In this article:
- What to Consider Before Selling
- How to Estimate Your Breakeven Number
- What if You Need to Sell Before Five Years?
Before selling your home, there is a set amount of time you should stay in it to make a profit or break even on purchase costs. This amount of time varies by person and circ*mstance, but wisdom from the real estate world says an average minimum target is about five years.
Here's what to consider if you're wondering how soon you can sell your home after purchasing it.
What to Consider Before Selling
Beyond simply the length of time on the calendar that you've stayed in your home, there are some other numbers to weigh. Costs, valuation and other factors can feel complex when you're considering selling your house, but generally, they consist of:
- Closing costs: Closing costs and transactions related to buying a home may include:
- Seller's agent commission, often 6% of the sale price
- Closing costs of 2% to 6% of the home price
- Money put into last-minute home improvements and any moving costs
- Secondary closing costs for the home you'll purchase next, which are often 3% to 6% of the cost as the buyer
- Capital gains taxes: If you sell your home at a profit, you typically pay capital gains tax on it. If you own the home for less than a year, you'll pay short-term capital gains, which comes with a rate determined by your ordinary income and filing status. If you own the home longer, you'll pay taxes at a rate lower than your ordinary income.
- Your home's current value: While most real estate appreciates over time, dips in the market can affect your home's current value. When possible, you want to avoid selling if your home's value is down or below what you owe on it.
- The housing market: Even if your home's value is positive in the current market, if it's a buyer's market, you may want to put off selling. When possible, it's ideal to wait until there is a seller's market so you can maximize your selling price.
- Home improvement costs: Do you have some projects to finish up before trying to sell your home? Factor these costs into your sale price as well.
When you go to sell a home quickly after purchasing it, your home's value may not have appreciated enough to recoup these costs. Waiting to sell could help you make a profit or at least reach your home's breakeven number.
How to Estimate Your Breakeven Number
Ideally, you want to sell your house at a profit. But knowing your breakeven number can help you target the minimum acceptable sale price.
Though five years is a suggested average amount of time to stay in your home, you may meet your personal breakeven number sooner or later than that. You'll need to calculate the value of your home, what you owe on your mortgage and your costs to get a good idea of your breakeven point.
To reach your breakeven point, you'll need to wait until the appreciation of your home's value surpasses the cost of your transactions at closing. If closing added 15% to your sale price and the average home in your area appreciates 3% to 5% per year, it's reasonable to estimate about five years as your breakeven point.
What if You Need to Sell Before Five Years?
In some situations, selling before you hit your breakeven number including purchase transactions is unavoidable. There may be a family emergency that pushes you to relocate or a job opportunity elsewhere. When selling so soon after a home purchase, you should be prepared to possibly lose out on recouping the costs associated with your home purchase.
Some things to consider to get the most out of your investment are:
- Finish only necessary renovations. Most renovations don't bring a 100% return, so pouring any extra costs into the home at this point could be a waste.
- Verify that you can pay off your loan and handle transaction costs. You'll need to have cash on hand to cover any loss as you pay off your mortgage with the sale.
- Work with a real estate agent you trust to sell quickly. In a situation where you are already facing potential losses, work with an agent to make a quick sale. Each month the home remains unsold means increased maintenance costs you won't recover.
Of course, some opportunities may arise where you may take a loss on selling your home but come out ahead financially in the long run. This may occur when a new job opportunity comes up with an increase in salary or a large relocation package. There's no simple time frame within which you can plan to stay in your home that will automatically assure you of a sound financial position, so evaluate each event as it arises.
The Bottom Line
When possible, it is best to stay in your home long enough to turn a profit. But if you must sell your home before that point, there are steps to take to mitigate your financial losses.
When you're preparing to make a home purchase or move, having good credit is an essential part of getting approved for the best terms and rates on your mortgage. Make sure to monitor your credit throughout the buying process to spot any unexpected changes. You can get your free credit report and FICO® Score☉ from Experian to keep an eye on them as the buying process progresses.
