How soon can you sell a house after buying it?

Buying a home tends to be a long-lasting investment that typically needs a few years to build noticeable equity. Yet, there are situations in which homeowners may be wondering, "How soon can you sell a house after buying it?"

Let's find out, explore some reasons why a house might be back on the market soon after purchase and look at the possible financial consequences of selling a home too early.

Reasons homeowners may need to sell soon after purchase

There are various reasons a seller may put a house on the market shortly after moving in, both practical and emotional. While everyone may have their own motivation, some common reasons include:

• Significant life or financial changes, for example needing to move for a work opportunity or having an emergency that requires immediate liquidity
• A “hot” housing market where there are more buyers than sellers, which often drives prices up
• House flipping, a practice where someone buys and renovates a property with intent to sell for profit rather than use as a residence
• Unforeseen issues with the house
• Buyer’s remorse

How long should you live in a house before selling?

Typically, there is no law regulating how soon you can sell your house. However, laws may vary depending on where you live, so be sure to check with a legal expert near you. Even if there's no law, a seller may face financial repercussions if a home is put back on the market quickly. Here are some tips for homeowners deciding whether to sell a house after a short ownership period.

Keep a breakeven point in mind

Typically, a new property requires at least a few years to start bringing any return on investment, since it usually takes some time for homeowners to build equity. The moment when selling your home will cover paying off your mortgage as well as your closing costs is called a breakeven point. Houses typically appreciate in value over time, and you'll reach the breakeven point once your home has either appreciated enough or you've built up enough equity, which often takes a few years depending on your situation. Consequently, it may be financially advantageous to wait to reach the breakeven point before selling a home.

If you’ve made significant upgrades and renovations to the property, the process of reaching a breakeven point may be faster and might take as little as a year. In other situations, it may take several years before your home breaks even or becomes potentially profitable. Generally, if a homeowner wants to sell a house they just bought, it may be helpful to have a very good reason for this decision and be aware of the financial implications it may trigger.

Think of other expenses

If you’ve recently bought property and want to put it back on the market, you may want to consider the charges and fees associated with selling when weighing your options. Things like closing costs, moving costs, seller concessions and real estate agent commissions may add up to a percentage of the total property value. If you plan to then purchase a new house right after, you may also want to account for the transactional costs of being a buyer.

Drawbacks of selling a house too early

Even if there isn't a law in your area regarding how soon you can sell a house after buying it, this decision may have some consequences and financial downsides. For example, sellers could face the following issues:

Possible prepayment penalty

If a homeowner financed a property with a mortgage loan, they could face prepayment penalties when selling the home soon after buying it. A prepayment penalty is a way for lenders to protect themselves against losing interest income. This fee depends on the lender and the loan terms but often amounts to a percentage of the remaining loan balance. Generally, prepayment penalties are not the most common practice for lenders, but homeowners may want to ensure this in their mortgage terms.

Capital gains taxes

Capital gains taxes might be the most significant expense when selling a house soon after buying it. Capital gains tax is a tax on profits made from selling an asset. Typically, homeowners may be able to exclude up to $250,000 (or $500,000 if married and filing jointly) of the gain from the income if using the property as their primary residence for at least two years before selling it. Additionally, there may be some partial exclusions for those who need to relocate due to job changes, health issues or certain unforeseen circumstances. Note that this article is for educational purposes only, and it's helpful to seek legal tax advice for more information.

Potential buyers' distrust

In some situations, it may not be easy to justify to the potential buyers why the house ended up back on the market so quickly. For example, some might think there were hidden issues with the property that forced an owner to consider selling. If you decide to sell a house you just bought recently, it could be helpful to enlist a professional real estate agent or broker. They may be able to assist with handling this subject delicately and guide a seller throughout the process.

When could selling a house shortly after buying be beneficial?

With all the drawbacks mentioned above, there still may be situations in which selling a house soon after purchase may benefit a homeowner financially. For instance:

• After significant renovations have been made, raising the property value
• If there have been major changes in the real estate market
• Buying a house at auction significantly below its market value

Even in one of those situations, it may benefit sellers to talk to a specialist and carefully evaluate all the pros and cons of selling a house shortly after buying.

In summary

Some homeowners may find that they need to sell a house they just bought for many reasons, from job transitions to changes in the real estate market. Regulations limiting how soon a homeowner may sell their home may be rare, but there are some financial considerations to keep in mind. Consulting with a professional may be helpful when trying to find the best course of action and minimize losses.

How soon can you sell a house after buying it? FAQs

1. Can I sell my house after one year?

If your area has no laws prohibiting the sale of a house shortly after buying, then yes, it’s possible. However, there are certain implications to consider, such as paying capital gains taxes, prepayment penalties and costs such as moving, real estate agent's commission and closing.

2. What is the "5-year rule" for selling a house?

The "5-year rule" is a rule of thumb in the real estate market that suggests homeowners who sell their property in the first five years after buying it are more likely to lose money on this investment. However, this rule is flexible and depends on the market conditions and specific property.

3. Is there a penalty for selling your house early?

Generally, no. Selling a house soon after buying it doesn’t typically carry any penalties from most state or local governments, though it's important to check your local laws first to verify that for your locale. Even so, some lenders may impose a prepayment penalty if the homeowner sells the property too soon after taking out a mortgage.