Does the Five-Year-Hold Rule Hold Water?

There’s a venerable adage in the world of real estate: do not buy a property if you do not plan to hold onto it for at least five years. The thinking is that five years is enough time to weather most market fluctuations and see enough appreciation to at least offset transaction costs – things like broker commissions, transfer taxes, and title insurance. But does the Five-Year-Hold Rule actually hold water?

Deborah Bhatt, a New York City broker, reports in Forbes that she used a StreetEasy tool to find 100 2-bedroom co-op apartments on the Upper West Side that had sold in the last 30 days. Thirteen apartments in this group of 100 that had recently sold had been purchased in the preceding five years. The median percentage price increase for these sellers was 12 percent. After transaction costs, these buyers were close to breaking even on their purchase, so the Five-Year-Hold adage held true.

As an aside, the median price of this group of 13 apartment was $925,000, significantly less than the $1,425,000 median price for a 2-bedroom Upper West Side co-op, according to The Corcoran Report’s Quarterly Report. Co-ops generally require owner occupancy, and this restriction affects the value of the property. By way of comparison, the median price for a 2-bedroom condo on the Upper West Side in the same report was $1,951,000. This illustrates another rule of thumb in the New York City market: condos usually trade for a 20-30 percent premium over co-ops because of their flexible ownership terms.