I have this impression that it’s seen as a riskier decision to buy a home, knowing you won’t live in it long enough to pay off the mortgage and then sell it when you’re ready to move away, when compared to renting a home. Am I off base on that, and if so, why is this the case?
In: Economics
Fees and interest.
1) You pay a lot of fees on buying/selling a house
2) Depending on your mortgage, you will most likely spend the first few years simply paying the interest but not actually paying down your debt.
3) The current market value of the house
4) Capital gains taxes of your country
The first two of these factors *usually* combine to mean that you haven’t built up any margin of equity in the house (assuming the house hasn’t appreciated or depreciated in value).
But the third factor is your wildcard here.
– If the value of your house has increased significantly enough to negate the first two factors (i.e. you can pay the selling fees and pay off your mortgage and either walk away breaking even or with a profit). In that case, sell your house whenever you want to. The very next day if you want (assuming 4 isn’t going to be an issue).
– if the value of your house has remained unchanged or dropped to the point you cannot pay everything off, well, you’re stuck with a house unless you are willing to take a loss.
Now I haven’t really mentioned (4) up to now. But if you are buying and selling houses for investment, etc., you may fall foul of your country’s capital gains taxes which usually try to tax you on the profit you make from selling your house. This may or may not apply to you depending on your country, how long you keep the house, whether you choose to live in it or not, etc.
So, in general, folks don’t buy and sell houses quickly due to most of these factors making it a financially bad idea.
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