How long someone spends in their home before selling will be a lifestyle choice. For some, it’s all part of the “five-year plan” to purchase a home and live in it until they’ve outgrown it, and then sell it to pay for a larger one. For others, it’s part of a retirement plan to fix it up and sell immediately. Then there are those who must sell for unexpected reasons. Whatever the reason might be there is an ideal time to sell.
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So how long should you live in your home?
The tipping point at which owning a home becomes more financially viable then renting is 5.6 years. This fits with the usual “five-year rule,” but at this point, you’re probably only breaking even. Also, a true break-even point isn’t merely what you originally paid for the home. It also includes the costs associated with buying and owning, the closing costs when you sell and the listing agent’s commission. Because every neighborhood and building is different, you’ll need to break the numbers down to see what your true break-even point is. Then decide how much longer to wait to make a decent profit. Start by:
- Adding up the total costs of your home purchase – original purchase price plus closing costs.
- Calculate the costs of owning your home – maintenance, repairs and any renovations.
- Figure out the costs of selling your home – commission for both agents, sales taxes and attorney fees.
Next, take account of the following subtractions:
- Any equity on your home.
- Tax refunds you received from owning your home.
- Appreciation increases.
There will be a degree of guesswork to figuring out how much you can make from a home sale. But doing a Comparative Market Analysis (CMA) will give you the closest approximation. The more equity you can build on your home the more of it your own. This is the main reason for the five-year rule is that it takes time to build equity on a mortgage. Most of your monthly payments for the first few years go towards paying the interest rather than the principle. You’ll also want to see your home appreciate nicely. This is good news for NYC as appreciation rates have been above average for the last ten years.
When is it time to sell?
So assuming you’ve put at least five years into the relationship there might be other personal reasons why you want to sell now. See if you check off on any of the following:
Your family has grown, but your home hasn’t
Perhaps the most common reason for a family to sell and move is when their family has expanded. It might have been the right home when you were expecting your first child, but now that you have a new arrival or two, the space isn’t there anymore. It can be painful having to give up a place with a lot of memories but if tight living quarters are making you stressed it’s probably better to move on. Other life changing events like divorce, a death in the family or serious illness are other reasons for making a change in life. But let’s not think too seriously. Sometimes it’s just a desire for a change in scenery and lifestyle.
Expenses are becoming too much, so you need to downsize
Not every homeowner sells to make a tidy profit. Some underestimate the costs of homeownership or suffer a change in their financials such as losing their job. Their mortgage payments and property taxes have become too much, and they need a way out to find a more affordable home. High common charges or maintenance costs are another reason for wanting to sell.
There’s currently a boom in the housing market
Even if you don’t feel any pressure to sell it should be considered if there’s a booming seller’s market. Knowing whether the market is experiencing or about to experience a boom requires a careful study of current trends. Look at properties in your neighborhood and see what you can find. Is the average sales price going up? Is the average number of days on the market decreasing? Also look at current developments. If a lot of properties are being bought up and converted into new condominiums that could indicate that the local market (and property values) is about to expand.
Deciding when to sell is a very personal decision and should not be taken lightly. At the very least you should wait two years to avoid paying capital gains taxes. If you want to build up equity without going through costly renovations, then you’ll need 5-7 years. These are all good benchmarks, but you’ll also want to keep an eye on the market. If there’s a buyer’s market, then it may be better to wait until things stabilize.
On the other hand, if you can play things right, you could be able to walk away with a happy sale. Seek consultation from an experienced real estate agent before making any decisions. They can provide you with all the necessary information so you can make the best decision possible.