Owning a home is a right of passage that most people like to celebrate. Many ask when is the right time to buy a home or which taxes to pay during purchase. However, not many homeowners have the answer to this question: how long should you own a house before selling?
In this article, we will break down the significant factors you need to consider, situations to be aware of, and other miscellaneous points of deliberation before planning to sell your home.
Five to Seven Rule
Many real estate brokers and investors recommend the following rule before selling a home, whether you plan to leave a suburban duplex or a central city penthouse. The recommended period to live in a home before selling it is five to seven years.
If you don’t specifically have a five-year plan to follow and already have a family that wants to settle down in another location, then approaching a real estate agent will help you streamline ways to maximize your mortgage. However, people tend to stay in their homes longer before selling because of a housing supply shortage and low affordability.
There has been a rise in the number of building permits issued for single-family homes in the suburbs or rural areas. This has resulted in a 13-year average in median homeownership simply because relocating and acquiring permits could cost potential buyers more hassle than they wish to deal with. In contrast, a 4% rise in permits issued has been spotted in homebuyers in the metro, leading to an average of fewer than 13 years of staying put.
Don’t Overlook the Equity
Of course, there are other circumstances to consider, such as a job relocation or family issues that could change your plans. However, it’s best to assess the equity you will walk away with or if there’s any at all. The intelligent approach is to maximize your investment before selling your home, which means taking on small or big upgrades and projects in the house to escalate your equity.
Consider how much equity you have acquired, which often relies on your mortgage. This also entails looking into the improvements and renovations done to your home before you purchased and moved in. If you’ve moved into a rather expensive house before you upgraded a few parts, sweat equity might be hard to build on.
Sweat equity is the labor that has been unpaid to employees or flippers who put work into a specific home improvement project. This could be from adding new cupboards, changing the landscaping, or even retaking the bathroom floors.
Your Mortgage Matters
No matter how long or how short you’ve lived in it, selling a home is dictated by how your mortgage payments play out. Say you’ve lived in your first house for five years and you’re looking to move somewhere closer to the city. You would have to look at the mortgage on your home sale the first time around and check if the sale price is higher than the amount of your remaining mortgage.
The first few payments of your mortgage will be directed to the interest than the principal. So in under five years, making money on a sale could be rough. Although, things could be different if you bought a smaller house with a larger down payment.
This could mean your mortgage amount could be smaller this time around, along with the interest rate. If this scenario plays out, you will have higher chances of selling your house and even making a profit.
Stay Put for Two Years
When it comes to avoiding capital gains taxes, doing it behind closed doors is not the way to go. The legal practice is to simply live in your house for a minimum of two years. This simple rule can benefit your equity value in the long run, which can work well for those who like to flip houses.
Flippers outsmart the capital gains tax by simply living in the house as they conduct replacements, upgrades, and repairs during the two years. Since they can find comfort in knowing they have instant equity, there’s no rush to finish flipping it.
Living in a house for at least two consecutive years out of the general five-year minimum requirement can help you exclude profit from $250,000 to $500,000 if you’re a married couple.
The Seven Year Itch
Following real estate market trends can be intimidating if you’re constantly asking: how long should you own a house before selling? With constant fluctuations in the housing market, several patterns can reflect peaks and valleys, leaving you uncertain when to go.
The National Association of Realtors (NAR) revealed from 2020 data that the average homeowners reside in their first home for at least 13 years. Thus, to align with the 18-year pattern of the real estate market, it’s recommended to stay in your first home for at least seven years.
Besides, the seven-year wait could help you sit out of any dips in the market during a recession, especially during a global pandemic that has already drastically impacted many markets beyond real estate.
Live (In It) a Little
When it comes to playing the real estate market, sometimes the best way is to stay put and live in your house for a while. But depending on personal circumstances, plans could change. That’s why it’s essential to know the risks and how long should you own a house before selling.
The same goes for those planning to get into flipping; know the legal taxing costs you could use to your advantage before upgrading your space. Ensure you’ve maxed out the minimum two years living in a home and take your time when remodeling anything to get a better return of investment in the long run.
Besides acquiring help from a real estate broker or professional home buyers, make a background check on your finances, equity status, and mortgage payments. This would help align your long-term plans and create a rough estimate for selling your house at the right time without incurring so many costs in the process.