How Long to Hold Home

I was reading Men's Health magazine the other day and in their advice section, there was a question from someone wanting to know how long they had to be in their home before they could get out of it. I thought the answer was pretty ambiguous, so I thought I'd give my input here.

Men's Health responded by saying something like "The general rule of thumb is 3 years, but with the current housing market we recommend 5 years, but you should be OK after 2." HUH? So is it 3, 2 or 5? Seriously . . .

So here's John's take on it:

I generally tell my clients that they should plan to be in their home at LEAST two years regardless of how they purchased the home, but ESPECIALLY if they purchased their home with 100% financing. If we look back over the past 50 years, Real Estate has on average appreciated about 8.6% per year. If we reduce that to a more conservative 5% and understand that on average it costs about 8 - 9% to sell your home, two years should be enough to get you back out of the home without having to come to the table with money to close. Two years is a magical number for another reason. Capital Gains Tax. Currently the good ol' IRS stipulates that you must have occupied your home for two of the last five years to be exempt from capital gains tax on your profits (up to $250K for an individual and $500K for a married couple). So why pay the IRS more money than you have to. Stay in your home for at least two years and you should be able to get back out without losing any money. Of course your individual mileage may vary.

I can only speak for the puget sound region of Washington, so if you're outside this area, your market conditions may be different than ours. Currently we're still seeing homes appreciate while in some areas of the country they are actually seeing a pull back in pricing. But for you guys, remember, if you never sell, you never lose. Real Estate continues to be one of the safest, best places to put your money. And guess what? It always will be. The longer you hold on to your home, the better. You'll be less affected by any drastic changes in the market and you'll see steady appreciation year after year as long as you maintain your home in good working order.