Selling fast without a big loss is possible
Buying a home is a big commitment. But it doesn’t have to be a life sentence if you don’t want it to be. Plenty of people use homes as investments even if they intend to pull up stakes again soon. Just because a buyer finds a home that checks all the boxes for their needs right now doesn’t mean they’ll lose money when they leave again. Let’s talk about how soon you can sell your home after buying it for any reason.
The reasons you might need to sell a home right after buying
Homeowners sell sooner than expected for a wide variety of reasons. In some cases, the cause is out of your control. Sometimes it comes down to an opportunity to make a smarter financial choice. Here’s a look:
- You’re in a hot seller’s market: You might realize that you’re in a position to turn a quick profit from a home that you haven’t grown all that attached to.
- You need to move for a job: It sometimes makes sense to follow a job instead of trying to build your career where you’re located now.
- A health emergency is causing you to reevaluate: A medical issue may reveal that your house is too expensive, too far away from family, or too complicated to live in.
- You have a case of buyer’s remorse: There’s no shame in admitting that a house simply doesn’t fit you. You may wake up one morning and realize that your home is too big, too small, too expensive, too difficult to maintain, or too far from your job. You might even just hate the layout.
- Your family is changing: Many homeowners decide it’s time for a move after their family grows. It’s also possible for a home to suddenly seem too large when adult children decide to flee the nest sooner than expected.
- Your financial needs change: Homeowners sometimes decide to sell to avoid the financial squeeze of a home that costs too much to maintain.
There’s some good news. There are ways to walk away from a home relatively unscathed once you realize it’s not the home for you. It helps to know exactly what you’re battling when you turn around to list your home within a year or two of buying it.
The consequences of selling a home early
There is no rule about how long you need to wait before selling your home. But it’s a good idea to strategize about getting out at the right time if you have any control over when you can move. Here’s what’s on the table to lose when you sell early:
- The closing costs you just incurred when buying.
- The selling costs and commissions that are yet to come.
- Your potential gains in home equity.
- The moving expenses you’re now going to pay twice in a short period.
None of these factors make selling a home shortly after buying it impossible or a bad idea. But your goal should be to at least break even when selling a home early. Let’s talk about what it takes to break even.
How soon can you sell a home after buying it—without losing money?
Most experts say there is a five-year rule when choosing when to sell a home after buying it. A home usually takes five years to appreciate enough so that you’ll break even on all your costs when you sell again. But if you can sell sooner, you could avoid higher capital gains taxes due on the profit you make on your home.
Introducing the two-year rule. Why two years? It comes down to section 121 which excludes you from paying capital gains taxes on profits on the first $250,000 from your home sale. That bumps up to $500,000 if you file your taxes jointly. You’ll qualify as long as you’ve used your home as a primary residence for at least two years. Just make sure to talk to a tax professional if you’re basing your decision to sell on this two year rule. Capital gains taxes can get very complicated.
Can you sell a home within 6 months of buying it?
What if the ink is barely dry on those closing papers? Is six months too soon to sell your home?Again, nobody is stopping you from listing a home that you own. Just be prepared to possibly lose money if you turn around to sell that quickly. You’ll probably pay capital gains taxes if you turn a profit. Capital gains requirements are sometimes waived if you need to move due to something like a natural disaster. A tax professional could help you lower your tax penalty if you want to sell your home after six months.
How to sell a home quickly after buying without losing money
It helps to use some real numbers to see what it takes to break even when selling your home early. Let’s cover a scenario where you want to sell your home after owning it for just six months.
- You bought your home for $150,000 in June of 2020.
- You owned it for six months before listing it in December of 2020.
- You put down 20 percent at closing ($30,000).
- You paid 4 percent in closing costs ($6,000).
- After putting down your down payment, you financed the remaining $120,000 at an interest rate of 4 percent using a 30-year fixed rate mortgage. This brings your monthly mortgage payment to $907.
- You gain $1,222 in equity based on your six months of payments.
- Your house is sold for the same $150,000 that you paid! With your seller closing costs totaling 8 percent, you paid $12,000 to close.
Your losses from closing costs minus your gained equity give you a net loss of $10,778 here. However, this same scenario only requires you to sell a home that you bought for $150,000 for $160,778 in order to break even. That’s not unrealistic in most markets. There’s also room for profit even when you consider the loss in closing costs if the market puts you in a position to list beyond the $160,778 break-even point.
