Selling a house soon after buying is not uncommon. Individuals purchase property all the time with the sole intention of reselling. However, you may be wondering after buying a house how soon can you sell it?
There are many different issues that you need to be aware of before deciding to sell a property straight after buying.
Most importantly, there are the financial ramifications. However, by being aware of all the options available, you will be able to make an informed decision on the best way to proceed.
So whether you’re a novice in real estate flipping or you’re having to resell due to a change in a personal situation, we have you covered.
This article will answer the question of, after buying a house, how soon can you sell it? Additionally, we will cover some of the common questions involving selling a house straight after buying.
How long can you sell a house after buying it?
So to get straight into the crux of the problem. If you have recently bought a house with cash, there is no time duration that you have to wait before selling. As soon as closing has occurred, you’re free to re-list your property for sale.
If you bought your house with a loan then you may be affected by other factors, they are:
- Prepayment penalties – These are penalties for paying off a loan earlier. This isn’t the case for all loan providers, but you should check with yours to ensure you won’t have any issues.
- FHA Loans – You cannot sell a house within 90 days of purchase if you used an FHA loan. This is because FHA loans are designed for long-term home ownership, so selling straight away isn’t permitted.
You will have agreed to these conditions when securing the loan. You can contact your provider for the exact timeframe or penalties that you need to be aware of.
It is recommended to wait two years after buying a house before you sell it. This is due to the extra capital tax that is applied to property sales in the first two years after purchase.
Can you sell a house immediately after buying it?
Yes, again dependent on how you have purchased the property. If there were no loans involved then as soon as you hold the title deeds you can list the property for sale.
Whether this is a good financial decision is a different matter. You would need to consider the implications of selling a house immediately after buying and whether you stand to benefit.
Whereas, if you have secured a home purchase using conventional finance, you may be required to consider other factors.
This will help you determine whether you will can a house immediately after buying.
As mentioned previously, FHA loans stipulate that you cannot sell a property within 90 days. This will mean you will have to wait for a short duration before being able to sell your house.
Additionally, you will need to consider the real estate market. If there is surplus demand then you may benefit from choosing to sell straight away. If there are limited buyers, you may struggle to sell and will be forced to wait.
Getting a property listed and ready for sale costs money. This can negate the financial benefits of selling straight away.
Another problem is the buyer pool may be limited within the first six months to a year. There may be a negative buyer perception as to why you’re selling the property so soon after buying.
Although, with communication, you may be able to counter these issues.
You will need to consider how you have purchased the property among other factors, to determine if you can sell a house immediately after buying it.
Can you sell a house after 6 months or 1 year?
If you have financed the purchase without a mortgage then you are well within your rights to sell a house at any point you like.
The only factor that might affect whether you’ll be able to close on a sale is the volatility of the real estate market. If there is less demand, the property may take much longer to be sold. Leaving you to wait much longer than you might have expected.
However, as mentioned previously, FHA loans have a period of 90 days which prevents you from selling a house. This may also impact how fast you’re actually able to sell the property.
What are the penalties for selling a house before the designated time?
There are financial ramifications that you need to be aware of when selling a house straight after buying.
So for example, if you sell a property within one year and make a profit of $30,000 and your tax bracket is 30%, you will pay $9,000 in capital gains taxes alone.
Long-term capital gains taxes will be applied if you sell your home a year or longer after purchase. Following the example above, you’re likely to fall into the 15% tax bracket resulting in only $4,500 in tax due. Waiting a little while longer can save you more money in costs.
If you choose to live in a property for two out of five years, the property can be classed as a primary residence. This means you will be entitled to a $250,000 exclusion from tax liability or $500,000 if you’re married.
Additionally, prepayment of mortgages can result in penalties. Mortgage prepayment penalties are capped at 2% in the first two years and 1% of the loan balance in the third year. This is an additional cost that you will need to take into account.
Following on from the above example, if you had a mortgage of $200,000, you would pay a 2% penalty equating to $4,000. Then you would also pay $9,000 in taxes resulting in $13,000 in expenses. It all adds up, right?
Can you sell a house before moving in?
Yes, you’re well within your rights to sell a house before moving in. In fact, there may even be advantages in doing so. If you are selling a house straight after buying due to wanting to cash in on the real estate market then you stand to profit.
However, if you are looking at the long term by choosing not to move in you forfeit any ability to claim the property as your primary residence.
