The 5-year rule for selling a house tends to benefit you as a homeowner by letting you make a deserved profit when the time comes to move on. At the same time, it puts investors looking for a quick gain at a disadvantage. Several factors combine to make it worthwhile to live in a home for five years before selling.
Considering the Expense of Buying a Home
Ownership of a home makes a dream come true for many Americans, and it represents the biggest investment most people ever make. The security and tranquil atmosphere of a home where a family can share life’s experiences make it worth the money and effort required to own it. As the year’s pass, it becomes more meaningful to family members. In addition, it gains financial value over time.
You may recall when you decided to buy a home and the endless house searches you made. Then, you had to pay for costly inspections and negotiate the fine print in a contract. A title search and lenders’ fees added up to a significant amount. Closing costs and real estate commissions probably gave you the biggest headache of all, amounting to as much as 15 percent of the price you paid for the house. So, when it comes time to sell your home, you want to get back your expenses and make a profit. When you consider your investment in the home you own, you can see that selling too soon can cost you money.
Understanding Why the 5-year Rule for Selling a House Works
Waiting for your home to become more valuable or appreciate can take some time. No one can say how long it requires, but most experts think that making a profit in real estate requires patience and time. Selling before your home gains value means depriving yourself of the profit you deserve. The 5-year rule for selling a house helps you avoid making a mistake. As your home increases in value, it makes up for the price you paid when you bought it.
Recovering the money you spent by staying in your home for five years gives you the return on investment that made buying it a good decision. However, selling in less than five years may mean you walk away from the profit that you have a right to expect. You can do better than break even if you use the 5-year rule for selling a house.
Reviewing the Complications of Your Mortgage
Another reason to think through the 5-year rule for selling a house includes the consequences of selling too soon and the effect that it may have on your mortgage. Monthly payments must continue whether you occupy the home or not, and you also hold responsibility for real estate taxes. In addition, your mortgage lender may prefer you to continue as a client. If your mortgage has one, a prepayment penalty can require you to pay an assessed amount if you leave before the time you agreed to initially.
Seeing Why the 5-year Rule for Selling a House Does Not Work for Investors
The rule’s advantage for you creates a benefit because you can wait for five years to sell your home. Investors want to buy and sell a house as soon as possible, and tax penalties put them at a disadvantage. The government considers your home a capital asset subject to the capital gains tax. As a result, homes that increase in value may receive a tax bill for the profit.
However, a special piece of federal legislation protects most homeowners from having to pay it. The 1997 Taxpayer Relief Act states that you can avoid capital gains taxes through a few key points.
1. You must live in the home and consider it your primary residence.
2. The exemption protects you from taxes on the first $250,000 for single homeowners or $500,000 for married taxpayers who file jointly. You can include the cost of any improvements.
3. You can receive the exemption only one time every two years.
On the other hand, investors cannot qualify for the first requirement to live in the home as a primary residence. In addition, they buy and sell homes to make a profit. Homeowners like you have other reasons, such as a new job in another city, wanting to have a larger space, or needing to downsize after the children leave home. A home that needs repairs can make you lose interest in maintaining it.
Counting the Costs of Selling Your Home
Real estate experts offer facts that may surprise and disappoint you about the costs that may occur when you sell. The expenses can mount up quickly and make it more expensive to sell a house than buy one. Almost everyone knows that a real estate commission can cost 5 – 6 percent of the selling price you set for your home. None of the other expenses amount to that much, but each has a hefty price tag that reduces any profit you hope to make. The 5-year rule for selling a house helps you get the best price for your home.
A professional cleaning service can make your home look crystal clean for about $200 – $400. You can do it, too, if you have the time and energy to spare. Letting a pro give your home the white glove treatment may give you a break you need at a stressful time.
Repairs and Upgrades
You may increase your home’s value if you go ahead and upgrade the kitchen as you always planned. The outdated fixtures in the bathroom need replacing to make it look up-to-date. As you know, most people use those two rooms more than any other. Maybe you think the windows make your home look old. However much the upgrades and repairs may appeal to you, the cost to do them may amount to about $4,000.
Updating your landscaping can attract a potential buyer and make your yard look well-tended. It may not cost more than $200 to bring in new plants and shrubs to replace those that need revitalizing.
New buyers want to imagine themselves owning your home, and your possessions prevent them from doing so. The pictures of your grandmother, your albums, the clutter on the kitchen countertops and old newspapers in the corner tell a buyer that you plan to stay in the house. You can pay a couple of thousand dollars for a professional to make your home appeal to anyone who wants to buy it. However, some services may do the job for a little less than half if you only want someone to clear the clutter and arrange the furniture.
Someone who knows how to take pictures of each room and post them on the internet may charge a few hundred dollars. Buyers want to see a walk-through without actually visiting your home. You may ask a professional to do the job after you get the clutter and extra furniture out of the picture.
Showing Your Home
Whether you hire a real estate agent to show your home or do it yourself, you can make it seem welcoming and homey by baking cookies that fill the rooms with a delicious aroma. Potential buyers snacking on a warm cookie may imagine themselves living there.
Offering a Warranty
If potential buyers have concerns about buying an older home, you can ease them with a home warranty. The possible expense of repairing a refrigerator or an HVAC system can make any new buyer back out of any deal. You can get a one-year home warranty for less than $600 in some locations to assure your buyer that everything works.
Choosing a Smarter Approach
You can enjoy the benefits of selling a home without any of the detractions that the traditional approach provides. When you sell to Happy Door, you choose the simplest, easiest, and most profitable way to go. We manage our investments to keep costs low and profit less than our competition. Our fair and honest deal gives you our highest price offer and no real estate or other fees.
We want to buy your home as-is.
You have none of the hard work to do, no repairs to make, no bills for cleaning, and no open houses to conduct.
You can close when you set the date.
We give you a time-specific for the closing by scheduling it at least 10 days after you accept our offer.
We can provide a cash advance.
You have no worries about a buyer reneging on a deal. We can give you a cash deposit of $10,000 to tide you over to closing if you need funds immediately.
As professional real estate investors, we can offer you a fair and honest price for your home. You have no obligation to accept it. We understand that you can sell to anyone, and we hope you choose us.