The consequences to selling a home early
There are some other factors that can make selling early more of an uphill battle. The first obstacle might be hidden in your mortgage clause. Do you have a prepayment penalty? You may have skimmed over this paragraph if you were searching for a forever home. It’s important because some lenders apply penalties if you sell before a specific point. While the bad news is that these penalties are often between 2 percent and 4 percent of your remaining balance, the good news is that they’re rare.
Another big obstacle is simply your potential buyer’s perception. Selling fast can look bad to buyers who wonder why you’re walking away from your home. Don’t get too caught up with this one. Your real estate agent can help with smoothing out the marketing wrinkles of a home that’s back on the market so soon! Always remember that the mistakes to avoid when selling your home always apply.
Can you avoid selling your home right after buying it if you can’t live there?
The best way to avoid selling your home soon after buying it is to buy wisely. Buy something that truly works for you in a variety of circumstances. It’s important to choose a home that can work for you in multiple seasons of life even if you aren’t planning to stay there forever.
Remember to factor in monthly payments on top of the home’s list price when choosing to buy it. It’s the monthly payment that will ultimately determine the feasibility of staying. You should also choose a home in a location that has good selling potential if you’re not in a position to put down long-term roots. Common sense dictates that it’s going to be much easier to sell without taking a loss if you’re in a desirable area.
If you’re faced with an unexpected move, don’t assume that you have to let go of a home you love. Consider turning it into a rental while you live elsewhere temporarily. You might even be able to make a profit every month while growing equity in the home! The bonus is that you won’t have to eat any closing costs.
Cutting your losses if you absolutely have to sell
If you have to sell, there are ways to lessen the financial blow. First, try to get your home on the market in the right season. You might want to hold off on selling until the spring even though your new job in another city starts in the dead of winter. This will give you a chance to get better offers during a hot selling season. Consider renting the home for a few months to avoid straddling mortgage and rent payments.
Don’t underestimate the benefits of some good DIY repairs if you need to sell a home you just bought. You’ve had some time to learn how your home could be better now that you’ve lived in it for a while. Get those little fixes and enhancements done to increase the wow factor when your home hits the market again.
Bringing it all together
Remember that capital gains taxes don’t have to scare you out of trying to sell your home a few years after buying it. You’ll almost certainly avoid paying capital gains taxes as long as your home has been your primary residence for two years. You might even be able to avoid capital gains taxes if you’re moving before two years due to something like a natural disaster.
The decision to sell your home early is both a personal and financial decision. It’s time to consider how a home that’s becoming a little hard to carry works into your long-term plan. You may also see a potential for profit that’s simply too hard to pass up if you were lucky enough to buy in a hot market.
Points to Remember:
- There are no rules about how long you have to live in your home before selling it.
- Many people decide to sell their homes early for a range of reasons.
- Paying closing costs twice is one of the biggest expenses when selling early.
- You’ll pay capital gains on profits from a home sale if you sell before two years.
- Knowing how to break even can help you decide if selling early is the best choice.
- Look out for prepayment clauses and buyer perceptions when you sell a home early.
- There are ways to avoid selling a house you love if you have to move.
Will I lose money if I sell my home after 1 year?
This depends on how much you paid, how much your home is worth now, and local market conditions. Unfortunately, selling after a year means that you’ll be stuck paying closing costs twice within a span of just 12 months. You may also have to pay capital gains taxes totaling between 15 and 20 percent of your profit if you turn a profit when selling your home early.
Is the sale of a house considered income?
Yes, profits gained by selling your home before two years are taxable as ordinary income. That means you’ll be taxed on the profit based on your marginal tax bracket. Your tax rate for capital gains taxes is the same as your tax rate for ordinary income.
How much tax do I pay if I sell my house?
You’ll be exempt from capital gains taxes on the first $250,000 ($500,000 for married filing jointly) in profit made from selling your home once every two years. Rates for capital gains are the same as your tax rate for ordinary income.
How long must you own a house to avoid capital gains tax?
The general rule is that a home must be your primary residence for two years before you sell it in order to be exempt from capital gains taxes. However, you may be exempt when selling your home after just a few months if you are moving because of a natural disaster.
About the author: As the son of a construction contractor and a former property manager, Scott knows how to keep the lights on and the water running. In addition to Flyhomes, he has written for Angi, HomeLight and HomeAdvisor. His hobbies include fixing things around the house, baking things up in the kitchen, and spending quality time with his wife and daughter just about everywhere.