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
Barbara Corcoran did an interview with Bigger Pockets podcast where she basically explained that she would just re-slam mortgages on properties for as long as the rent covered the new mortgage.
The advantage here is you don’t pay taxes on a cashout refinance and you continue to gain appreciation
Rent it out and refi it every 7 or so years, buy more properties and make more monies
ELI5: The price of a house can go up or down. It is only bad if nobody wants to buy your house for more than you paid.
You also must considerthe risk. If you own a house for 10 years the value will most likely overall increase, even if you are selling at a bad time with a sudden drop in the housing market. If you were to sell after two years, the same sudden drop might cause you to loose money, being worse off than when you started
relevant:
most homes are only owned for 13 years before sold. (median)
with 8 years being the average (probably impacted by flippers)
i had always thought, like perhaps the OP, that when you buy a home, you should expect to live in it until you pay it off, or at least mostly pay it off. but that’s not the norm at all.
obviously there are lots of factors, but buying a home could make more sense than renting if you are planning to live in the same area for a decade or more.
wish i would have known that a decade ago… 😬
If you’re moving for work you could get a relocation package with real estate cost assistance. Then you’d likely strike at least even by saving on closing expenses & realtor fees.
It was never because you won’t live there long enough to pay off the mortgage. The general rule was not to buy if you weren’t going to live in the place for at least 5 years. This is because mortgages load fees and interest into the loan and properties don’t appreciate in value quickly enough for you to break even or make money on a sale after only 5 years. Essentially, if you buy and then sell within 5 years, you lose money on the deal.
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.
Among the other answers, don’t forget the value of your house may go down. What if you owe 400k on a house and can only sell it for 300k? Do you take the loss? Short sell? Foreclose? You could be screwed if you don’t buy and sell at the right time.
It’s not always a bad idea.
Sometimes that house will appreciate 50% in that 3 years, which would offset all the closing costs and stuff by a very wide margin
It is a leveraged investment. If you pay 20% (e.g. $100k of a $500k purchase) deposit those savings will take the first losses. If property prices decline 20% you have not lost 20% of your investment, you’ve lost 100%. It works in the other direction also. If the house doubles in value your gain is 500% (less mortgage payments.) Owning a house for a long period insulates you from the risk of a short term dip.
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