There are many reasons people decide to sell their house. For some, it’s all part of the “five-year plan” to purchase a house, live in it until they outgrow it, and move on to bigger and better houses. For others, it’s part of a retirement plan to fix it up and sell it immediately. Still, others have to sell for an unexpected reason and move on. Whatever your reason, there is an ideal length of time to live in your house before selling.
Avoiding Taxes (The Right Way)
Most people talk about avoiding taxes behind closed doors or on gimmicky sites. If you actually want to avoid capital gains taxes on your property legitimately, you’ll need to live in your house at least two years during the last five years. There are actually quite a lot of people who use this rule to their benefit. They’ll find an undervalued home for a great price and fix it as they live in it. They’ll relay carpet, tear down walls to open up the main floor and update the kitchen. They’re in no rush, and because they have instant equity in the house, they have money to work with. At the end of two years, they’ll list the home for sale and boom! They’ve made money off of it without paying capital gains tax.
Watch the Market
Taxes aside, there are other reasons you may want to stay in your house for longer than a few years. One of those reasons is the housing market. Let’s get real: how often do you jump into a house that you’re going to live in right at the perfect low time and are ready to sell at the peak? If you’re anything like the general public, you jump in on the buying wagon midway up the housing peak. Then, when two years comes around, the market is declining and you dread listing your home for sale knowing you won’t make much money. By watching the market for the peaks and valleys, you’ll know when the right time to buy and sell is. Most people say it turns around about every seven years. That means you should stay in your house for about seven years until you sell, knowing it will be a great market when you buy and a fantastic one when you sell.
Know Your Mortgage
Your mortgage payment should play into the equation when you are thinking about selling. The first few years of owning your house are probably going to be spent paying toward your interest, not toward the house. Knowing this, you will probably want to go check your mortgage payments now to verify. When you sell your home, you want to make sure you have as much equity as you can have. That means you’ll want to pay as much of it off as you can. If you bought at the lower end of your approval scale, you may even want to pay a little more toward the payments each month to make sure you really get your money’s worth out of it.
You’ll also want to watch the closing costs. Many times those closing costs equal a month’s worth of mortgage, maybe more. When you sell your house and go to buy another, you are promising more closing costs that must be funded. Most of the time, closing costs are 2% to 5% of the purchase price of the home. That means if you buy a $240,000 home, you can expect to pay between $4,800 and $12,000 in order to buy a home. If you’ve only lived in your home for a few years and you have maybe $10,000 worth of equity in it, you are going to be paying that just
in closing costs!
The Bottom Line
The long and short of it is this: you should live in your home at least two years to avoid paying capital gains tax on your home. If you want equity in your home without doing any major updates, you’ll probably want to live in it between 5-7 years. While this is a good benchmark to keep in mind, you should also keep an eye on the market in your area to make sure you sell at a time where you’ll make the most money out of the sale. And last but not least, make sure you calculate the amount of money you’ve paid toward the house. You want to add up the money you’ve paid in your mortgage toward your house, as well as the money you put down on your house in closing costs and a down payment. You don’t want to break even or end up right back at the beginning when purchasing a new home.
- 17 Tips to Get Your House Ready to Sell
- What Is The Best Time To List a House
- How Much Will I Make Selling My House?
Selling your home soon? You don’t have to pay an arm and a leg to get the best real estate agent. At Clever, we work with the top local agents who serve you marvelously for a great flat rate listing price. Call us today at 1-833-2-CLEVER or fill out our online form to get started.