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Most people buy a house intending to spend several years making it a home. But things don’t always go as planned. Sudden changes in life circumstances, unforeseen details about the house, and a shift in neighborhood housing prices are all motivating factors to put out the “for sale” sign not long after moving in.
The technical answer to, “how soon can you sell a house after buying it,” is right away. There’s nothing stopping you from reselling the home as soon as it’s in your name. But doing that comes with financial costs. Unless you can resell the home for much more than what you paid, it’s likely you will lose money.
This article outlines factors that help calculate how soon can you sell a house after buying it — and make a profit.
As you pay down your mortgage, you are not just getting rid of debt — you’re building equity in your home. The more you have, the easier it is to upgrade to a more expensive home. The basic pattern is this: as you pay off the mortgage, you owe less on the house. At the same time, market forces usually mean the value of the home goes up.
As an example, you have a mortgage of $500,000 and pay it down to $400,000. If the home’s resale value has gone up to $750,000, you can potentially make a profit of $350,000 when you sell. That kind of math takes time to work, however. Very rarely can you accelerate your mortgage payments and experience a market boom within the first few years. The rule of thumb is to stay in a home for at least five years before selling in order to get significant financial benefit.
These figures don’t take into account closing costs, real estate agent commission, and other expenses that make buying or selling a house expensive. These must come into your determination of how soon can you sell a house after buying it.
Sometimes you can’t make it to five years because life is unpredictable. Here are some common reasons why people may consider reselling their recently purchased home:
Job relocation. In the event of a career change, you may have to shorten your commute or even change cities.
Family changes. The sudden arrival of a new baby can cause the need for more space. Elderly family members may need a home after the death of a spouse.
Medical or other emergencies. Unexpected hospitalization and large medical bills may force you to get the equity out of the home, even if the transaction results in a financial loss.
Dissatisfaction with the home. Sometimes there are things you didn’t know about the home that you now do — and they are deal-breakers.
Sharp rise in market value. Sudden changes in the neighborhood can cause a spike in home values. It may make financial sense to ride the market while it’s high and get a quick profit before prices go down.
In many of these scenarios, it is not possible to wait until the numbers work in your favor so you make a profit on the sale. However, if you can wait it out, read on to learn the numbers to crunch to determine when you break even and when you recoup even more than your investment.
You don’t need an accountant, or even a realtor, to crunch the numbers. Here are the steps to calculate how soon can you sell a house after buying it.
Remember this may differ from the listing price or even what appears on your property tax statement. Do a quick inventory of similar homes in your area and how much they recently sold for. For a more precise calculation, talk to a home appraiser or real estate agent.
If you sell for a million, you won’t get a million — you have to deduct seller closing costs, which are 8% to 10% of the price. You may also agree to cover the buyer’s closing costs as part of negotiations. This is an additional 2% to 5%. The seller’s closing costs include agent commission and attorney’s fees, transfer taxes, title insurance, HOA and escrow fees, and property taxes.
Even newer homes often get a refresh before sale. Calculate the cost of updated furniture, landscaping, paint, and other features that make your home appeal to buyers.
If you are only a few months into your mortgage payments, it’s likely you’ve mostly been paying interest — so your payoff amount may be close to what you originally paid for the home. In addition, some lenders levy a prepayment fee of 2% to 5%.
If you make a profit on the home, don’t forget you pay capital gains on that profit if you have lived in the home for less than 2 years. There are some exceptions to the two-year rule, such as if you are forced to sell because of specific circumstances. Talk to a tax professional about the tax rules for your situation.
What you have left over is your potential profit. If the number makes sense to you, perhaps feel comfortable talking to a real estate agent about next steps.
In the event of a house flip, it’s easier to determine how soon can you sell a house after buying it. Typically, you want to do this as soon as possible — or when the house is ready for new buyers. One estimate put the average time to flip a home at 6 months: 1-2 months to buy the home, 2-3 months to renovate, and 1-2 months to sell.
Often, house flippers look for bargains in the home they choose to buy, opting for fixer-uppers or homes in foreclosure. Remember, the potential renovation costs for a house flip are largely unknown unless you perform a detailed inspection and get estimates from contractors. In addition, it is tough to estimate the fair market value of the renovated home until it is complete.
It is rare that selling a home within the first five years after purchase is a profit-making activity. But in some cases, you can make a substantial return on investment. If a hot market has got you considering a sale or life changes mean you have no option, take a bit of time to run the figures. It may end up being a financially sensible solution.