Ask An Agent: Should You Buy Or Sell First In a Real Estate Transaction?

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Stefan Lupul’s friends tell him he’s a self-starter who thinks like a business owner. And if you can think like a business owner during a real estate transaction, you’ll be better for it. Lupul, a Search Realty Brokerage Corp. agent, outlines the ways in which thinking of your property as a business, in the sense of investment and negotiation leverage,  can help guide you when it’s time for your next property. Don’t think as much about your ideal scenario; think about what will help you build equity and security, or help your offers to buy get  accepted faster. 

READ: Ask An Agent: How Does Digital Transformation Impact Real Estate?

Sometimes, thinking more transactional — just like a business owner would — can help. This is one of the many reasons why Stefan Lupul’s the perfect person to answer this week’s question:

Should You Buy or Sell First in a Real Estate Transaction?

Obviously, it would depend on a person’s situation, but I would tend to lean towards selling first,  just so I have the cash and the finances to be able to purchase another property. It always depends on where your financial situation is. However, selling before buying makes sense if you own a home and are just looking to move to a different property. 

If you have the capacity to hold your current property and buy your next property that’s definitely advantageous. I have the mindset of managing multiple properties and owning multiple properties. There are definitely advantages to managing an investment property from a tax perspective, so I’m about that mindset as well. There are numerous ways to borrow equity from your current property to purchase a second property as an investment. This is how a lot of people are building wealth through Toronto real estate.

But, maybe for a person who is not as comfortable with that notion at first, because they don’t have as much knowledge of real estate, they may want to sell their property before they purchase another one, just so they’re secure and have the capital to make their next purchase.

There’s also a strategy where some will buy a starter home — not their dream home, but well within their means — in order to sell it after a few years, so they can move up in the market and eventually build enough equity to get to that dream home in the future. It’s kind of a graduated strategy for property buying, akin to a stairclimber, where each property gets closer to the ideal and each home sold previously creates the capital to buy the next, slightly larger, better or just more ideal home until they can actually afford the home they always wanted.

If you’re a first-time buyer, I definitely recommend purchasing a starter condo. Getting into the property market allows you to start building equity for your future. I also see a lot of opportunity for growth. Condos between $400-700k are growing faster than any other property type, as affordability is driving this segment of the market. (approximately 8-10% annually). Some condos I follow have seen even higher growth. One million dollars and over homes are relatively flat in terms of growth, simply because it’s a smaller segment of the population that can qualify for this type of property. Generally, the Toronto condo market growth is happening because of two key demographics:  millennials who want to get into the market as first-timers and retired adults looking to downsize.

Selling first also helps for security because you know you have the cash from a sale for whatever you want to do next. Also, sometimes in negotiations, you’ll see offers where buyers submit an offer for a property conditional on their current home selling. It creates a disadvantage for the seller of the property they put an offer on because it puts a condition on the offer. A lot of listing agents don’t like that because it makes it much more difficult to firm up the deal. I definitely don’t recommend submitting an offer on a property that’s conditional on the selling of your current property. None of that will help you in your negotiations. Plus, who knows how long it might take to sell your current property. It just drags things on and ties things up. There are already so many delays in real estate as it is, realtors in general don’t like delaying any further. Have your mortgage pre-approval certificate before you start home shopping. To minimize delays and for piece of mind, prepare as much as possible so you can be confident when submitting an offer to purchase a home. 

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