Should you buy and then sell, or sell and then buy?

Packing up and moving home is always challenging. After all, as the Australian proverb goes, your home is your castle. It's also true that a person's home is commonly their largest – most expensive – asset. 

So, what happens when it's time to move on?

For many, it's simply not possible to buy a new property in cash or to service two home loans at once. It also may not be possible or preferable to sell your home and move into a rental or bunk with family until you find your next property.

There are other options, however, and having a good strategy can make the transition far smoother than it otherwise might be.

What to consider when deciding if you'll buy first or sell first

"This is such a tough decision and I talk to home buyers about it every week," Purchase with Penny buyer's agent Penny Vandenhurk told Your Mortgage.

"People really grapple with it, because there's no one size fits all answer."

For the most part, the choice between buying a new place before selling an existing home or vice versa will be made on finances. However, there are other factors that might also be worth consideration.

For starters, it's worth noting the market that you're transacting in and the amount of equity you hold in your home compared to cash you can put down to purchase your new property.

It's also worth factoring in the rental market, if you plan to sell first and rent while you house hunt. Or, you might buy first with the plan to put tenants in your existing property for a period – in which case you should ensure you can realise a decent rental income.

Should you sell your house before you buy?

Selling your home before buying another is like making a leap of faith. It can be nerve-wracking to hand over ownership of your home without a clear pathway to your next abode.

However, doing so might be the better financial decision.

"In terms of financial certainty, selling first has some significant pros," Ms Vandenhurk said.

"If you sell first, then you know exactly what number you can offer for your new purchase."

You might also choose to sell first if you want to move in a buyer's market.

In a buyer's market, there are more properties available than there are buyers looking to purchase. For that reason, it can be tricky to sell a property, but relatively simple to find a new place.

Of course, how easy or hard it is to sell a property can depend on many factors. If there's a limited buyer pool for your home – maybe due to the type of property you own, its location, or its condition – selling first might provide greater surety.

Should you buy a new house before you sell?

Conversely, you might decide to buy first if you're moving in a seller's market.

A seller's market is one in which there are more buyers than there are properties available. This may give you a better chance of getting a decent price in a tight time frame, but it will likely make it more challenging to find a suitable property to purchase.

Buying first can also offer more flexibility if you need to make repairs or renovate a new place before you move in. Though, Ms Vandenhurk notes a buyer might need the money tied up in their home equity to fund such works – potentially leaving them at a stalemate.

For those with the financial capacity, buying first and then selling has its advantages. Mostly, it can avoid the hassle of renting or being otherwise displaced for the interim period.

How to buy a house before selling yours

If you have a mortgage on your current house, you might be confused about how you could feasibly purchase another home before selling yours. After all, one lot of home loan repayments can be a significant burden, let alone two.

Fortunately, there's a mortgage product designed specifically for homeowners moving houses – bridging loans.

What are bridging loans?

Bridging loans can be a great tool for homeowners, and many don't even know they exist.

These products are designed to finance the purchase of a new property, with the caveat that the borrower sells their existing home within a set period of time. In the meantime, that borrower only pays interest, or interest will accumulate, on the funds provided by the bridging loan.

When the first property sells, the proceeds are usually used to pay down the bridging loan and any remaining borrowings will be transformed into a regular mortgage.

Could a bridging loan be the solution to your predicament? Check out some of the most competitive options available now below:

Important Information and Comparison Rate Warning

When buying and selling goes bad: How to protect yourself from losses

Naturally, transacting in real estate brings uncertainty.

When selling, you won't know how many buyers are interested or how much they're willing to pay before you list. When buying, you often have to wait for your dream pad to hit the market and, when it does, you mightn't know what the seller wants for it.

Whether you choose to sell before you buy or buy before you sell, it's important you consider what risks you might face and prepare for them.

Perhaps the most important risk-mitigating measure you can take is to have a backup plan – particularly if you're buying your new home before you sell your existing one.

"Having at least one solid backup option gives you a little bit more certainty to go into the process of buying first and then selling," Ms Vandenhurk said.

"A lot of people [explore] either getting bridging finance from a lender, albeit bridging finance can be expensive, or they might have family that can spot them some money to cover the difference for a three or four month period.

"Or, if they have the flexibility, they could put a tenant in the property [if it doesn't sell as quickly as expected] … for one year, and then weigh up where they're at and try to sell again."

It's also worth considering whether you'll be able to get an ideal price for your property. Buyers might not respond to your home in the way you expect, particularly if there are complexities involved, such as strata challenges or future compulsory acquisition notices.

"The risk is your property doesn't sell at all and doesn't really have anyone interested in it, or that you don't get offers for anywhere near a price that you'd be happy to sell it," Ms Vandenhurk said.

Meanwhile, selling first and buying second presents additional market risks.

If you sell your current home in hopes you'll buy your next home with the proceeds and, in the meantime, the market picks up and house prices soar, you could be left behind.

"What a lot of buyers don't understand is that a market can shift in a four or six week window," Ms Vandenhurk said.

Timing two settlements to align: Are ya dreamin'?

Another option for a homeowner looking to move houses is to time the settlements of both to overlap slightly.

This might mean negotiating with the person buying your house for an extended settlement process or asking the seller of the home you're buying for a shorter settlement period (or both).

That way, you can technically own both houses for a period, allowing you a window for a stress free move.

While this can be a tough ask, it's not impossible, Ms Vandenhurk said.

"[Simultaneous settlements] sometimes require all the luck in the world to go your way, but they're not completely rare."

It's often a simpler task if you're moving locally and can be made far easier if you're buying and selling through the same agent, she notes.

"What I encourage people to do is buy with as long a settlement time as possible and, if you sell and there's a gap, you can always go back to the person you're purchasing from and say, 'can we actually settle earlier'?"

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