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Not intended to solicit buyers or sellers currently under contract. 

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How long do you need to own a home before you can sell it profitably? The answer depends on your individual situation, but generally speaking, the longer you own a house, the more you’ll net from its eventual sale. Sometimes life intervenes, however, and you need to sell after owning a property for only a few years. Here’s how to decide whether buying a home for the short term is right for you.

Length of ownership affects profitability

Conventional wisdom says that you always make money in real estate. Decades of steady population growth in Canada and the United States have generally put upward pressure on prices. But owning a home is not always profitable; sometimes it turns out you’d have been better off financially if you’d rented for the same period.

Interest rates and national and local economic conditions affect property values. Another factor determining whether you’ll make money when you sell a home is the length of time you’ve owned it. Conventional wisdom has it that you need to own a home at least five years before selling it. To make money when buying a home for the short term, your costs of buying and selling that house must be less than the equity you’ll accumulate during the time you own it.

Recovering costs to buy and sell

Making money on a property comes from building equity in it. Equity grows in two ways. One is when property values appreciate because of external factors, allowing you to sell the house for a relatively higher price than you paid for it. The other type of equity — called paid-in equity — is the amount of a property you actually own because of the down payment you made and the principal you have paid during your ownership.

To make money on the sale of a home, your total equity at the time you sell must exceed the costs of having bought and sold that home. These costs include:

• The closing costs you paid when you bought the home you’re now selling. You can find these costs listed on your closing statement.
• The interest you have paid on your mortgage during your short-term home ownership. Mortgage payments are the same amount each month, but the proportion of that payment that goes toward interest rather than principal shifts over time. In the early years of a mortgage, most of that payment goes toward interest, not toward the mortgage’s principal. This means that you actually build little paid-in equity through your first few years of payments. Check with your lender to determine how much interest you’ve paid.
• The costs you’ll incur selling the home. These include money spent to ready the house for sale, real estate commissions, and the closing costs you pay as the seller.

For any home sale to be profitable, the total of all these costs must be less than the price you sell the home for.

Improving your chances of profiting in the short term

If you are shopping for a house and think that because of job changes, a growing family or other reasons you may be buying for the short term, there are a few things you can do to improve your financial prospects.

• Buy a home you can more easily afford. Don’t strap yourself buying at the maximum that you can pay. One way to do this is to look for a home being sold by a distressed seller.
• Someone who needs to sell quickly because of a job move, divorce, or other difficult circumstance may discount the sales price to speed things along.
• If you think you may be buying for the short term, find a home that is offered at a discount because it needs fixing up. But research repair costs before you make an offer. If they’re high, you may not be getting a bargain.
• If you put down 20 percent or more on the home when you buy it, you will finance less and save on interest costs.

These tactics can help make it more likely that when you sell after buying for the short term, the equity you recover will offset your costs.

Not intended to solicit buyers or sellers currently under contract. The article was revised from HOUSEOPEDIA’s original article.

Credit: Image by pjurisic0 from Pixabay 

City of Calgary, March 1, 2021 – With gains in every price range, residential sales activity in February totalled 1,836.

This reflects the best February since 2014.

“Despite continued COVID-19 restrictions, housing activity continues to improve. Much of the strong sales activity is expected to be driven by exceptionally low mortgage rates,” said CREB® chief economist Ann-Marie Lurie.

“Confidence is also likely improving as vaccine rollouts are underway. Additionally, some of the worst fears concerning the energy sector are easing with recent gains in energy prices.”

New listings also improved in February, but the gap between new listings and sales narrowed. This is causing the sales-to-new-listings ratio to rise to 65 per cent, keeping the months of supply well below three months.

Conditions are far tighter in the detached sector of the market, especially for product priced below $600,000, where strong sellers’ market conditions are present with less than two months of supply.

The market has faced relatively low inventory levels compared to sales for the past several months and prices continue to trend up. In February, the residential benchmark price rose over the previous month and currently sits four per cent above last years’ levels. 

Detached product has the lowest months of supply and is also exhibiting the most significant gains in prices. On the opposite end of the spectrum, the apartment condominium segment still has a relatively high level of inventory compared to sales, which is impacting price recovery for this property type.

HOUSING MARKET FACTS

Detached

Detached sales improved across every price range this month, but the lack of choice in the lower price ranges likely placed limits on the gains in sales.

New listings did rise, but it was not enough to prevent further tightening in the market, as the sales-to-new-listings ratio rose to 71 per cent and the months of supply fell to under two months. This is the lowest months of supply recorded in February since 2007.

Tighter market conditions occurred across all price ranges, but properties priced below $600,000 saw the months of supply fall to just above one month. These conditions are supporting significant price gains in the detached sector, which recorded a February benchmark price of $502,500. This is nearly two per cent higher than last month and five per cent higher than last year. It is also the first time since 2018 detached prices have risen above $500,000, and currently sits under five per cent below previous highs recorded in 2014.

