How long should you live in a house before selling?

When you bought your home, you probably paid loads of money to make it happen. But now, for whatever reason, it feels like time to move on. Naturally, you want to make a profit on the sale — or not lose money, at the very least. So, is there an optimal amount of time you should keep living there before you list it? How long do you have to own a house before selling?

​​There’s no simple answer. To figure out what works in your case, you first need to crunch some numbers. Estimating the costs to close a sale and to move, analyzing local real estate market conditions and — most of all — figuring the amount of equity you have in your current home are all important factors to consider before selling your house.

Reasons you may need to sell your home

According to research from the National Association of Realtors, the most common reason that people sell their homes is because they want to be closer to friends and family — a great motivation to move. Here are some other common factors that can lead a homeowner to sell:

• Your finances have changed: People often opt to move for financial reasons. Perhaps you’ve lost your job, your income has dwindled or you’ve experienced a divorce or change in your living situation. Of course, there can be happier reasons too. Maybe your income has grown significantly, or you’ve gotten married and now have a bigger shared budget to start fresh together with a new property.
• You need more space: The second most-common reason for selling a home, according to the NAR study, is because it’s too small. Whether you’re expanding your family, need a dedicated home office for remote work or simply longing for a bigger backyard, selling for more square footage is totally understandable.
• You need less space: On the opposite end, perhaps you’re an empty-nester and a four-bedroom property is simply too much to take care of now. Downsizing can make life more manageable.
• It’s a seller’s market: While you should think of your home as a home first and an investment second, sometimes the housing market seems so advantageous for sellers that you can’t resist the opportunity to make a big profit. This is especially true if your property’s value has appreciated significantly since you purchased it.

How long should you own a house before selling it?

There is no hard-and-fast answer to the “how soon can I sell?” question. But on the whole, the longer you hold on to your home, the better you fare financially when it is time to sell. This relates to the concept of building equity in your home.

Home equity is, on a basic level, the difference between your home’s market value and the amount you still owe on your mortgage. So, if you put a 20 percent down payment on a $300,000 house when you buy it, your initial equity stake is 20 percent of that, or $60,000. With each payment made toward the principal, you increase your equity a little bit, which adds up over time. The longer you wait to sell, the less you’ll owe on your mortgage, which means you’ll be able to hold on to more of the profits from the sale.

The dollar amount of your equity also increases as your home’s value increases. That’s another reason why it behooves you to wait: Home prices tend to rise over time, and the recent pandemic-fueled housing craze made them rise even faster: Between January 2020 and August 2023, the typical home in the U.S. gained 19 percent in value, adjusting for inflation, according to data from the Federal Reserve Bank of Chicago. That equates to an appreciation rate of about 5 percent per year.

The five-year rule

When it comes to timing, the real estate industry refers to the “five-year rule” as a good rule of thumb when deciding how soon to sell your home. This has to do with the amount of equity the average homeowner has built in their home after five years of possession, and it also takes into account the costs associated with selling a home (and, if applicable, with purchasing a new one).

“Five years is a good, comfortable mark,” says Lawrence Yun, chief economist at NAR. “If the price of your home appreciates considerably, then even three years would be fine.”

It’s also important to think about what the broader economy looks like whenever the five-year mark arrives. For example, if you bought your home in 2019, the average 30-year mortgage rate was around 4.13 percent. At the beginning of 2024, average rates have hovered near the 7 percent mark, which means that if you need to buy a new house after you sell, you’ll pay a significantly larger amount of interest.

What to consider before selling

Initial costs

Your net proceeds are not the same as your home’s purchase price, even if a buyer pays above ask. For one thing, you have to take into consideration how much you paid for the property in the first place, and how much you owe if you are still paying off a mortgage. Beyond that, there are all sorts of expenses associated with selling your home. All this needs to be figured into whether it makes financial sense for you to sell now — crunch the numbers to see if you will walk away from the sale with enough profit to make it worth your while.

Closing costs

A seller’s closing costs generally come out of the home’s purchase price (they aren’t usually paid out of pocket). The amount will vary depending on many factors — your property’s final sale price, what state you’re located in, local property tax rates, whether you hire a real estate attorney and more.

Real estate commission fees are also traditionally paid for by the seller and typically range between 5 and 6 percent of the sale price. This can be a significant chunk of change: On a $300,000 sale, 5.5 percent comes to $16,500 taken out of your proceeds.

Capital gains taxes

If you stand to make a large profit on your home sale, you’ll want to think about one more thing before you sell: capital gains taxes. Residential real estate counts as a taxable asset, just like a stock. However, there’s a loophole, so to speak: The IRS generally allows homeowners a profit of up to $250,000, or $500,000 if married and filing jointly, before the capital gains tax kicks in.

But there are two big conditions: You have to have owned the property for at least two years, and it has to be your primary residence for at least two out of the five years immediately preceding the sale. So if property values in your area have skyrocketed and you want to cash in, two years is the amount of time you’ll want to wait to avoid paying the IRS.

Find a local real estate agent

Choosing a real estate agent is one of the most important stages of the home-selling process. You want someone who is well-versed in your local market. This person will be responsible for helping you set your listing price, hosting open houses, scheduling showings, negotiating with buyers and ushering you through the closing process. It’s a lot, and it’s much easier if you’re doing it with someone experienced, knowledgeable, trustworthy and pleasant to work with.

FAQs

• Is it a bad idea to sell your house before one year?

  Generally, yes. Even if your home has appreciated speedily, you likely stand to lose money if you sell before the one-year mark. You aren’t likely to have built up enough equity after such a short time to make up for the closing costs you paid when you bought it, as well as the closing costs and commissions you’ll have to pay when you sell. In addition, capital gains tax is high on assets owned so short a time.
  

• Can I buy another house before I sell my old one?

  Yes. You can buy another house while you’re selling your old one, and many people do. However, this does complicate your financing. You may wish to consider a mortgage contingency as a part of your real estate contract on the newer home. You might also consider back-to-back escrow, which facilitates the simultaneous selling and buying of properties.
  

• Why should I wait two years before selling my house?

  Once you have lived in a home for two years as your primary residence, the IRS will allow you to realize a profit of $250,000 before applying the capital gains tax to your earnings.