By Barbara Messer, ninemsn Money
When finance executive Ben Wamsteker stumbled across a rundown house for a bargain price, he knew he had to make an offer fast, or miss out.
He negotiated a home loan, purchased the house and listed his old apartment on the market all within the space of a few weeks.
"We weren't nervous about buying before selling because we were confident our apartment would sell," Wamsteker says. "We used the same agent we'd bought it from, who sold it on the first viewing for a nice profit."
His plan was going swimmingly until the bank demanded a much larger deposit on their new mortgage just one week out from exchanging.
"We had to commit far more money to the loan, and because we settled two weeks late we incurred additional costs, which meant we had to stall our renovations for five months," Wamsteker says.
By buying before selling, Wamsteker found himself forking out more money than he'd budgeted for. He also risked being caught with two mortgages or an expensive bridging loan, and if his apartment had sold for less than he predicted, he may have found himself over-extended on his next loan.
As a result, many real estate agents believe it's safer to sell first, then buy.
"As a general rule it's wise to get a sale on your property and then go shopping, especially in volatile times when banks are more cautious about funding," says Bob Westwood, principal at First National Real Estate Westwood in Melbourne.
"It really depends on the state of the market," Westwood says. "If you're confident your existing property will sell, you might consider buying first. It's a matter of asking, 'Can I afford to hold [two properties] if my existing property doesn't sell? Am I confident of what my property will bring, so I don't buy at a price that's unattainable?'"
Unfortunately, selling first comes with its own risks.
Jennifer Tran moved her family into a cheap rental home after selling their family home in Bondi.
"We thought we'd rent for a few months until we found our next home, but we ended up living there for almost two years. The walls were made of fibro, there were no drawers in the kitchen, the bathroom sink clogged up every time we used it it was disgusting," Tran says.
Tran and her husband had a hunch house prices would drop, but their prediction never eventuated. In the interim, they missed out on buying several houses, while spending thousands of dollars on rent.
"We tried to read the market but instead of prices going down, they just kept going up. A year later we realised there were at least five places that we should have bought. Finally we thought, 'This is ridiculous we have to buy again before prices rise even higher'."
Eventually, Tran purchased their current home in North Bondi. "It does feel like a compromise, it wasn't exactly what we were looking for. But sometimes you just have to bite the bullet and accept you'll never get everything you want," she says.
As a general rule, when buying first it's wise to calculate the costs of bridging loans and deposit bonds, and err on the side of caution so you don't spend more than you can afford.
When selling first, bear in mind that property prices may rise while you're looking for your next home, which means you'll get less bang for your buck.
Wamsteker admits he's experienced a few hiccups by buying before selling, but he's got no regrets.
"In hindsight, I'd do exactly the same thing," he says. "If you know it's a rising market, you need to beat other buyers to making an offer. We saw a property that was very cheap and we had a vision to do something with it. Sometimes you've just got to pull the trigger."
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