It's fairly common for a real estate investor to also be a homeowner. Which means there may come a time when you need to figure out how to buy a house while selling your own. Buying an investment property while simultaneously selling your current home may put things like taxes and financing options into question, making the process feel intimidating or confusing. If you're in this position, continue reading to learn how this process works as well as a few tips and strategies you can use to make the process easier.
Buy the investment property first
If you come across the perfect investment property, you may choose to buy the new real estate first so the opportunity is not lost. This is particularly applicable in a seller’s market when homes are moving quickly and you want to make a quick-close cash offer or don't want to risk the homeowner choosing another offer. In order to do this, though, you will need an above-average credit score in order to qualify for a loan for both properties or have enough cash on hand to make a full-cash offer.
This process is just like any typical buying scenario. If you have a house in mind, you can make an offer just like you normally would, or you can reach out to a Realtor to start a search for you. The only difference will be if you're looking to carry a home loan on both properties. Make sure to contact a mortgage broker to get pre-approved for a loan prior to contacting a real estate agent to ensure you'll be able to follow through with your offer, especially as requirements for an investment loan become stricter.
Working closely with your mortgage broker or a mortgage specialist will ensure you're qualified and eligible for both loans regardless of the closing time, in turn solidifying your intention to purchase and sell a property around the same time.
Sell your current property first
You may want or need to sell your existing home first if you need the capital from the equity to cover the down payment and closing costs for the new real estate. This isn't nearly as much of an inconvenience as it may seem when the property is an investment and not your personal residence. It eliminates the risk of having to make a mortgage payment on both properties at once and also reduces the pressure to sell low in order to sell fast. However, if necessary, you can always seek a bridge loan, which helps bridge the gap between capital on hand and capital necessary for closing on the investment property until your residence is sold.
This is certainly the easiest process of the three options. You can hire a listing agent to market your home, or you can sell it yourself like you normally would any other property. Upon closing, you would then start your search for your next property.
Buy and sell at the same time
Sometimes things are perfectly timed: The home buyer is comfortable with a flexible closing date and the home seller is confident with your ability to close after selling your current home. In this situation, you can close on your current property, then turn around and go to the closing for the new property on the same day. Just like when buying first, you will have to have a good credit score and the capital on hand in order to be approved for a mortgage for either or both properties.
This is a slightly more complex scenario than buying or selling first. In this situation, you will be working closely with the loan officer to make sure your existing mortgage is cleared in order for you to close on the new property. A good real estate agent should be familiar with this process as well and will be able to help you navigate the process smoothly.
As a real estate investor, you'll likely have many opportunities to buy and sell properties over time. The good news is you don't have to be concerned with capital gains taxes from your primary residence if you fall within the current limitations. What you choose to do, whether buying or selling or doing both simultaneously, will be based on your particular financial situation and market conditions. There is no right or wrong approach and each has its pros and cons. Ultimately, as long you're financially able to support the decision, then you can choose whichever opportunity presents itself.