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The Five-Year Rule: How soon can you sell your house after buying?

It isn’t called a forever home for nothing. Usually when buying a home, the intention is to stick with it for a long time. However, things do change. Many circumstances play a factor in needing to move elsewhere. Financial difficulties, a change in the neighborhood, or even just not being as in love with the house as you once thought. Whatever the reason is, you are probably itching at how soon you can sell your house. More than likely, the “Five-Year Rule” is ringing in your head. This rule states that ideally you should live in the house for at least five years before you even consider selling it. And there is good reason for the rule.

More than likely you will not recover your transaction costs if you sell within a few years of buying. The reason why it is called the Five-Year Rule is because this is the usual amount of time it takes to breakeven on your investment.

However, rules are meant to be broken sometimes, and there are 3 exceptions to this particular rule:

No. 1: Your Property Value Goes Way Up

Sometimes houses are flying off the market and your property value seemingly skyrockets overnight. This could very well qualify for getting away with breaking the Five-Year Rule.

It is important to keep in mind where you are moving to next. If you are transitioning to a lower cost metro, then you should be fine. However, be careful in looking at the numbers if you plan on staying in the same area. You may not be able to move into anything nicer than where you currently where living.

This tactic works best if the profit you make from the sale is fairly significant, otherwise it will get eaten up by closing costs and capital gains tax. This means any equity you have accumulated from the sale is subject to taxation as ordinary income, according to the IRS.

No. 2: The Neighborhood is Plummeting

A bad neighborhood equals bad news. If you start to see a trend in the downhill spiral, get out of there while you can because this could mean a loss of profitable sale in the future.

More than likely, what ruins a neighborhood’s chance of thriving is if something new gets built or destroyed, disrupting the quality of life. Think malls, prisons, factories, and much more. Noise and light pollution are also something to take into consideration. Pay attention to the townhall and community meetings.

If there is an any possibility of your home being devalued – get out of there.

No. 3: You Simply Just Hate Living There

Your happiness is first and foremost. Sometimes we must make sacrifices in order to truly be content. In this situation, depending on your insurance and mortgage, you can turn your house into an investment property. If the market is not hot, consider turning your home into a rental property.

No matter what though, remember that listing is not the same thing as selling. Just because you list your house does not mean you have to sell it. See how much you can get out of your home by listing, and if you like the results, then you can move forward.

SOURCE

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