Like a lot of people in 2020, I freaked out about COVID, left New York, and decided to buy a house. I got a pretty good deal (I think?) on a two-bedroom home in a suburb of South Carolina close to my family. Home prices were still relatively low then, so I could afford the 10 percent down payment with my savings. I have a 30-year mortgage and my monthly payments (including taxes) amount to about $1,700, which is still less than I was paying for rent in Brooklyn. There are a lot of other costs, too — the house isn’t in the best shape, and there are fees for getting the lawn mowed and all sorts of other things I didn’t think about. Financially, I’m fortunate that I can afford all of these things. But I’m starting to realize that this purchase was a huge mistake.
First of all, I really miss New York. I love being near my family, but I’m single and queer and my romantic prospects are not great around here. I have some friends from growing up, but most of them are married and have kids, so we’re just at different points in our lives. Career-wise, I’m also realizing that there are limitations to being fully remote. I’m losing out on opportunities to move up in my field because I’m not as visible or making connections back in New York, where my office is now remote-optional.
Basically, I want to sell my house and move back to Brooklyn. But is that a terrible idea? I know you’re supposed to be in your home for at least five years before you sell, plus the real-estate market is not great these days (or so I hear). Is that really true? I think I could rent it out, but that seems like a huge headache and I’m not sure if it would be worth it financially. What kind of hit would I take for selling it now? Are there other options I’m not thinking about?
First of all, I’m glad you can admit this. I have a personal theory that a lot more people regret buying homes than will actually say so. It’s a huge privilege to own property, of course, and complaining about it can feel a little gross. But I give you credit for realizing that you made a big, expensive decision that hasn’t turned out like you hoped and are now taking steps to change your situation rather than resigning yourself to live in it. A home should be a source of comfort, not a costly burden that tethers you to a place you don’t want to be. If you really want to move back to New York, you should!
That said, offloading a house just a few years after buying it, especially in this economy, may not work out in your favor. That’s why you need to step back and consider your options for selling versus renting before you make any moves.
The “five-year rule” you mentioned is common advice, and it isn’t wrong. The logic behind it is that it actually costs a lot of money to sell a home. Closing costs and commissions involved in both ends of the transaction (buying and selling) usually add up to about 7 to 15 percent of its overall price, so your home needs to appreciate an equivalent amount for you to break even on the deal. In other words, you want your home’s value to have grown enough to encompass these costs, and that typically takes at least five years.
However, like any rule of thumb, there are a lot of exceptions. “That advice assumes that the housing market is operating in a vacuum,” says Stephanie Genkin, a Brooklyn-based certified financial advisor and owner of My Financial Planner. “That’s usually not how the real world actually works.”
Furthermore, there’s nothing average about today’s real-estate prices. The mad dash for suburban houses at the beginning of the pandemic has slowed, especially as mortgage rates climb, but the market is still very uneven. Maybe you could still sell your home for more than you bought it; maybe not. But the point is, don’t let the five-year rule hold you back from doing the research on what your home’s value might be today and what you’d need it to be in order to come out on top in a potential sale.
To crunch the numbers, you can try one of the many real-estate calculators online that help you estimate your potential profit from the sale of your home, factoring in costs that are easy to forget about (nitpicky stuff like pre-inspection and marketing). That will help you see what you’d need to sell it for without losing money, minus all the selling fees and whatever you still owe on your mortgage. If your home is in a desirable area and you think you could get a good price for it, then it’s probably worth talking to some real-estate agents about the next steps. (You might want to do that anyway, just to get an idea of the market. Just make sure you don’t sign anything with anyone yet.)
What’s more likely, though, is that it’ll be hard to make money off a sale right now. And for that reason, you should also explore option two: renting it out. This might be better from both a financial and an emotional standpoint because you won’t have to make yet another big, reactive choice that you might regret later.
You should also remember that selling this home and moving back to New York don’t need to be part of the same decision. You could try a test run: Rent out your house and sublet an apartment in New York for six months and see how it goes.
“One thing I’m seeing with a lot of my clients, especially as we emerge from the pandemic, is that people aren’t sure where to put themselves,” says Genkin. “I would encourage you to experiment with solutions before you commit. Especially since the New York you remember may not be the New York you find when you come back.”
Plus, you probably got a great mortgage rate if you bought in 2020. If you can find a tenant who will cover your monthly carrying costs ($1,700 for a two-bedroom home seems like a pretty good deal, although I don’t know what’s normal in your area), this house could wind up being a great investment for the longer term. Sure, it’s annoying to manage a property when you live in another state, but you mentioned that you have family who live nearby, so presumably they could help out and you’ll be visiting regularly. You may wind up changing your mind again and moving back in a few years or continue renting it out as an additional income stream for decades — both are good outcomes.
Finally, a quick word on the most boring part of homeownership: taxes. “If you sell your house now and make a profit, you will be exempt from capital-gains taxes because it’s your primary residence,” says Genkin. But if you rent it out and then decide to sell it later, that exemption won’t apply unless you’ve lived in it for at least two out of the five years prior to its sale. I wouldn’t tear my hair out about this — you would only pay capital gains taxes on the profit you made, not the entire sale price — but it’s something to consider. You could always rent it out for two years and then revisit the option of selling before the exemption runs out. Again, you have time to make this decision.
Overall, I think you should be patient with this process. Deciding where you want to live, especially at this tricky and transitional moment, might take some exploration. If I were you, I wouldn’t complicate it by trying to sell your home simultaneously. “Take a breath,” says Genkin. “There is a financial component to this decision, but there’s also a qualitative process of understanding what you ultimately want.”
The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money conundrums to firstname.lastname@example.org