How soon after closing the deal on a home I bought can I then sell it?
You can sell your home right away. It can be as early as the day after you have closed the property and received the keys. That said, just because you can, doesn’t necessarily mean you should.
If you are thinking about this — often referred to home flipping — I encourage you to consider a few things before making your decision.
- Review your current mortgage contract and check for any specific restrictions. If you sell the property shortly after purchasing it and have a closed mortgage, you will have to pay a fee, known as a prepayment penalty, to break the agreement.
Many mortgages have limitations on how and when you can make additional payments. The exact amount will depend on the details of your specific mortgage contract; however, it can be substantial and generally ranges between two and five percent of your loan balance.
Besides this, you may also have to make other payments. These may include things like administration fees, appraisal fees, and returning any cash back you may have received from your mortgage lender.
- Significant market fluctuations are not common. Sometimes the real estate market shifts (up or down), but it is very difficult to rely on sudden increases. Generally, the chances of you being able to sell the home at a significantly increased price are low. The only exceptions to this may be if you have done substantial renovations, or maybe you bought a new build a few years ago and the current value is markedly higher. This happened when I bought my first home.
It may be wise for most people to assess numbers once a mortgage term of five years is complete. Although most often this question relates to trying to sell for a profit, it can also be that the seller is trying to cut their losses because of a cooling market. This is a personal decision that should be discussed with a real estate agent and financial adviser.
- Similar to buying a home, there are costs to consider when selling. Besides paying the fee to break your mortgage contract, you will also need to review the cost of hiring an agent, seeking counsel from a lawyer who is insured to practice real estate law, and any costs associated with staging the property to prepare it for sale . This can all feel very daunting, especially if you recently paid a substantial amount of money to close the home and haven’t built much equity yet.
- If you can make a profit, make sure that you are accounting for capital gains tax, as well. In Canada, sellers typically must pay tax on 50 per cent of their capital gains on investment properties. The rate is calculated based on a number of factors, including the original purchase price, the selling price, any expenses to sell it, and the seller’s income.
If the home is your primary residence, then you might not have to, but the tax assessment would also include how long you owned the property.
Having said all that, sellers’ circumstances will vary. So, do your research and leverage your agent’s expertise to make an informed choice that best suits your needs.
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