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While there is no law dictating that homeowners must wait a specific amount of time to sell a house after buying, it’s advisable to move quickly under exceptional circumstances only. Listing a property on the market too swiftly after purchase could have undesirable implications, including mortgage prepayment penalties, capital gains taxes, and a lack of accrued equity.   

Most Americans’ home is their most valuable asset, so it’s usually a fiscally responsible choice to retain it for sufficient time to make a return on the investment. However, an unexpected change in personal matters might necessitate moving faster than planned. Read on to discover how many years the ideal period to postpone before selling is and why — and if there any extenuating circumstances that render speeding up the process preferable.

What Affects a Property’s Resale Value Within the First Two Years?

Experts advocate waiting at least two years after purchasing a house before putting it back on the property market. This isn’t merely because two years isn’t usually sufficient time to build equity. Lenders are keen for buyers to engage in property deals with the long-term in mind, and might penalize what they deem to be prematurely ending a contract with mortgage prepayment penalties. Homeowners must also consider capital gains taxes, the costs involved in selling a property and those included in purchasing a new home, and the value of short-term ownership compared to renting.    

Breakeven Horizon

One of the rationales behind not buying a property and quickly selling it on is: in the short term, renting is less of a financial burden than mortgage repayments. The breakeven horizon represents the point in time when ownership becomes more viable than renting. Rent offers zero return. So, as time progresses, home ownership becomes incrementally more lucrative. As such, deferring for more than two years before selling lets a homeowner build equity and increases the likelihood of them making a respectable ROI.

 

Nationally, the average breakeven horizon is just over two years — although it varies from state to state. Conventional wisdom puts the breakeven at 7 years, with a normal rate of building equity and relatively steady increase in value. Selling most real estate before this period would cause the majority of individuals to take a loss.    

Capital Gains Taxes

Should someone decide to sell their primary residence before they’ve lived in it for two years, they’re liable for capital gains taxes — up to $250,000 for a single occupant and up to $500,000 for a couple. The exact figure they’re expected to pay depends on their income bracket and the precise length of time they’ve lived there. Once a homeowner has resided in a property for two years, they gain exemption from this tax.     

Mortgage Prepayment Penalties

Lenders aren’t enthusiastic for clients to pay off their mortgages within the first two years of the agreement because they’ll lose out on interest payments. They might charge a prepayment penalty to attempt to dissuade homeowners from selling quickly and to recuperate a portion of their losses. All of the details regarding penalty payments are contained within the terms and conditions of the loan agreement. Sometimes, it’s charged as a percentage of the entire initial loan; otherwise, it’ll be a flat rate.    

Closing Costs

Mortgage prepayment penalties, capital gains taxes, and losses accrued by selling before the breakeven horizon are capped off by one final major factor: closing costs. Having just been through the property purchase process, some individuals are mistakenly optimistic about the amount they’re obligated to pay. Sellers tend to incur more fees than buyers — up to 10% of the final sale price. For example, selling a home for $200,000 could lead to $20,000 in closing costs, which is a sizable sum in conjunction with the rest of the capital required to sell a house soon after buying. 

Legitimate Reasons to Sell a Property Soon After Purchase

  • Forced appreciation: Colloquially referred to as house-flipping, forced appreciation is when a buyer purchases a house intending to increase its market value through improvements to the property. It’s the opposite of natural appreciation, which is the natural increase in value that occurs over time. 
  • Significant price appreciation: Occasionally, there’s an unexpected upturn in the property market that facilitates a significant sudden spike in the price of a home. Consult a property advisor to discover if now is the most cost-effective opportunity to sell.   
  • Financial difficulties: Unfortunate as it might be, sometimes people misjudge their wealth and make an investment they’re unable to afford. Unforeseen circumstances might mean a homeowner needs a large sum of money that they’re only fiscally able to obtain from a house sale. Whatever the reason, if the capital isn’t available, selling could be the only recourse. 

Weak Reasons to Put a House Back on the Market Within Two Years

  • Indecision: Indecisiveness has no place when it comes to a major investment like a house. Attempting to sell a property quickly after buying it with the predominant reason being a change of heart is irresponsible and inadvisable. Substantiated reasons, like noise pollution or unacceptable levels of crime, are legitimate reasons to sell a home — but the seller is almost certainly culpable for significant financial losses.   
  • Buyer’s Remorse: Meticulous buyers spend months researching the housing market, often conducting searches several times a day and viewing dozens of properties. An unfortunate consequence is that they continue trawling the markets once they’ve closed a deal and start wishing they opted for an alternative home. Selling a home because of buyer’s remorse is a costly mistake and a sign to conduct more thorough research when making investments. 

How Soon Can You Sell a House After Buying Without Making a Loss?

With the variety of expenses analogous with selling a home before two years, putting a property on the market before this time is usually imprudent. Once two years have passed, a homeowner is exempt from capital gains taxes, they won’t be liable for mortgage prepayment penalties, and they’ll have built enough equity to break even or turn a profit.   

Find out whether now is the best time for you to put your property in Pennsylvania, Bucks County, Montgomery County, or Philadelphia on the market. Contact us to speak to an expert realtor about your circumstances. 

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