How long should you own your home before selling?
Whether you’re a first time home buyer considering an upgrade or have lived in the same home for awhile, you could be working, how long should you own your home before selling it? There is know way to know exactly what market conditions will look like in the future, it’s safe say that you should pay close attention to real estate trends before you make a move.
As you can likely appreciate, there is no one size fits all answer to the question, “how long should you own your home before selling?” – however there are some specific things you should consider such as your mortgage, capital gains, closing costs, market conditions as well as your own personal circumstances. Let’s take a closer look at all of these now –
MORTGAGE TERMS
If you’re wondering how long you should own your home before selling, before you do anything, you should speak to your bank or mortgage broker. When you buy a home, assuming you have a mortgage, then you may find yourself in a situation that comes with financial consequences, should you choose to break it. If you’re in a fixed rate/closed term mortgage, then you will have a significantly higher penalty to break it then you would if you’re in an variable rate/open mortgage.
How long you should own your home before selling is ideally the timeframe that takes you closer to the end of the mortgage term, with the least financial impact, however, this needs to be evaluated along with market conditions. If the housing market spikes and you can get 20% more to sell your home than you could six months ago and you have to pay a $5,000 penalty, then it may be worth it. If you can only sell for incrementally more and you have a large mortgage penalty to the tune of tens of thousands of dollars, then it’s probably in your best interest to stay put for awhile longer.
With mortgage rates being so low, I had at one time considered shifting from a variable rate mortgage to a fixed rate mortgage for one of my rental properties. Although I would be saving a little bit of money month to month, if I wanted to break it, I was quoted over $40,000 to break it which is significant. They informed me that this amount could fluctuate but that was the worst case scenario. I wasn’t sure of how long I wanted to keep this rental property but eating a fee of that magnitude would eat up a lot of my proceeds on the sale, so it didn’t make sense. I ended up selling a year later and since I was in an open variable rate mortgage, my penalty was only a few thousand dollars – basically the mortgage interest for three months. That was far more tolerable than $40,000 if you ask me!
Moving along…
TAXES
When debating how long you should own your home before selling, you likely don’t have to worry about capital gains taxes if it’s your primary residence but this isn’t always the case. If you’ve been renting out the basement or if you are in the business of flipping houses, which aligns with your career, then there is the possibility you could be hit with some capital gains taxes when you sell. It’s extremely important to speak to an accountant to get a clear understanding of any tax implications on the sale of your home if you could be exposed to taxes in either of these situations.
If you’ve inherited a property, you may also have to be concerned with capital gains. When someone dies, it basically triggers a sale when the title is updated to the beneficiary. Should you choose to sell it after inheriting it, these taxes could be considerable. If you decide to live in it however, then you need to live there for at least a year as your primary residence to shelter yourself from these taxes. Again, I can’t stress enough how important it is to consult with a tax specialist to understand the best course of action for yourself.
In addition, buying and selling houses come with land transfer taxes. If you live in Toronto or are moving to/from, then you also need to factor in a double land transfer tax. As you can likely imagine, this can be very costly.
EQUITY
I’m sure it’s common sense that the longer you live in a home, the higher your equity should be. You build equity in your home when you pay down the principle on the mortgage, as you make improvements to the home that increases it’s value as well as market conditions that result in a higher price point. This said, how MUCH equity that you have depends. If you bought the home in pristine, move in ready condition then it can be difficult to further improve it’s value with renovations. If you’ve renovated the kitchen or washroom(s), built a deck, upgraded flooring etc., then in most cases, this will increase the home’s value.
Now, if you have a balance on your home equity line of credit (HELOC) or you’ve refinanced your property once or a couple of times, the equity you have in your home is likely not as high as it would have or could have been. It’s important to take a close look at how much you can sell your home for, less your mortgage and fees, to get a sense of what your true equity will look like before you move. How long you should live in a house before selling should put you further ahead, not set you back, so understanding your finances is crucial.
REAL ESTATE MARKET
The Canadian real estate market, especially in Ontario, went bananas over the past couple of years. After a strong seller’s market for two+ years, things have slowed down very quickly thanks for several back to back mortgage rate increases. If you were lucky enough to time the sale of your home properly, you may have been able to cash in HUGE! I had a neighbour who listed her waterfront property earlier this year who was able to sell for $1,600,000 and bought a property closer to her family, in a small town, for a fraction of that price. Just a couple months later, another neighbour tried to sell his property next door to hers, and couldn’t get the price he wanted. Eventually he took it off the market and has decided to stay put.
Market conditions have a very big impact on how long you should live in a home before selling. Timing is really everything. There are some buyers who could be experiencing buyer’s remorse for buying high and now being hit by unforeseen higher mortgage rates. Among these, some could be forced to sell if you can no longer afford the home that they’ve bought.
Buying and selling homes can be emotionally charged. It’s not only a lifestyle decision, but it’s also a financial decision. How long you should live in a home before selling it can involve a number of factors but the real estate market has to be one of the most important there is.
COSTS
Real estate involves fees if you’re using a REALTOR® or at the least, some legal fees for closing. In Ontario, standard fees for realtors is 5% with 2.5% going to the listing brokerage and the other 2.5% going to the cooperating brokerage. You may be able to negotiate a little, but this is the norm. You should also ballpark around $1,500 for closing costs.
In addition, depending on the state of your home, you may want to consider some pre-sale repairs or renovations along with staging to make your home more marketable and to make some extra money. This could cost a few thousand to much more. It really all varies based on how well you’ve maintained your home throughout the time you’ve owned it.
PERSONAL CIRCUMSTANCES
How long you should own your home before selling involves a number of factors. Aside from the financial picture, you should also take a close look at your personal situation. Why are you looking to move? Is it important to accommodate a new position you’ve accepted so your commute will be shorter? Are you expanding your family and need more room to spread out? Maybe you’re simply want a change of scenery. Some of these situations are evidently more pressing than others, however, it’s still an important piece of the puzzle if you’re considering a move.
Whatever your reasons may be, I hope you’ve found some of these points in this article to help you come to a conclusion if you’re wondering how long you should own a home before you sell.
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