“There is a tide in the affairs of men. Which when taken at the flood, leads on to fortune.”—William Shakespeare.
The real estate world works on perfect timing. There is a time for everything. There is a time to sell a house, and a time not to sell a house.
So, how long should you own a house before selling? Why should you even be bothered with such timing? Those are some of the questions we’ll be answering in this article.
5 years—That’s the minimum number of years you should live in your house before selling.
Research by the National Association of Realtors shows that 10 years is the average number of years homeowners stay in their houses before selling.
Are you looking to buy a home? This information is also crucial when buying a home. When purchasing a home, you need to have a rough estimation of how long you intend to own and live in your new house.
Factors to consider when selling a house
Sometimes, life’s unexpected circumstances can push you to make hasty and heavy decisions like selling your house. Nevertheless, selling your house too soon might lead to losses.
We all know houses are like wine. The more you keep them, the better they become. Houses build equity over time.
Selling too soon might cost you some equity. Specifically, the loss of equity weighs heavily on those who buy houses on mortgages.
What is Accrued Equity? Equity refers to the portion of your home’s worth that you own right now. As mentioned earlier, equity accumulates over time. The more you pay your mortgage installments, the more you build your equity. The downpayment is also part of your home’s equity.
Here is how you can calculate your home’s current equity:
Your home’s current market value − The remaining amount of money you owe your mortgage lender
So, how does loss in equity affect you?
First, you need to be aware of something. Your mortgage interest rates tend to be higher the first 5 to 7 years after buying a home. Since you are paying more, you build equity faster.
Apart from paying mortgage installments, you can also build your home’s equity by renovating the house and improving its features.
When you sell your house too soon after purchase, you’ll end up paying more money to your lender.
If you are not careful, you might end up paying more to your lender than the amount of money you’ll make after selling the house.
Selling a house isn’t free. We know it sounds contradictory, but you need money to sell a house. On average, it will cost you around 10% of your home’s value to sell the house.
Let’s say your house is worth around $1,000,000. You should be prepared with $100,000 if you want to sell the house.
Below are some of the transactional costs you should expect when selling a home:
- The selling agent’s commission.
- All the expenses you’ll incur as you prepare your home for sale.
- The closing costs
What are closing costs? In case you didn’t know, buyers and sellers incur additional expenses when finalizing real estate deals. Closing costs are among these expenses.
All these expenses come back to bite your equity. Trust us, the last thing you’d want is to break even after selling. Or worse, end up at a loss.
The housing market
After buying a house, most homeowners tend to lose all interest in the real estate housing market. If that’s you, then you need to be mindful of the trends and changes happening in the real estate market.
The housing market is self-explanatory. It will tell you the best time to sell your house. On average, the real estate market experiences drastic changes at least once every 7 years. Therefore, you stand to make a higher return-on-investment if you list your house 7 years after the date of purchase.
It’s smart to buy a house when the market is soft. That way, it’s easier to get a good deal. On the other hand, it’s smart to sell a house when the market is high—The bigger the profit margins.
Of course, this complicates matters if you’re looking to sell your home and buy a new one shortly after. One way you can get around this complication is by purchasing your new home in a cheaper area. If you live in Toronto, for example, consider buying a home in a place like Stouffvile – learn more here.
That way, you’ll benefit from selling in a high market (Toronto) and buying a lower one.
Here is some advice you should always remember as a homebuyer:
Even as a domestic buyer, always treat your real estate purchases as long-term investments in the area you are living in. Before buying a house, always try to predict its value down the years. Do it right, and you might end up making a lot of money in profits.
Taxes. Avoid them
If you are not careful, taxes will bite large chunks of money from your pockets.
Don’t listen to the people who advise you to avoid real estate taxes by cheeky means. It will only get you into trouble.
Capital Tax is the most notorious real estate tax you’ll come across when selling your home.
What is capital tax? It’s a type of tax levied on the profits you make after selling your house. Usually, the capital tax rates are dependent on your income level when selling the house.
How can you (legally) avoid capital tax? By owning the house for a couple of years.
What happens if you sell your house too soon after purchase? You have no choice but to pay the capital tax (Less money in your pockets).
Note: Owning the home isn’t enough to avoid capital tax. When selling, the house needs to have been your primary residence for at least two of the past five years.
I can’t wait. What should I do?
Life is unpredictable. You might find yourself in a situation where you must sell your house soon. What should you do in such a case?
Indeed, it’s a highly disadvantageous situation because you’ll end up missing out on the benefits we’ve mentioned.
In such a case, we’d advise you to seek the services of a top and trusted real estate expert. He/she is the only person who can set you up for favorable deals. Some of them might even be willing to tweak their commissions to help you in your time of need.