Real Estate Trading: A Good Strategy in a Slow Market

real estate tradingReal estate trading, also known as house swap, is a type of transaction that involves a party (A) making a purchase from another party (B) for his/her property, simultaneously, A is also selling his/her property to B. Essentially, it is a swap of the properties and the cash differences if there are any. This type of house swapping is also known as “I-buy-yours-you-buy-mine” agreement. In addition, the simultaneous-sale approach would involves both parties to close around the same closing date.

However, the key difference in trading vs. traditional transaction is that real estate trading involves the exchange of land title and settling out the netted difference in their properties values, instead of cancelling existing mortgage to get a new mortgage, pay lump sum in down payment, and all other hassles. In such transaction, when both parties comes to the trading agreement, the transaction will go through as long as both properties have enough equity in the properties and the funds to make up for the difference can be paid upon closing. Therefore, if one of the party has little cash, equity or negative equity in the property, such transaction may not be possible from a financing standpoint.

house swap

Why Real Estate Trading

Like children exchange toys or video games, people may want to swap properties for the experience of trying something new, live in a new neighborhood, enjoy a new scenery. However, it is a much bigger and longer commitment, because the land title will be transferred. The netted difference in the value of the swapping properties will be compensated by cash or other methods of incentives agreed upon by both parties.

Real Estate Trading offers certain additional benefits over the traditional real estate transaction. Since the closing date and moving date of both parties occur simultaneously, the owners avoid the hassle of looking for temporary storage for furniture and short-term rental residence before the move in date. It also avoids paying the notorious double mortgage, since the sold home and newly obtained home are closed on same day. In addition, it also allow saving on advertisement, listing fees and commission, which can add up to thousands of dollars.

Lastly, with oil price filtering at the $40 -$50 range, the real estate market in Calgary got dragged down along with the rest of Alberta economy. Real Estate trading is a good strategy in such market because it offers the capital preservation for the property owner who are looking to buy/sell their home. By trading/swapping instead of the more traditional transaction, the owner is more likely to preserve the original woth of the price, which would be close to the appraised value, because no liquidation is done at the depressed values.

Read more about how home swap works by clicking here 

How to Trade Real Estate

Traditionally, such transaction are typically done between two parties who both desire to own the other party’s house and are willing to give up current house for it. They either met through common associate or through a brokerage with experienced real estate licensed agent who can look for such listing or negotiate such terms.

These days, more and more real estate trading are coming online. Craigslist and are websites offer such listing.

Other Considerations

The bank normally charges a breakup penalty for selling a property before the mortgage term matures. However, many bank can offer to waive the penalty if you purchase another property within a certain period and sign up with a mortgage for equal or great value. Please check with them to understand your mortgage policy before committing to such transaction.

Real Estate Trading involves buying and selling of properties. The specific impact on your tax filling and financial situation will vary by person. In addition, each province and banks have different policy regarding this type of transaction. Therefore, it will be wise to consult the tax authority of your province, your broker, financial advisor and accountants to understand the full consequence of such transaction on your finances.

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