Selling your property: choosing the right timing

The motivations for starting the project to purchase a property - apartment or house, new or old - are very diverse depending on the household. Financial investment with the hope of a successful resale, the first purchase of a principal residence or rental investment thus form different real estate schemes, all of which have in common to see real estate acquisition as an opportunity to be seized.

This is even more accurate since, borrowers can currently obtain credit at historically low rates of between 1 and 2%. However, if everyone hopes to realize a capital gain on the resale of the property purchased, there are a few basic rules that must be followed for the transaction to be beneficial. Here are some useful observations to consider when selling a property.

After how long is it profitable to realize a real estate sale?

Buying an apartment or a house is an important project. Indeed, those who think that the property they buy can be resold at any time are mistaken. Indeed, in order to amortize all the costs related to a real estate purchase, there is an incompressible period during which reselling one's property is not profitable from a financial point of view.

In general, this period is set by industry specialists at two years for the most optimistic, and six years on average. This is, therefore, the minimum period of time that must elapse before the purchase of an apartment or house becomes profitable for the borrowing household. This situation is explained in particular by the many fixed costs generated by the purchase of a property.

The various fixed costs related to the acquisition of a property

It is estimated that the costs to be paid by any household purchasing a property are approximately 8% of the total value of the property purchased. Either, in the case of property acquired to the amount of 230 000 €, purchase costs of 19 000 €. This includes notary fees (about 7% of the value of the property), agency fees, the file fees of the bank in which the credit is taken out, the cost of the loan guarantee, the cost of the borrower's insurance, or the property tax that the future owner will have to pay each year - more or less depending on the city.

All these costs represent fixed costs that will not be valued with a view to selling the apartment or house acquired. That's why buying an asset on a short-term basis is usually a bad idea, as it can cause you to lose money rather than make money.

Resell your property by recovering your initial investment.

At the very least, any household that embarks on a real estate investment must set itself the objective of recovering at least the totality of the initial investment on resale. To do this, owners must repay sufficient capital so that the resale becomes profitable. Given that banks charge penalties equivalent to six monthly payments for early repayment of credit, the ideal situation is to resell when the outstanding principal is equal to or less than the market value of the property in question - from which the amount of the initial household contribution is subtracted.

It is, therefore, the result of a rather fine and eminently complex mathematical reasoning. In particular, the services of a notary can be sought to determine the various possible scenarios, in the event that one does not even wish to carry out this prospective work.

Other parameters to be included in the profitability of a property sale

Nevertheless, the simple recovery of the initial investment made by the purchasing household is not always sufficient to determine whether the resale of a property is worthwhile. Indeed, a complete calculation will integrate the difference between the monthly cost of the credit contracted and its equivalent in rent for a similar property. If the rent turns out to be much cheaper than the cost of credit, then it is not necessarily interesting to buy if you will not keep the property in the medium or long term.

Moreover, in addition to recovering their personal contribution, a couple with financial concerns will also make sure that the sale of their apartment or house will allow them to reimburse themselves for the interest, insurance and guarantee costs of the loan taken out. Finally, inflation should also be taken into account in this calculation. Indeed, a well-sold property will recover the initial contribution plus inflation.

Relying on rising property prices, an uncertain strategy

In a context where some French cities are experiencing a certain surge in property prices - such as Paris, Bordeaux or Nantes - some people are tempted to believe that a property acquired today will inevitably increase in value tomorrow. However, this reasoning is highly risky, and actually depends on many parameters. Indeed, within the same city, the evolution of property prices can vary considerably from one neighborhood to another, and even from one street to another.

In addition, cities that experience soaring prices are always subject to the formation of a "bubble", which can deflate at any time. It is also risky to try to invest in a city where prices are already high. A cautious attitude should, therefore, be adopted, focusing on price developments in line with inflation (which stood at 1.8% in France in 2018).

A current economic climate favorable to short-term sales

Thus, generally speaking, thinking that one can make a capital gain on the sale of a property by selling it in the short term is false reasoning, because of all the fixed costs that weigh on the purchase of an apartment or a house.

Nevertheless, in the current situation where it is possible to borrow at rates of around 1%, the incompressible period during which the costs associated with the purchase must be amortized is shortened. Whereas this duration was estimated at around 6 to 7 years by real estate specialists a few years ago, it has now been reduced to 2 years in the best scenarios.