Prices increased compared to last month and last year in every district of the city. However, the magnitude of those increases varied, with the largest year-over-year gains occurring in the South East district at nine per cent, and the lowest gains occurring in the City Centre at under two per cent. 

Semi-Detached

Semi-detached sales in February recorded significant gains, pushing sales activity to the highest February levels seen in nearly 13 years. However, like the detached sector, the improvements in new listings were not enough to offset sales, ensuring this sector continues to favour the seller.

With lower levels of supply relative to sales, benchmark prices improved over both last year and last month. However, this was not consistent across all districts. The West district continues to see prices that remain over two per cent lower than last year’s levels. The strongest year-over-year price gains were reported in the South East and North districts.

Row

Despite a significant increase in new listings, improving sales offset the gains and the months of supply fell to three months.

Conditions for row properties are not as tight as what we have seen in both the detached and semi-detached sectors. However, they do reflect an improvement relative to the oversupplied conditions recorded last year. However, when considering activity by price range, pockets of oversupply persist in this market.

Citywide reductions in inventory relative to sales supported some price improvements in this segment. The benchmark price trended up from last month and currently sits just over one per cent higher than last year’s levels. Year-over-year gains did not occur across all districts, as prices remain lower than last year’s levels in the North, North West, South and South East districts.

Apartment Condominium

Driven by product priced mostly under $300,000, apartment condominium sales improved to best February levels recorded over the past six years.

However, the gain in sales was not enough to cause any significant changes in inventory levels. February inventory remained elevated compared to levels we typically see at this time of year.

While the months of supply has trended down in this sector, it remains above five months. This is preventing the same type of price recovery seen in other sectors. On a year-to-date basis, the benchmark price remains similar to levels recorded last year.

REGIONAL MARKET FACTS

Airdrie

February sales reached new record highs for the month.

The largest gain in sales occurred in the $400,000 - $500,000 price range. New listings also increased, but the sales-to-new listings ratio remained elevated at 71 per cent and the months of supply dropped to under two months in February. This is the tightest level seen since 2014.

Persistent sellers’ market conditions have resulted in further price gains in the market. The benchmark price has trended up for the past eight months and, as of February, it is over seven per cent higher than last year’s levels. Most of the price growth has been driven by the detached sector.

Cochrane

Cochrane sales more than doubled compared to last February. This represents the strongest February ever recorded for the town.

New listings also rose for the month, but it was not enough to cause any substantial change in inventory levels and the months of supply fell to below two months. This is the lowest months of supply for February seen since the record low in 2006.

Tight conditions supported price growth in February, as the benchmark price rose to $413,700, a four per cent increase from last year’s levels.

Okotoks

New listings have been trending up from the lows seen at the end of 2020, helping to support a significant improvement in sales in February. February sales reach levels not seen for the month since the record high in 2007. 

Inventory levels remain exceptionally low relative to sales and the months of supply dropped below two months. Like other towns around Calgary, the sellers’ market conditions caused prices to trend up. In February, the benchmark price reached $442,600, nearly five per cent higher than levels recorded last year.

Home renovations is an astounding $326.1 billion annual industry in the United States, with no signs of its growth stopping. Consumers constantly hear the message that their houses somehow fall short…which begs the question: Do our houses really need that much work or are we simply victims of reno hype?

Why Do You Want to Renovate?

First, consider your motives. Have you bought into what someone else thinks of your home? Do you really need stainless and quartz when your black appliances and granite work just fine? While the television remodeling shows are entertaining, they shouldn’t be considered the last word on your own remodeling decisions.

Will Renovations Detract?

Renovations typically aim to modernize, and modernization tends to erase historic details. Also, changing one room often leads to the next…and the next, as redoing one makes the adjoining room look dingy. This can create an artificial need to ‘improve’ more spaces.

Is Renovating Cost Worthy?

Assess your home objectively, and ask if the cost truly makes a substantial difference or if it simply increases your debt. Get at least three estimates from qualified professionals.

Is There Anything Wrong With Your Home?

Critically think about your home’s functionality: Does it heat or cool when needed? Do the roof, doors, and windows keep out the elements? What has broken due to age or normal wear and tear? The answers to these questions will guide you to necessary replacements versus falling under the spell of renovation hype.

Which improvements should you consider?

Some renovations do hold high return on value, increasing the worth of your home. Improving smart technology features, regardless of your home’s age, will mean increased functionality for you and will also attract buyers. Yes, kitchen and bath remodels tend to show a high return on investment but think about doing a moderate renovation to save money while still making the space more usable.

Sometimes, the least noticeable – and most practical – improvements mean more in the long run, such as installing energy efficient doors and windows, or a new roof.

Not intended to solicit buyers or sellers currently under contract. The article was revised from HOUSEOPEDIA’s original article.