Is It Worth Buying a House Short Term?

There is no doubt that the house-buying process is a pretty tasking and expensive one that requires lots of careful consideration. As a potential buyer, one of the things to consider is how long you would be living in the house. So, is it worth buying a house short-term?

Is It Worth Buying a House Short-Term?

Yes, buying a house short-term can be worth it. Short-term in this scenario refers to three years or less. With only two years of ownership as a primary residence, gains can be excluded from taxable income to a certain amount. In addition, there is the factor of the year-after-year appreciation.

An image of a miniature house and keys

Factors like a change in career or finding a partner to settle down with can create uncertainties in your plans and cause you to move about a lot. Individuals, especially young adults who tend to be in such situations, are advised that buying a house can be a pretty good idea.

When Buying a Property Short-Term Might Be Worth It

Any time the value earned offsets the fees involved with purchase and sale of a home, we suggest that this is a scenario where it may be worth it to buy the property short term. With the following tips, a house buyer might be able to expect a short turnaround time.

Acquiring a Low Mortgage House

Considering the generally low mortgage rates available, it is easier to find a scenario where the majority of your monthly payments go towards lowering your loan principal which means you are paying yourself in equity as opposed to paying off a mortgage for your landlord as a renter.

Buying a House Where Appreciation Is Fast

If you are buying a property in a neighborhood where market demand is high, then it’s likely property appreciation will also be rapid. Owning a house for just a year or two in areas like this would make proper sense because the time required for appreciation would be significantly lower relative to areas where demand is low. Gambling on appreciation is still gambling, as market conditions can change rapidly based on external factors. It is always best to consider your financial position and how you would manage if the market stopped appreciating or reversed before committing to such a large purchase.

Another strategy to take advantage of appreciating value is by adding your own value. Whether through a minor cosmetic update to the home, or more significant renovations, you can improve a fixer-upper and benefit from the increased value you created.

In addition, you can significantly reduce your worries by working with a real estate agency that provides insight and services that could make buying a home short-term a good call. To accomplish this, you can always rely on your full-service AZ Flat Fee realtors who will advise you and assist you every step of the way in your home buying and selling process

An image of a person's hand holding a set of keys

Why Buying Short-Term May Not Be Worth It?

Just as important as it is to know that buying a property to stay for a short period is not the best choice to make, it is equally important to know why it is not. The major factors at play here include equity accumulation as well as recouping the fees that you would incur during the transaction, among others.

Equity

Home equity can be helpful for homeowners who are looking to purchase a better house. Unfortunately, one to three years may not be enough time to accumulate a substantial amount of equity in a house. Similar to owning stocks, the current value of a home is merely interesting as equity until the home is actually sold and those gains are realized.

Financial Investment

Owning a house is a long-term investment. The closing costs, repair and home improvement costs, personal property taxes, and all other payments that have to be made on a new property make it a very expensive venture. It could take up to five years or more before there is sufficient appreciation and equity to break even and recover expenses.

These fees must be factored into the decision and should be accounted for before the purchase to ensure your financial stability if you are unable to sell for a profit in the short run.

Transaction Fees 

Most homeowners buy their houses using mortgages, and aside from mortgage and interest payments, there are other fees involved in buying and selling a home. These include realtor fees, title and escrow fees, inspection and appraisal fees, and title insurance. When purchasing, all of these items help ensure that you are buying a quality home which is reassuring. When selling, you will share in some of these fees to give the new buyer a similar peace of mind. These fees need to be subtracted from your estimated equity to determine how much you truly stand to gain.

Factors That Determine Whether You Should Rent or Buy a Home

Knowing when to either rent or buy a property is important because it helps you save time, effort, and most importantly, money. There are some unique considerations to make when deciding whether to rent or buy a home including length of stay and cost of renting/buying.

An image of a checking a property to buy

Your Length of Stay in the House

Typically, staying in a home for at least five to seven years means you will have overcome and fluctuations in a housing market and likely have a positive net position which would then make buying a home will be a better decision.

However, renting may be better if you prefer to be more mobile, or if your current lifestyle demands that you be mobile. 

The Cost of Renting and Buying

Rental rates are at an all time high, and at the end of a lease there is no accumulation of equity or asset. Sitting with a knowledgeable real estate agent and lender would allow for a discussion and calculation of what may make the most sense for you. Depending on your financial ability, one may make more sense than the other.

Your Financial Ability 

Being practical about finances when deciding if to rent or to buy is important. Buying comes with expenses such as repairs, taxes, and down payments. Your interest rate on a loan will be impacted by your credit score and other factors, which will ultimately change the cost of home ownership for you specifically. You might need to assess your finances to figure out if you can afford to buy a house now, or if it would make more financial sense to work on improving your credit before making a purchase.

Related Questions 

What Are the Risks Involved in Buying or Renting a House?

Whether you’re buying or renting a house, risks are always going to be involved. If you are buying a property, you stand the risk of not recovering all your expenses if you sell the house too soon. If you are renting, the risks include: 

  • You do not get to build your equity
  • Your rent could go up at anytime
  • Your lease may not be renewed

Can I Sell My House Six Months After Purchase?

Yes, you can. This is common with investors. You can sell a home without any minimum time frame. There may be tax implications based on gains, but even those can be avoidable if you use an option like a 1031 exchange. 

Conclusion

Buying and selling homes comes with potential gain, and potential loss. Whether you decide to rent or buy, and how long before you sell, all comes down to understanding the numbers and risks. Our best advice is to sit and talk with a professional who has experience dealing with many different scenarios so you can obtain all the facts and make the best decision for your situation and goals.