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Last Updated: 5th February, 2024

Selling your home early is usually not a wise decision, especially in a market with home prices continuing to rise. You can miss out on growth in value, face capital gains taxes, or have to pay mortgage prepayment penalties.

The financial incentive is to stay for a long time and build equity. However, there are several reasons why you might have to sell sooner than you expected. If you find yourself in this situation, knowing the relevant tax implications and other factors can help you minimise your losses.

Reasons Why You Might Have To Sell Early:

  • Financial Reasons: Paying your mortgage could become more complicated if there are some unexpected life changes that force you to sell your home early, such as losing your job.
  • Family changes: You could add a new member to the family or suffer a death in the family.
  • Job relocation: You or one of your family members might have to relocate for a new job.
  • Buyer’s remorse: The house might turn out to be the wrong fit for you.
  • Seller’s market: You might gain substantial equity right after buying your home, which you might want to capitalise on right away.

How soon can you sell your home without losing money?

You can sell your home any time after settlement; however, it’s often recommended that you wait at least two years before selling.

Selling your home early comes with financial risks:
  • You will need to factor in the costs associated with buying and the costs related to selling, including your moving expenses
  • You miss out on potential equity
If you are selling an investment home after just a short time, you need to know your break-even point and how to calculate it, so you can avoid losing money.

What Is The Break-even Point?

The break-even point is the point at which the value of an investment property is such that the capital gains from its sale would equal the cost of holding it for a year. It is used to assess the risk of investing in a property using negative gearing.

For example, assume that the expenses (interest on loan, management fees, account depreciation, tax benefits, etc.) minus the rent it earns for a property totals $20,000 a year, and you purchased the property for $500,000. The break-even point for this property is found by dividing $20,000 by $500,000 and multiplying by 100. This shows the property has a break-even point of 4%. Its value would need to grow by 4% that year for you to make as much from selling it as it cost you to hold it for the 12 months.

The break-even point is a good indicator of when you can expect to sell your home after buying it without losing money from the cost of ownership. Note that it will vary across markets.

As housing prices tend to rise in a normal market, your home will appreciate as you pay off your mortgage. This helps balance out the costs of ownership and selling.

How Much Does It Cost To Sell A House?

There are various costs of selling a house, ranging from conveyancing fees, agent’s commission and advertising fees, to pest and building report fees, among many others. These costs need to be taken into consideration, as they can add up quickly.

One major potential cost of selling a home is capital gains tax (CGT). Generally speaking, if you are selling your primary residence and you haven’t used it to earn income while you’ve owned it, any profits from the sale are exempt from capital gains tax. On the other hand, if you are selling an investment property or inheriting a property, any profits from the sale are subject to capital gains tax – but there are some exemptions available:

  • CGT on investment properties: All or part of the profits on the sale of investment properties that have earned income may be subject to CGT. If you hold the property for at least 12 months, CGT is typically reduced by 50%.
  • CGT on inherited properties: Unlike with investment properties, if you inherit a property and want to sell it, waiting can work against you when calculating CGT. If you inherited a home purchased before September 1985 or one that was used as a principal dwelling (not an investment property), you have two years in which to sell it without paying CGT on the profits.
If you sell an inherited property after the two-year exemption period has expired, any profits will be subject to CGT (unless the home has become your primary residence). Learn more about inherited property and the potential CGT tax discounts here. Calculating capital gains tax is a complicated business and the rules vary with your specific circumstances. Seek assistance from a tax professional.

Other Things To Consider While Selling

Despite the pitfalls of selling early, sometimes it is unavoidable. If this is true in your case, know the financial outcome of selling early to lessen the stress and the potential loss. Here are some of the things you need to consider:

  • Figure Out The Current Value of Your Home:

    Knowing the current value of your home will help you estimate your potential gains or losses. Consider taking the help of a real-estate agent, who can help you suggest a listing price and sell your home.

  • Calculate The Transaction Cost And Subtract It From Your Projected Sale Price:

    It’s important to factor in closing costs to avoid taking a loss, especially when you’re buying and reselling in a brief time. Also, factor in the down payment, the monthly mortgage payments you’ve already made, the property taxes and the mortgage insurance. By doing so, you’ll get a rough estimate of how much you’ll need to make back to lessen your losses or avoid taking any.

In addition to that, calculate how much equity you’ve accrued. You can learn more about the hidden costs of selling your house with our property selling costs calculator.

Other Costs From Selling Your Home Early:

  • Mortgage Prepayment Penalty:

    A mortgage prepayment penalty is a fee that some lenders charge if you sell your home within a specific time period after buying. Lenders do this to recoup the interest payments they won’t be receiving due to you paying your mortgage early. The fee will depend on the terms of your loan.

  • Negative buyer perception:

    When selling your property, it is important to make it clear in the listing why you’re selling, to avoid any false negative buyer perceptions, which can lower the price of the sale. Potential buyers who do their homework may wonder why the home is back on the market so soon. Being proactive with an explanation in the listings can clear up any misconceptions.

Does Selling Early Benefit You?

In some exceptional cases, selling early can help you turn a profit. Here are some examples:
  • Due to new development in your area, home values unexpectedly rise quickly
  • You bought the house with the intention of flipping – making significant renovations quickly to increase the home’s value before selling it.

Sell Your House At The Right Time

Selling your house can be a tedious process. But if you pay attention to the details covered above, you’ll be well positioned to make the sale at the most advantageous time. For more assistance, call Home Loan Experts at 1300 889 743 or enquire online, so our brokers can help you.