Buying and selling real estate |

When moving to a new home, which should you do first, buy or sell?

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09.11.2021 | 5 minutes

There are many reasons for moving house: your family is growing, you’re about to change job and start working in a new place, or a property in a more attractive location has just become available. For real estate owners, the process is somewhat more complicated than for tenants renting a property. Find out in this article how best to proceed.

Buying and selling at the same time

If you sell your home to buy a new property, you risk facing a double financial burden. This is because the necessary financial resources for the purchase of the new property are still partly tied up by the ownership of the existing property.

What is the best way to proceed in this situation? We must first point out that there is no universal answer to this question. But of course, there are arguments in favor of each alternative which make it easier to weigh up the pros and cons.

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First scenario: buy first, then sell

There are two main advantages to buying a new property before taking care of the sale/continued ownership of the previous one: You only have to move once and you are under no time pressure to find a new home. From a financial point of view, however, you will no doubt need to sell the previous property quickly to ensure liquidity. There are various ways to complete both the purchase and the sale and to ensure a successful move.

Conditional offer

This option is probably the most attractive from the buyer’s point of view. It means that the buyer enters into a contract with the seller according to which they agree to purchase the new property only after their current property has been sold. This solution is highly dependent on real estate market conditions: it’s a matter of supply and demand. Currently, this situation is therefore rather unusual due to increased demand and limited supply.

Interim financing

Since making a conditional offer as described above is often not a viable option, the question of personal liquidity soon arises for many people. As long as the initial property remains unsold, their financial resources are still (at least partially) tied up and therefore can’t be used to purchase the new property.

Interim financing, also called double financing, is needed to bridge this bottleneck. Interim financing is a credit or loan made available for a limited period until the tied-up equity becomes available. Interim financing is largely tailored to individual needs and situations, which is why there is no established, standard solution on the Swiss market.

A woman chooses a suitable color for the walls of her new home, which she was able to purchase thanks to interim financing.
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Example of interim financing

Initial situation

  • The Schweizer family lives in a home worth CHF 2,000,000. This property is mortgaged up to 50%, i.e. there is a mortgage of CHF 1,000,000 on it.
  • Due to an addition to the family and the need for home office space, the Schweizer family is looking for a new home and finds a suitable property for a purchase price of CHF 2,500,000. According to the applicable financing rules, they must contribute 20% of equity, i.e. CHF 500,000.

Clarifications on interim financing

  • When envisaging interim financing, the first step for the Schweizer family is to check whether their existing property actually corresponds to a market value of CHF 2,000,000.
  • If this is the case, it’s possible to increase the current mortgage of “only” 50% on the first property to 80%. This corresponds to a cash inflow of CHF 600,000.
  • With these additional funds of CHF 600,000, the equity requirements for the new property can be met (minimum of CHF 500,000 as explained above).

The main sticking point: affordability

  • This solution for interim financing applies on condition that the increase in the existing mortgage meets the applicable affordability criteria.
  • If affordability is judged to be critical by the bank/mortgage provider, additional conditions for interim financing may come into play:
    • Obligation to complete the sale of the existing property within a certain period of time (e.g. one calendar year).
    • Obligation that a potential buyer or purchaser for the existing property must already have been found or that there must be a draft sales agreement in place by the time the interim financing is granted.

Second scenario: sell first, then buy

This scenario results in less financial pressure. If the existing property is sold first, the money from the sale becomes available to the mortgage holder as equity to invest in the purchase of a new property. This means less of a financial burden because, for one thing, they won’t find themselves with two mortgages to reimburse at the same time. It’s also no longer necessary to sell the existing property quickly – and possibly below market value – in order to make sure that financial resources are available rapidly.

However, there are also disadvantages: if you sell first, but the new property is not ready to move into immediately, you may have to move twice. If a new property is not yet on the horizon, it becomes urgent to find a suitable property quickly, and you may end up making too many compromises.

First option: leaseback

This solution is probably the most advantageous – if it’s feasible for you. Leaseback is when the seller continues to live in the property after the sale – and pays the buyer rent for doing so. How long this solution can work for is ultimately up to individuals to determine. This type of solution may even suit the buyers. After all, even home buyers are rarely ready for a move from one day to the next. The only catch to this option is that by limiting the pool of prospective buyers to those who will agree to the leaseback, you are likely to receive fewer offers. Moreover, you still won’t have infinite time to find a new home.

Second option: temporary rental

If leaseback isn’t an option, the only remaining solution is temporary rental. After all, the sale of an old property and the purchase of a new home don’t always go smoothly. This creates a gap during which accommodation must be found. The difficult thing is to find a suitable property that is available for temporary rental – i.e. for which you can agree on short enough notice periods.

In order to be able to act quickly, it’s a good idea to start looking for a suitable rental property when you’re still trying to sell you own property. Similarly, it’s best not to remain a tenant for too long, as market prices are constantly evolving. And for years, they have really only known one direction: up.

Third option: permanent rental

Finally, you could also decide not to sell your own property, but instead opt to rent it out permanently. You need to make sure that you can generate a rental income that will cover all your costs as the landlord. Although rental income is taxed, you can still deduct costs for value-preserving measures such as maintenance and renovation. It’s worth seeking tax advice to check whether the calculation adds up.

Conclusion: a matter of preference

Whether you sell your old home first to acquire a new one or vice versa, both approaches are possible – and it ultimately depends on individual preference and the market situation. The above arguments can be used to clarify which option is best for your individual case. The advisory team will be happy to help you to find a solution tailored to your personal situation.

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