What Is “The Five Year Rule” In Terms of Owning a House, And Why Should It Matter To You? Find Out Here

261B883200000578-2970186-image-a-26_1424949721130The 5-Year Rule

Homes are not cheap, so if you want to buy, you’ve got to have a good head on your shoulders about it. It’s often said that you have to live in a house for five years in order to not lose money on it. Sometimes longer, but usually around five years is the best amount of time. Yes, many people choose 30 year mortgages but most people do1442483850 not live in the same house for 30 years. But if you move before five, you’re almost guaranteed to lose money on it. Read on: How Long Do I Have to Live in My Home Before Selling? – Realtor.com.

The first thing you’ll lose money on are your closing costs. You pay money for these. The amount will vary depending on many factors, including location. But closing costs cost a few grand. See: Should You Rent or Buy? 7 Questions to Help You Decide – US News Money.

The second amount of money you lose is the way the mortgage is structured. You pay a whole lot of interest in the very first few years that you own the house. It isn’t until after five years that you’ve put enough equity in it to make it a better deal than renting a house.

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If you purchase a fixer-upper and throw a whole lot of money into it, and make it immaculate…you’ll have no problem seeing a return, and you won’t have to wait 5 years for it.

Plus, if you buy another house, and rent that one out, you’ll be sure to make money on that investment, as you can charge a lot for rent. No matter what home you buy, do your homework to make sure it’s a good investment. Read: How Long Do Homeowners Live in Homes Before Selling? – Zillow.

 

2 comments

  • Caroline

    I am looking to purchase my first house. I am a young professional, and have a steady job, however it does require travel. I am not positive I will be there for at least five years, I just want to own a home and am tired of renting. What should I do?

    Reply
  • webmaster

    Buying a smaller home that you can’t sell or rent out when you want to move is perhaps the biggest disadvantage of buying a starter home. Doing as much research as possible can help minimize this risk. Other downsides to starter homes include the costs and hassle associated with moving twice and the potential money you’ll spend making improvements to your starter home that you may or may not recoup when you sell.

    Reply

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