Some things get better with age — and selling your apartment is one of them. You can have a few motivations for selling your condo or co-op apartment, ranging from an investment piece you’re ready to cash in on, to wanting a larger home to live with more space.
But regardless of your motivation, when it comes time to sell, listing your apartment too soon can mean you didn’t build enough equity or you won’t make a prophet. In general, the longer you own your property gives the apartment more time to appreciate and dilutes any purchasing costs you incurred, like a realtor’s fee.
So you might be asking: is there a minimum amount of time you should own your apartment before selling?
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Reasons For Selling
Depending on your situation, your motivation for selling your apartment may vary.
There are a few common reasons you may be ready to put your house on the market: you’ve outgrown your space, a significant life event happened, you need to cash in on your investment, or you’re just ready to upgrade.
Based on your reason for selling, how long you should hold your property may vary, but there are still four essential factors you should consider before putting up the for sale sign.
Let’s be honest: you want to make a profit on the sale of your home.
But to make a profit, the sale price of your property must be higher than any remaining mortgage you still owe. So if you’ve owned for less than 20 or 30 years, it’s highly likely you still have a mortgage to pay off when you sell.
During the first few years of any mortgage, you are paying off more interest than principal, making it difficult to make a significant — or any — profit, especially your first five years of owning the property.
However, if you purchased your home outright in cash or with a large down payment, you have a better chance of making a profit off the sale sooner.
Your best next step is researching what your current monthly mortgage rate is. If you really must sell, consider paying off extra each month to increase the equity you’ll have in the home by the time you do sell.
You’ll also want to do some research on the current market and what apartments similar to yours are selling for which price. You’ll want to make sure you did not overpay when you purchased your home. If you sell too quickly, and not at the right price, you could end up losing money on the sale. But if apartments on your street are trading much higher than what you paid, it’s an excellent time to list yours.
Capital Gains Tax
If you want to use Capital Gains Tax rules to your advantage, the minimum you want to live in your new home is at least two years.
If you live in the apartment as your primary residence for at least two years of the first five of purchasing it, you can exclude $250,000 of the profit from your sale. When married, that number doubles to $500,000. This means you get to keep all that profit tax-free.
If you sell within two years or move to another residence, you’ll have to report all of your profit from the sale as income on your taxes.
A Major Life Event
This category is less by the numbers and more by what is happening in your life.
You may love the studio apartment you bought as a single 28-year-old man. But now that your wife is expecting twins, it’s time to sell and upgrade your space.
You may also have finally received that promotion and have to move to San Francisco for work. Or perhaps your beloved grandmother passed away after 92 wonderful years, but you have no desire to live in her Upper East Side walk-up apartment.
Regardless of the reason and how long you have owned your home, a significant life event may speed up your timetable to sell an apartment, and that’s OK.
It costs money to sell your home. Employing your realtor will be somewhere between 5 and 6 percent of the total sale price.
If you’re planning to buy a new home with the profit from this sale, remember that closing costs will range from 3 to 6 percent.
So that can be a total of 12 percent of the profit you thought you were going to pocket, going toward closing costs.
So, what’s the minimum time I should own my apartment before selling?
Unless you’re in the buying and flipping business, the minimum amount you should own your apartment before selling is at least two years. This will let you take advantage of the Capital Gains Tax benefits.
But in general, it’s good to play by the five-year rule of owning your home before selling. The longer you wait, the more equity you’ll have, and your home is more likely to have appreciated.