Strategic Options for buying your next home

Buy your next home first - then sell your current home
Option #1- “Cash out” refinance of the existing loan for your current home 

Pros

• Wait for the right home to become available and without time constraints tied to the sale of your current home

Cons

• Sale proceeds from current home could be less than expected which might require the sale other investment assets to fund the required payoff of the refinanced loan at close of escrow
• Potential capital gain income tax exposure for the sale of  your current home

Option #2 - purchase contract is contingent upon the sale of your current home

Cons 

• Most home sellers do not want to accept a contingency to sell
• Sale contingency weakens your negotiating power
• Failure to sell your current home within the contingency deadline could result in a cancellation of the purchase contract

Sell your current home first - then buy your next home 

Pros 

• Confirmation of the amount available to purchase your next home from the sale proceeds of your current home 
• Negotiate the right to rent back your current home after the the closing date to allow more time to find and complete the purchase of another home

Cons

• Time constraints to find and complete the purchase of another home to align with the closing date of the sale of your current home
• Possible “double move” into a temporary rental if you cannot find and complete the sale of another home to align with the closing date of your current home 
• Potential for capital gain income tax exposure for the sale of your current home

Keep your current home - buy next home now
Convert your current home (primary residence) into rental property (income property)

• Refinance your current home for the funds required to purchase your next home
• The ownership of current home and your next home will be held within your trust
• When one spouse is deceased, there is a step up in cost basis to eliminate capital gain tax for the surviving spouse
• Sell current home thereafter and retain entire net equity proceeds without gain tax

Pros 

• Monthly rental income
• Additional income tax deductions for owning income property and your primary residence
• Defer or eliminate capital gain income tax
• 1031 Tax Deferred Exchange into another real estate investment property or invest in a commercial property under professional management within a Delaware Statutory Trust (DST)
• Option to return to your current home in the future if desired

Cons

• Property management - highly recommend engaging the services of a professional property management company
• Liability exposure - need rental insurance policy coverage. Recommend additional umbrella liability coverage and/or set up an LLC for ownership