Can I Sell My Property Within 6 Months of Buying It?

Selling a property within 6 months of buying it is possible, but there are some important factors to consider before doing so. This article will examine the key questions around selling so soon after purchase, including:

• Is it legal to sell a property within 6 months?
• What are the financial implications?
• What are the tax implications?
• How could it impact your credit score?
• What other pros and cons are there?

Is It Legal To Sell A Property Within 6 Months of Purchase?

The short answer is yes, it is legal to sell a property within 6 months of buying it. There are no laws that mandate a minimum period you must own a property before reselling.

Once you officially own a property, you have the legal right to sell it whenever you choose. The sale documents and title transfers mean the property is fully yours to do with as you wish.

So you can list a property for sale the day after completion if you wanted to. However just because it is legal, does not necessarily mean it is always the best idea financially or strategically. But we’ll explore those considerations more below.

What Are The Financial Implications Of A Quick Resale?

Selling within 6 months will nearly always lead to a financial loss Here are some of the key costs to consider

• Closing fees – When you originally bought the property, you likely paid 2-5% of the purchase price in various closing fees and taxes. And when selling, you will incur ~8-10% in agent commissions and closing costs. With two lots of big fees in a short space of time, it’s unlikely you will break even.

• Mortgage payoff – Within 6 months, you will not have paid down much of the principal on your mortgage, as most of the payments go towards interest early on. So the remaining mortgage balance will be close to the original loan amount.

• Taxes – Capital gains tax applies on investment properties sold within 12 months, and in some cases less than 24 months. The tax rate varies based on income.

• Prepayment penalties – If you sell within the penalty period in your mortgage terms, you may face fees of 2-5% of the remaining balance.

• Lost equity growth – The shorter the hold period, the less chance for the property value and your equity to grow substantially. In 6 months, you lose out on years of potential gains.

To estimate the financial impact, you can calculate:

• Original purchase costs
• Sales costs
• Mortgage balance
• Tax obligations
• Expected sale price

And compare totals. In most cases this will show a net financial loss, especially once you account for expenses like mortgage interest, insurance, tax and utilities paid during ownership.

The only way to profit is if the property value increases substantially above the total costs incurred. This rarely happens in less than 12 months unless renovations or market shifts occur.

What Are The Tax Implications Of Selling So Soon?

In terms of taxes, selling within 6 months impacts:

• Capital gains tax – Investment properties sold within 12 months trigger capital gains tax on the total profit amount. For primary residences, capital gains tax applies if you sell within 24 months in most cases.

• Primary residence tax exemption – For a primary residence, you must live in the property for at least 24 months to qualify for the capital gains tax exemption of up to $250,000 profit as an individual or $500,000 as a couple. Anything less than 24 months eliminates this benefit.

• Depreciation deductions – Claiming depreciation tax deductions on investment properties then selling within 12 months could trigger capital gains obligations.

Consult a tax professional to fully understand the implications based on your situation, profits and income level. But taxes are not usually a major consideration unless you make a substantial profit very quickly.

How Could Selling Within 6 Months Impact Your Credit Score?

Selling soon after buying may result in a minor hit to your credit score in some cases. Here’s how:

• Closing out the mortgage within 6 months can shorten your length of credit history and mix of credit types. This can marginally lower your score.

• Relying on credit cards or personal loans to cover sales costs and pay back your mortgage shortfall will increase credit utilization, also lowering your score slightly.

• Rapidly hopping from property to property hints at potential risk or impatience, making lenders leery.

However, if you have an already strong credit history, the impact should be minimal. A few points change at most. And your credit score will rebound once you get settled in your next home and add positive payment history.

If your credit score is marginal, a dip could hurt your rates and loan options more significantly. So in that case, selling too soon poses more risk.

What Are Some Other Pros and Cons Of Selling Within 6 Months?

Beyond the hard numbers, some key pros and cons include:

Pros

• Take advantage of sudden appreciation or profit opportunity
• Move quickly if neighborhood or property proves unsuitable
• Leverage fast market sale prices in a hot market
• Free up capital if needed urgently for other purposes

Cons

• Pay hefty transaction costs twice in quick succession
• Experience stress and hassle of moving twice quickly
• Lose money overall in most cases
• Miss out on longer term appreciation gains
• Signal red flags to lenders and tax authorities

Overall, the significant cons tend to outweigh the pros in most situations. But unique personal circumstances or local market conditions could skew the equation either way.

In Summary:

While certainly possible and legal, selling a property within 6 months of buying typically results in financial loss once all real costs are factored in.

Exceptions do occur if values rise rapidly or you get an unexpectedly good deal initially. But in general, the brief ownership period leads to losing money from double closings, taxes, unearned equity growth and other expenses.

If you have an urgent reason or rare opportunity, a quick resale may make sense. But for most homeowners, waiting 12-24 months or more before selling is advisable to maximize financial gain and avoid hassles. As with any major money decision, run the numbers carefully before deciding one way or the other.