What is House Trading?

The U.S. housing market is nothing if not cyclical, with ups and downs and everything in between. Many strategies are employed by real estate investors and homeowners alike, in order to make money, or find a suitable home, no matter the market conditions. One interesting technique that is used especially in a slow real estate market is house trading, where two sellers trade homes with one another when neither can find a buyer.

Situations such as the following are very common in slow housing markets: A homeowner has a house they want to sell, but hasn’t received any satisfactory offers yet. The house has been on the market much longer they had planned, and they need to move. They’re motivated, but there don’t seem to be any buyers. House trading may be a viable solution to this seller’s problem.

There are online networks of home sellers that are becoming more and more well-known. The seller described above could use these networks to find a homeowner who lives in the city or state they want to live in, and wants to move to the city or state that the seller lives in. Both of these people are looking to move, and if the details can be worked out, they can trade houses, or more accurately, buy each other’s houses.

While house trading could be mutually beneficial for two sellers of real estate, there are some important things to bear in mind when making a trade. Both deals should close simultaneously, using the same title company, otherwise one seller may get stuck with two mortgages. Sellers should also be careful to avoid trading houses with someone who owes more on their mortgage than the house is worth, because that person may have trouble getting a new mortgage.

Real estate investors can also take advantage of house trading as a creative investment technique. It can be one option for an investor to be able to acquire property with no money down. An investor may want to trade one large property for a number of smaller rental properties, for example, and this would be a legal way to avoid the capital gains tax associated with selling a property. For an investor to use house trading as an investment tool does require some degree of flexibility, because finding a suitable property out of those available to be traded is more difficult.

Whether or not house trading will work for a given seller or investor depends on many things, but the advantages it offers can be especially attractive in a down market. Sellers can save realtor commissions if they find each other directly, and it’s not necessary for the properties to be of equal value at the time of the trade. House trading can also serve the purpose of adding a little bit of life to a struggling real estate market, simply by keeping things moving.