Many first-time homebuyers do not end up purchasing a “Forever Home”, in fact, they initially plan on only living in it for three to five years. It is important that if you are planning to own a home for a short period of time, to make a plan that favors you financially and make sure to not sell too fast because you might end up with little to no equity.
The initial most important factor to consider is, if you want to avoid capital gains taxes on your property legitimately, you must live in your house at least two of the last five years. However, it is important that when considering to sell to meet with a real estate agent, who can help you understand the market and asses when the best time for selling is. When thinking of selling, you must keep up with the market trends, for example, you would not want to sell on a Buyer’s market because this would drive prices down. Consensus state that seven years is how long housing cycles last, and right now is the perfect time to sell, low-interest rates are driving a high demand and the inventory is very low.
When thinking of selling it is important to consider your mortgage payments and interest rates. Payments throughout the first couple of years mostly cover interest rates, not the principal and you would want to make sure you have as much equity as possible.
Also, evaluate and discuss selling costs with your real estate agent. When thinking of selling your property to buy a new one, you will incur these costs in both transactions. Most of the time these account for 2% to 5% of the purchase price, therefore if you live in your home for a short period of time and the market is not driving prices up, you would have lost equity and incurred unanticipated costs.
We can conclude that is best to live in your home for at least two years before even thinking of selling. Once you start considering it, it is best to discuss the potential of the home and performance of the market with an experienced real estate agent. Always keeping an eye on the market, and when thinking of numbers, you want to add up the money you have paid in your mortgage towards the principal, and the prices involved in closing costs and down payment. You do not want to break even or end up right back at the beginning when purchasing a new home.