I was told the other day by a client to post a bit more real estate related topics on my blog. Well, it’s a real estate website after all. So having thought about this, I decided to post a trend that I have been seeing from my own clients over the past few years.
You see, the career of an agent sometimes can mirror the career of your clients. When you are a young agent, sometimes by the nature of your sphere of influence, you tend to work with younger buyers who buy their first time homes. As you age, your clients sort of age with you. Hopefully you pick up more and more clients but the original crew probably have all outgrown their current nests so they need to fly to a bigger coop. This is where you will experience the jump up transaction. Basically it’s a transaction whereby the client has to sell a property in order to finance the purchase of another property.
A jump transaction has many challenges. For one thing, your budget depends on the price that your own property can be sold for. Moreover, if you want a seamless transition, dates have to align. Then there is the tricky issue of potentially securing bridge financing in a tricky environment when the banks are watching leverage ratios like a hawk. Finally, if you do it wrong and use the wrong option, you could end up in a situation whereby you sold your own place but lost the place you wanted to buy. But, as anyone who has been in real estate for a length of time would know, it is one of the most vital transactions that clients will perform. Well, if you think about it, most people usually start off in a starter home, and then they switch to a bigger property over time as they have a bigger family; when they retire and their kids all leave the house, they usually downsize. So the jump transaction will almost certainly be encountered by many clients over the course of their life time.
There are a few ways you can accomplish this. You could sell first, then buy, either using long closing dates or a rent back clause; buy first using bridge financing then sell; or buy with a subject to sell and then sell the property during the time of the subject. Each of these options carries its own advantages and risks; not carefully considering these could jeopardize your smooth transition and give you nightmares. In assessing which option is best, it is vital that the client consider their tolerance of financial and lifestyle risks; having honest conversations with your realtor save you headaches down the road.
In the upcoming weeks, I will write a detailed blog entry on each option and their advantages and disadvantages. Hopefully this will be of use to the audience because it’s likely that you will experience this transaction at some point.