Buying A Home
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
How long should you live in a property before selling?
We haven't bought a home yet, but we're young and realistically expect that well be buying a starter home (not a forever home). How long is a good amount of time to expect to live in a home before you sell it? Is 4-5 years worth the closing costs/taxes, or is it smarter to rent?
I don't necessarily need advice on my specific situation, I was just wondering what everyone's thoughts were. 
Re: How long should you live in a property before selling?
That's a hard question b/c it depends so much on the house. I have seen people get great deals that they sold in 2 years (& less) and made a nice profit. For the average valued home, I think it is 5 years though.
I would look at which houses you could get for around the same as your rental payment. Do you like them? Are they realistic for you guys? Is the housing market heading upwards or has it leveled out? If you can get a mortgage for $100-200 less than your rent (allowing for taxes, ins, utilities) and it is a decent enough value to at least break even in a couple years, I'd say go for it.
In the housing market of today it is recommended to stay in your home at least 7 years, some say 7-10, in order to break even when selling (recouping buyiing and selling costs only.) Do NOT look at your house as a means to make money.
If you plan to move prior to that, you are better off renting .
I would say the key to not getting screwed is to be conservative. Don't "stretch" for a starter home; a starter home should feel like a starter home when you look at your expenses.
This is same kind of the situation we're in. We can afford a nice home (from what I can gather, considering we haven't been pre-approved yet) but would probably end up moving down the line for jobs and things.
In a strong market, 5 years. In this sluggish market, 7 years. The thing is that Fannie Mae and Freddie Mac are holding back a large number of foreclosures from the real estate market. According to our agent, about a year ago the lenders indicated that they planned to release these houses when the time is right. If I were a betting lady, I'd bet that the time will be right after the results of the November presidential election. So there may well be a whole new crop of homes still to hit the market and depress prices for another few years. If you are counting on price growth any time in the next few years, it may not be a smart idea.
So then you have to count on actually paying down the principal on your loan enough to fully recoup your buying and selling costs just to break even. Since the first 5 years of your mortgage payments go far more toward interest than principal, that really drags out your break even period. And do you really just want to break even with no money left over to put into the purchase of another home? Probably not. So then you need to add a few more years in order to make it into a profit zone, and hope that you don't have to replace a roof, hvac system, etc that would eat into your profit.