With so much pressure from banks and advertisers – buy now! Lock in interest rates! Stop renting! – You might wonder if buying a house and keeping it for a short-term is a good idea. You might be living in the outer suburbs and you think you could move somewhere closer to the city or into something bigger relatively quickly. By short-term, we mean for one to three years. But is it a good idea?
You’ll pay a bunch of fees you can’t get back
If you buy a home, you’ll likely need to take out a home loan. You’ll have to pay a fees and charges when establishing a home loan and those are fees you aren’t able to reclaim (unless you’re buying for business purposes.) This is also true with some utility or telecommunications setup fees. You will only recoup those costs over time – more than three years – when your house’s price appreciates.
You won’t build up much equity
In the space of a year or two, you won’t build up much equity in your home. If you’re looking to extract the equity in your home, you may not have enough. You can use equity to purchase a more expensive house or finance an investment property. If you do not have enough equity, it may not give you favourable rates, if they approve your equity loan in the first place.
If the market shifts quickly, it might not recover before you sell
If you remember when the Global Financial Crisis and credit crunch hit in 2007, it occurred almost overnight. Interest rates fell and economies scrambled to shore up weaknesses in the economy. In the USA, many people woke up to find their homes were only worth half as much as it was the day before. If the housing market takes a dive, holding on to a house for a year or two might not be enough time to weather the storm.
Home ownership is a marathon, not a sprint
Home ownership is supposed to be a long-term investment over decades, not months or years. It may take at least three to five years just to break even with enough accumulated equity and appreciation. You might want to renovate your home in that time, which can disrupt living arrangements and take years in and of themselves. That said, some home renovations don’t improve your sale price beyond what you’ve sunk into the renovations straight away – that may take a few years to make a significant return. With houses, it makes sense to ease into changes rather than make sharp turns every which way.