You bought a house and you regret it. Maybe you like the house, but an unexpected event has you needing to sell in 6 months. What do you do now?
Whatever brought you to the point where you’re considering selling a house you bought one year ago or less, it can feel like you’ve made an awful financial decision.
Like many unexpected financial events in life, it can certainly be trying, but if you know what you’re doing you can get out of this without getting crushed, and you can move on with your life.
The first thing we want to unpack is the reason you’re considering selling so quickly. Let’s make sure it’s something we really need to do before we move on to the financial implications and how to come out a winner.
Reasons that make sense for selling right after buying
Sometimes you buy a house thinking you’re going to be there for the long haul. Then your dream job opens up in the next state over (or across the country). Now what?
A job change can definitely be a good reason to sell your house–particularly if it’s going to come with a big income boost.
When duty calls, you sometimes have no choice but to pack up and help your family. This can be another good reason to move.
Sometimes the market is just so red hot, that your house has actually appreciated significantly in just one year.
It can be hard to look at that money sitting on the table and not take it–but we need to make sure we’re calculating our returns correctly.
Keep in mind, you’ll have to shell out a huge amount of money to actually sell your house. These costs include real estate agent commissions, and if you’re selling within one year capital gains tax on top of the normal closing costs associated with selling the house.
Bad Reasons to Sell House After 1 Year or Less
Buyers remorse is real.
It tends to happen after large purchases where a lot can be done to undo the decision.
The feeling is driven by a term in psychology known as “cognitive dissonance.” The gist is that we all feel like we are good decision-makers, and the feelings associated with regret on a purchase made out of free will makes us question our internal feelings about our own judgement.
This obviously causes real discomfort–it sucks!
But we need to take a step back and figure out why we feel the decision was the wrong one.
As I was doing research for this post, I came across a ton of people that were dealing with really tough neighbors that they hadn’t anticipated when they bought the house.
Some people were completely caught up in a rehab project on a fixer upper that was way over their head. The expenses started to pile up and they felt that they had made a major mistake.
Sometimes when we make a decision with a bad outcome, we make the situation a lot worse with a follow up decision that is made completely on emotion and doesn’t take into account the “sunk” costs of the first decision.
You can’t go into the past and change what happened. You have to wipe the mental slate clean and come up with a plan of action with where you are right now.
Annoying neighbors can be talked to in a diplomatic way, a rehab can be done one little step at a time to avoid the feeling of being overwhelmed.
Forget about anything you’ve “already” done–none of that should be factored into your future choices and actions.
Come up with a plan to deal with the shortcomings of the house without resorting to drastic measures.
If that’s not possible, and you absolutely must go, let’s dive into what it’s going to cost you, and how we can manage the potential loss.
Capital Gains Tax and selling within one year
If you’re turning a profit on the house you’re selling, you’re looking at paying a capital gains tax rate of up to 20% on the profit (this number depends on your particular tax bracket)–assuming you’ve owned the house for at least one year.
If you’re trying to sell a house in less than a year after buying, you’re looking at an even higher capital gains tax rate–but to be honest it’s very unlikely you’re actually going to clear any profit in less than a year–you’re more focused on minimizing losses.
The single biggest expense in selling a house is the commissions that are paid to both the listing agent and the agent representing the buyer.
In total, these commissions can be up to 6% of the value of the house.
Even if your house experienced some appreciation in the short amount of time you’ve owned it, it will likely be eaten up by the commissions.
So the outlook is bleak. If you still absolutely have to sell, keep reading.
Below I outline an action plan for you to minimize the damages if you absolutely have to sell.
An Alternative Course of Action: Becoming a Landlord
You may have no choice in moving out of the house, but it might make more sense for you to go ahead and try renting out.
Becoming a landlord should not be taken lightly, as it can get very costly if you pick the wrong tenant.
If you’re thinking about going to route of renting out the house, I researching the absolute best property manager in your area, and turn it over to them.
Renting out the house on its face looks like it might actually bring in some money–but you’re probably going to be lucky to just break even.
Keep in mind, some investors are happy with a property cash flowing at just $100 per month profit after expenses–we’re not talking about huge margins here.
So don’t go the DIY route as a rookie thinking you’ll be making money and killing the rental game–you’ll likely just cost yourself a huge amount of money and have a perpetual headache until you sell the thing.
Minimize your losses and get out of this mess
Ok, so we’ve gotten through whether or not we actually need to sell the house–and it turns out we really need to get rid of this thing.
You need to maximize the value of your house with cheap improvements.
The smell of freshly cut grass causes our brains to emit 7 “feel good” chemicals in the brain.
It’s either free, or costs less than 50 bucks.
Certain colors of paint can increase your house value by a few thousand dollars (some can actually decrease your value too–go for light colors instead of dark).
Painting costs maybe a few hundred bucks or less–depending on how much of the house you’re trying to cover.
Make a list of everything you can do under $300 that will increase the appeal (value) of your house.
You need to squeeze every bit of extra equity out of your house to recoup the expenses of selling within the year after buying.
Attack with every cheap update you can do to move the needle. Paint on the inside and landscaping on the outside are all positive ROI items.
Internal items like a kitchen remodel and bathroom updates are pretty expensive, and they may return the money you put into them, but we’re not looking for expensive and we’re not looking to simply get the money back out.
We want to turn a profit on the investment, and do it quickly.
A quick internet search and you come to the conclusion that landscaping is a 100% ROI on the low end, with some people gaining as much as a 1000% return on their investment for landscaping improvements.
The reason these can be such high ROI drivers is because you can do a lot of the work yourself, and they tend to be much lower cost than anything you can do inside the home.
Since you have limited time and your margins are low, think out paint and focus on the outside to get some quick wins.
Anything you can do to drive the price up on the investment will help get you out of the mess that you’re likely to be in.
You can also save some money by using a less than “full” service real estate agent.
If you’re willing to do some of the legwork (like answering your phone and scheduling showings for your house).
You can use a “flat fee” agent that will put your house in the MLS for a flat fee (most of the time 300-500).
This is an option that can save you around half of the commission you would otherwise pay on the home sale, and could be the difference between breaking even and losing money.
You’ll have extra responsibilities is you go this route–you’ll have to handle answering the phone if someone wants to look at the house, and you’ll have to navigate the paperwork once someone wants to make an offer.
This can be a significant time investment, and you’ll likely have to educate yourself on real estate transactions before you embark at that journey.
Another thing you can do is look out for brokers that will take a discount to list the for a commission.
The traditional commission % for the listing broker in the transaction is 3%. There are many firms that are offering to do it for less, and it’s becoming more and more popular of an option for sellers.
So much so that the average total commission percentage has been falling for years and is now down to around 5% (instead of the full 6%).
Selling your house in a year or less can be a stressful experience. You stand to lose a ton of money when you sell a home right after you bought it because of commissions and the closing costs.
It’s possible to sell fast, but you’ve got to minimize your costs and maximize the value of your home.
Consider shopping around for the best rate for a listing agent, or list it with a “flat fee” broker and take on some of the duties of selling list showings and the contract.
When you need some quick wins to increase the value of the house, use bright paint on the inside of the house. Landscaping improvements on the outside can be much lower cost and bring an ROI of 100-1000%.
Best of luck!