How Long Should I Wait Before Selling My Home?

 

Whether you’re a first-time buyer or a seasoned investor, knowing how to determine if it’s time to sell your home can be a difficult and emotional process. While there are no hard and fast rules for how long you should own your home before selling, there are several factors that can help you decide whether it’s time to go.

 

What is equity and why is it so important?

 

Equity is the value of your home minus the amount you owe. In other words, it’s what’s left over when you subtract your mortgage balance from the home’s market value. You can calculate equity by subtracting the sum of all outstanding mortgages and liens on a property from its estimated market value (the rule of thumb is generally to use two recent comparable sales). Let’s say for example you bought a property for $500k and your mortgage balance is $300k, you have $200k in equity.

 

 

Now take that $200k of equity and the current market value of your home and calculate any improvements you’ve made since buying it. Calculate how much you spent on closing costs and down payment when purchasing this home. Calculate the total amount of money that’s been spent on interest, property taxes and insurance over time, as well as what it would cost to sell with a real estate agent and pay associated fees (staging, cleaning). If necessary, calculate how much money will be needed for the purchase of another home if that’s the direction you’re going in. Subtract all those expenses from the total equity and you have the total amount you’ll be profiting – if any. Don’t forget to factor in the rise in the cost of living and inflation as well as any repairs you did to your property during your ownership. $500,000 doesn’t buy today what it bought five years ago.

 

If the number you came up with is lower than the amount of equity that has accumulated within your home during its ownership period – then consider yourself ready to sell!

 

 

 

The five-year rule isn’t a hard and fast rule, but it’s a good general guideline to follow when deciding whether or not to sell your home.

 

The five-year rule says that a homeowner should wait at least five years before selling their home, in order to accumulate enough equity to cover any and all expenses they had to purchase the home as well as any repairs, property taxes, insurance and interest.

 

So why does it matter? Well, the dollar amount of your equity also increases as your home value increases. Historically, homes have appreciated 3 to 5 percent annually. You also build equity when your home appreciates in value due to a strong local real estate market and any home improvements you made. But most importantly you build equity as you pay down the principal on your mortgage. Problem is, during the first several years of your mortgage payments, you pay more toward the interest owed than the principal.

 

Sell too soon after getting a mortgage loan and it’s possible that you’ll pay more to the lender than you’ll earn on the home’s sale.

 

After taking everything into consideration here’s one more factor to consider – The best time to sell your home is when you’re ready, and when the market is favorable. If you’ve established that your home has gained value over time, feel free to sell anytime. If not, get in touch with a local real estate advisor to see if you’re in a seller’s market or a buyer’s market. Selling during a favorable market (seller’s market) can get you more for your home even if the equity isn’t there because buyers are willing to pay more just to get the house.