for carrying it out. If you are already an owner, the sale of your property will make your future purchase conditional. This raises some organizational questions, particularly as regards the period of the property’s release. Have you ever thought about buying your current property before thinking about disposing of it? Properly prepared, this could be a perfectly indicated activity, given you have the prospect required to protect your transactions.

Buy before reselling your property: why?

There are a number of reasons why you may wish to do this, the first being timing. You have just discovered and don’t want to miss the house of your dreams! Clearly, the buyers won’t wait for you for several months, so they’ll probably yield to anyone who’s willing to quickly sign a compromise.

The second factor relates to delays. By default it is troubling to sign a purchase agreement without having found something value to obtain. You know you’ll have to turn the keys over to the buyer within three months, so finding yourself homeless is an uninspiring prospect. Pre-purchasing protects you from that concern. You will still have time to set up your new home, and if necessary, conduct research.

You are ready to sign a buy offer easily, but to fund the transaction, you need the proceeds from your sale. With a loan your bank (or another one) will help you.

Precautions to take

Your current property can not sell as quickly as you would expect as a result of your purchase. This uncertainty leads us to recommend two precautions for you:

  • Do not depend entirely on the sale to fund your purchase: the higher the sum you will contribute, the lower the risk. If necessary, even if it does not sell suggest renting the old house. Clearly, plan the worst from the beginning, and prepare a backup plan;
  • Using a low estimate for the selling of the land. It would be embarrassing if you could not contribute the agreed amount for the banking arrangement.

Banking solutions

A bank can assist you in your transaction in two distinct ways:

  • A relay loan that gives you advance on the selling of your property and allows you to mount the financing of your new property as if you had already sold your house. Therefore, the principle is to repay this second loan upon the sale of the property. Please note that a relay loan, renewable once, is valid only for one year. So you will have to reimburse it within two years;
  • Make a purchase-resale that resembles a loan-relay but includes the transaction in the new property purchase arrangement. Thus, if you buy a property for €300,000, the purchase-resale amount granted by the bank inflates the amount of the global loan (thus you could borrow €370,000, for instance). You get a single credit line and a single monthly charge, which you can maximize over the life of the loan.

Remember that the bank can only use protection with an average of 60 per cent of a professional’s estimation for the value of the property for sale.

Such a financial arrangement is complex and we advise you to be assisted by a professional to understand fully what you are committing to and what the consequences could be. Observing the local real estate market to sell your property at the right price is the first habit to follow in order to make your real estate dream come true quickly!

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