Once you have purchased a home, you can sell it at any point that you want to. However, that is not always advisable. How can you tell how soon it is a good idea to sell your home? There are a variety of factors involved, including whether you will lose money, have capital gains taxes, or owe mortgage prepayment penalties. We will look at all the factors involved in considering how soon it is wise to sell your home after buying it in this post and our next post.
First, some general information about selling your home a short time after buying it.
Reasons to Sell Early
Most homeowners live in their home for an average of 13 years before selling it, according to the Zillow Group Consumer Housing Trends Report 2018. However, there are a number of scenarios in which a homeowner would need to sell a home much sooner. Here are a few:
How Soon Can You Sell Without Losing Money?
Generally, selling in less than a year is not worth it. If you only need a place to live for a year or less, it may be a better decision to rent. Even if you can sell a home for the same amount you bought it for, you may still be losing money. You must consider all the expenses involved in buying and then selling a home, including the costs associated with buying, costs associated with selling, moving expenses, and equity.
The Breakeven Horizon
The breakeven horizon is the amount of time that it takes for buying to be more worth while financially than renting. It is not a static amount, but varies for different homeowners in different parts of the country.
The breakeven horizon is based on a mortgage with a 20% down payment and monthly payments on a 30-year fixed-rate mortgage, with current interest rates for a homeowner with a 680 to 740 credit score. The breakeven horizon also considers market appreciation rates, taxes, insurance, closing costs, maintenance, and HOA fees for condo owners. The breakeven horizon is a tool that will help you determine how soon after purchasing you can sell a home without losing money. Just remember that breakeven horizons vary around the country, but the national average is 2 years and 3 months. For more detailed information on the breakeven horizon in different locations around the country, check out this 2018 report by Zillow.
This of course is market dependent. We can't predict what the market will be like in the short term. However, if you wait long enough, the market has always historically gone up. Therefore, I always advise people to plan on 7-10 years as a safe time frame to own. In addition I advise people to be flexible because the main way people can lose money is if they have to sell. In most situations, waiting to sell will allow you to come out free and clear or make a profit.
Zillow.com and Nerdwallet.com also feature handy Rent vs. Buy calculators that you can plug a few numbers into and determine at what point you would be better off owning than renting.
Can you ever sell before the breakeven horizon?
Yes, it is possible to sell before you reach the breakeven horizon and still make money. Here are a few instances where this is possible.
We’ve covered some general guidelines about how soon after purchase you should sell a home. In our next post, we’ll delve into some more details that will help you assess your individual situation and decide whether or not you should sell. Stay tuned for our next post!