There are two kinds of people who buy homes, and they generally evolve from one to the other as they build wealth: (1) people looking for the home they will spend the rest of their lives in, and (2) people who are looking to make a solid investment. Sometimes people switch from (1) to (2) very quickly after purchasing their “forever home”, despite the general rule that you hold onto a home for at least 5 years. This could be a case of buyer’s remorse, or the neighborhood could just be changing in a way that makes the property sub-optimal.
The basic reason for this so-called 5-year rule is that in a standard market, you are unlikely to recover the transaction costs of purchasing a home – unless the market is extremely
hot. Like all rules, there are exceptions.
One obvious exception to the general rule is where the value of your home increases significantly before the 5-year mark (maybe a Whole Foods or Trader Joes opened up near you, or maybe you’re just the beneficiary of rapid gentrification). When this happens, you will obviously turn a hefty profit if you sell early, and you may not have that opportunity in a few years. It is particularly wise to sell before 5 years, assuming your property value shot up, where you plan on moving somewhere cheaper, or at least equal in cost, to the house as it was when
you initially purchased it.
Another exception to the general rule is when the neighborhood is heading in the wrong direction; it’s a virtual certainty your home will lose value (new structures such as factories, prisons, or other undesirable buildings can tank your home’s value). On a related note, break the 5-year rule if you simply dislike living where you live; you don’t have to stay somewhere forever just because there is a “rule” that states otherwise. If your house hasn’t appreciated in value, and you’re lucky enough to have the liquidity to purchase a second property, consider turning the old home into an investment property.
At the Chernov Team we understand that knowledge is power, and knowledge of when to sell your recently purchased property is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.