One of the most common objections we hear from property owners in today’s market is along the lines of… “Yeah so, my property’s value has increased by 20%, of course I am interested in selling, but where will I move to? How can I afford to buy again when property prices are so high?”.
If the market is rising or falling in price, the crucial number when it comes to buying and selling is the changeover number. Simplistically, buy high/sell high or sell low/buy low. The market is relevant if you are buying and selling at the one time.
With prices currently rising, many people are hesitant to upgrade their existing home despite property values increasing by an average of 20% in Brisbane’s Inner North, the fear is not making enough to cover a new purchase. Conversely, many people are resisting current market prices because they are downgrading therefore losing too much of their sale profit on the purchase.
As the real estate market revolves, there will be wins and losses. However, there is one common denominator every person looking to buy and sell in the current market needs to be aware of one number. Their changeover number.
What is the total cost of buying and selling? Work out on paper the total transaction costs, the difference between your selling price and purchase price and any improvements that may need to be made. The sum total of these costs is your changeover number. This is the amount you will need to put into the transaction, whether it be in cash or borrowings.
Upgraders do need to be careful when the market is rising depending on when they originally purchased, at what price and how much of the principal loan they have paid down. In general, if they have owned their property for 3+ years, in Brisbane’s Inner North, it would be likely that they have experience an average of 20% growth in property value. If they focus on how much a new property is worth, they won’t see the underlying opportunities. The reason certain upgraders could consider buying and selling in today’s rising market is the increases in value of their current property likely gives them more equity to invest into a better-quality property than they are in. If you are looking at buying a $1.5 million home, to buy with a 20% deposit you would need $300,000. If their existing property is currently valued at $1 million taking into consideration the 20% gains in property values, they would have experienced growth of around $200k in the last 2+ years (up from approx. $800k). Assuming they had 20% equity in the property, that is an additional $160k = $360 to upgrade with.
Taking this into account, buying in a rising market does require strategy, see our blog here on our tips for how buyers can get the edge in the current market.
Although the market is very competitive right now, you can still find a great property and make a successful offer if you have the right mindset and approach, and you are more chance of succeeding in real estate if you have a written plan that is simple, right down to a single figure. If the plan does not work on paper, its no chance of working in reality!
Buyers who believe they can time the market, develop a false sense that they have all the time in the world. The mentality that they can find a better deal later causes many to miss out on some great opportunities.
If you want to see how we can help you achieve your property goals, contact us on 07 3256 1600.