Selling Your House? Architectural Digest Says To Follow The Five Year Rule
This Articual Was Originally Published By www.architecturaldigest.com
Smart real-estate purchases are like your favorite red wine: Time makes them better. Buy a home with plans to move out in just a year or so and you’ll find yourself breaking even or worse, and that’s just sad. But guess what? A little patience is all you need to avoid that womp, womp outcome. “There is the five-year rule that many follow,” explains Scott Durkin, chief operating officer of Douglas Elliman Real Estate, meaning: Stay where you’re at for five years, minimum. “This rule applies so that, hopefully, the market will appreciate to double digits and you can recoup some of your purchasing costs,” he adds. Thomas Bayles, CEO of Urban Asset Group in Los Angeles (and a home advisor to the style blogger set) agrees, but says seven years is his number. S
The real-estate market obviously plays into this. “An economist by the name of Home Hoyt did a study on [real-estate] cycles and found that they tend to run in 18-year rhythms. So chances are you will have a good runway for a chance of appreciation if you hold for seven years,” says Thomas. But the market is hardly the only factor. There’s also your brokerage fees and renovation costs to consider—if you spent a lot, those expenses will need to be covered by a bigger sale for you to turn a profit. Depending on how long you stay in your place, taxes on the money you make off the sale will also vary. “You will not be subject to capital gains taxes as long as you keep your home for a minimum of two years before you sell,” notes Scott. What does that really mean? “If you own your home for one year, you will pay long-term capital gains, which is 15 to 20 percent, instead of ordinary income tax, which can be 25 to 50 percent depending on your tax bracket and the state you live in,” says Thomas. “If you own and live in your home for two years, there is an exclusionary rule that allows you to make $250,000 (if single) or $500,000 (if married) profit tax-free.”
Of course, there are exceptions to every rule. “In some parts of the nation, if you had bought at the peak of 2007 and tried to sell in 2014, you would barely be breaking even, maybe even taking a slight loss. I’ve seen this happen in Los Angeles only a couple times, but buyers or investors should keep it in mind,” warns Thomas. Scott also weighed in on the one time when selling early could work in your favor: “There are rarely exceptions, except for when there’s a buyer who must have your home or apartment and is willing to pay you a price that would not be realized in the open market,” he says, adding, “That scenario is very rare.” So, better settle in. May we suggest a no-reno refresh to pass the time?