This will mean you won’t be able to avoid taxes down the road. However, you would have to live at the property for two or more years, so it may not be feasible.
What are the benefits of selling a house before moving in?
By not moving in when selling a house, you can benefit in several ways,
Firstly, when a house is vacant, you are less likely to cause any damage due to usual wear and tear. It will keep refurbishments that have been carried out fresh for all to see. Additionally, an empty house can make the space appear far larger, which can help with selling the property.
Secondly, you avoid having to set up and pay for utilities as you can leave the property vacant. This can save you money on additional bills.
Thirdly, the convenience! You won’t have to worry about packing up and moving if the house gets sold. You also won’t be disturbed by buyers visiting the property.
What are the disadvantages of selling a house before moving in?
By not moving in you waive the right to benefit from having the property listed as your primary residence. By residing in the property for two out of five years, you will pay far fewer taxes than if you sell before moving in.
Additionally, if the house is left vacant, there may be issues that you may not be aware of. If you’re selling a property for profit, you will want to ensure that any possible flaws are fixed.
Should you sell your home before buying another one?
There is nothing wrong with selling a house before buying another one. You may stand to make a profit from selling your home and won’t risk any issues with the real estate market folding. The increased yield may help in securing your next house or even with renting temporarily.
However, a potential issue you may face is where to store your belongings during the transition. Therefore, it would be wise to have a plan for where you’ll keep your belongings in the event of a quick sale.
How long should you stay in a new house before selling?
There is no one answer to this question. If you want to sell quickly and urgently, then you are free to do so. However, if you’re looking to maximize profits when you sell it would be advisable to stay in your new house for two years. This will help alleviate any costs incurred toward paying capital gains taxes in the first or second year of a sale.
Things to consider before selling a house immediately after buying
The following factors are likely to affect how successful you are at selling a house straight after purchasing it.
Real estate market
The state of the real estate market can have a huge impact on the likelihood of being able to get a sale on a property straight away. If there is demand and buyers are readily available, you will have no problems in getting your property sold.
However, if there is economic uncertainty this can have an impact on the real estate market. Similar comps may be sold for a lower price which may price you out of the market. This will result in a lower chance of a quick sale.
If you are able to speak to a real estate agent, you may be able to determine whether you can achieve a good deal. They will be able to carry out a comparative market analysis to provide you with an accurate property value. You can use this to calculate whether it would be a smart financial move.
If you are relying on a mortgage to finance the property, there are additional costs to keep in mind. Firstly, you will still need to make monthly mortgage payments or at least the interest payments towards it. If a potential buyer takes longer to materialize, you will have to make far more payments. The cost of renovating the house and paying other bills may also affect your financial security. Additionally, paying mortgage prepayment penalties will affect your selling costs.
The condition of your house will also affect how soon you can sell it. Home renovations that can boost ROI (return on investment) are a great way to improve the property. You can also expect a higher valuation with the right renovations. Although you may consider significant renovations to boost the projected sale price for an investment property; keep in mind that it will increase the overall transaction costs. So it may seem like a good deal initially, but it may not be a smart financial idea.
The asking price you request can affect the chances of a quick sale. If it is unrealistic, you may have to wait a while for a buyer. However, if it is priced appropriately, then you may be able to get a fast sale.
If you have recently purchased the property, you will have had an appraisal carried out which you can use the feedback to improve the valuation of your home.
The cost of selling a house is another factor you need to weigh in. Typically, the closing costs to amount to 8-10% of the sale price.
The closing costs come from the following:
- Escrow fees
- Title insurance
- Transfer/excise tax
- Prorated property taxes
- Attorney fees
- Prorated homeowners association (HOA) fee
- Agent commission
To add to the example we used earlier in the article, a property sold for $230,000 with a $30,000 profit. Then you lose 10% when you subtract closing costs, which is $23,000; then you pay $9,000 in capital gains tax and $4,000 in early mortgage prepayment penalty. The profit of $30,000 is removed, leaving you with a bill of $6,000. As long as the profit is worth it, then selling a property after buying it is feasible. You may need to enlist the help of a tax professional and an experienced real estate agent to determine if selling soon after buying is worth it. It would also matter on how much the purchase price was in comparison to the projected sale price.
Selling a home straight after buying is very possible. The only caveat is that you are under no restrictions from mortgage providers. However, if it makes financial sense to do so straight away is a different matter.
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