If you’re considering upgrading to a new home, you could enjoy valuable savings by making the move sooner rather than later.
There comes a time when our thoughts turn to upgrading to a better quality home or a more desirable suburb. It’s a big decision that requires careful thought. But with the property market returning strong rates of growth in many parts of Australia, it could pay to fast-track that decision.
That’s because in a rising market, the value of a more expensive property can increase by more – in dollar terms – than your current home.
Let’s see how this works.
You could pay more for the new place
Recent figures from research group RP Data show that across Australia’s eight state and territory capitals home values rose by 9.8% in the 2013 calendar year. That’s a great result for current home owners. If your home started the year with a value of, say, $365,000, it would have been worth just over $400,000 by the end of 2013. That growth in equity is a great tool when it comes to upgrading to your next home.
Now, we’ll say you’d like to upgrade from that $400,000 home to a property worth $600,000.
If you upgrade now, the price gap between your current home’s value and the new property’s value would be about $200,000. For the moment we’ll disregard transaction costs like agent’s selling commission and stamp duty.
But look what can happen if you delay the move for 12 months. If we assume values rise by around 10% in 2014 – as they did last year, your home could be worth $440,000 by year’s end. Brilliant! The catch is that the $600,000 home you had been considering would now be worth $660,000.
That one-year delay could leave you facing a price gap of $220,000 – $20,000 more than if you’d upgraded today. That’s an additional $20,000 you need to fund, with no additional benefit.
Transaction costs can be higher too
Of course, it’s not just the value of your home – and new property, that will be impacted by rising prices. Many transaction costs like agent’s selling commission and more particularly stamp duty, that are based on a property’s value, can also rise, eating substantially into the funds allocated to your next home.
It’s worth stressing that none of us know how markets will move throughout 2014. Nonetheless if last year is anything to go by, it may not pay to wait if you’re planning an upgrade.
Are you planning on moving home this year? If you are – please share your reasons in the comments below as we’d love to know what is inspiring your move.
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