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House Profits or Loses

Discussion in 'The Lounge' started by kgblazerfive, Mar 22, 2007.

?

How much more is you house worth after a year or ownership or cost you cuz you waited

Poll closed Apr 21, 2007.
  1. no change to 5,000

    1 vote(s)
    6.3%
  2. 5,000 to 10,000

    3 vote(s)
    18.8%
  3. 10,000 to 30,000

    6 vote(s)
    37.5%
  4. to much and I am nekid so I don't care

    6 vote(s)
    37.5%
  1. kgblazerfive

    kgblazerfive keymaster Premium Member GMOTM Winner

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    Question for the masses or lets make it a poll how much has your house gone up or down in a year not this but as recently as possible. I ask this because I waited a year to buy my house and it cost me $40,000 more to buy it.
     
  2. 4X4HIGH

    4X4HIGH 1 ton status Premium Member GMOTM Winner

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    My house has went up a little over 100K in 2 years.
     
  3. tRustyK5

    tRustyK5 Big meanie Staff Member Super Moderator GMOTM Winner Author

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    $120K in 2 years for our townhouse. Crappy if you would have waiting for the market to 'correct' but gained us a ton of equity. Definitely not a good average barometer of real estate gains/losses IMO. The previous 6 years saw no appreciable gain in value (98-04)

    We've been on the verge of listing this place the last 10 months or so but still haven't done it. Houses have been going up here, but so has our place so it sorta works out. I didn't want to be shopping for a new house when the market was still very agressive like it had been. 6 months to a year ago most places were selling for over the listed asking price...:doah:

    Rene
     
  4. CDA 455

    CDA 455 3/4 ton status

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    We bought our house in Sept. '05 $178,000 as a fixer-upper.

    It's appraised at approx. $300,000 as of Dec. '06.

    As soon as we finish the upstairs remodel, it'll jump another $30-$40,000.
     
  5. jekbrown

    jekbrown I am CK5 Premium Member GMOTM Winner Author

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    After you count taxes, interest (which most people conveniently ignore in friendly "my house is worth waaay more than I paid!" conversations), up-keep, insurance, inflation and upgrades, almost no one actually makes a profit on their house. Buying a house for $200,000 and it being worth $500,000 later on is cool... so long as you realize what you really paid for that house... and that its way more than $500,000. ;)

    j
     
  6. bigjbear

    bigjbear 1 ton status Staff Member Moderator

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    That depends a lot on how long you keep it for, what kind of rate. etc. It is very unlikely anyone will pay 300k in interest over 5 years. Over the long term sure. Quick examples: If I kept my first house for the 30 yr life of the loan at late 90's interest rates, I would have paid triple the selling price. If I stick this one out for the full 15 years at 01 interest rates it will be double.

    Now you have me thinking about if I could TRULEY break even on a sale at todays prices.
     
    Last edited: Mar 23, 2007
  7. bigjbear

    bigjbear 1 ton status Staff Member Moderator

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    In jekster math I loose about 25K if I sold it for what my neighbor sold his for a couple weeks ago. Using the numbers most people do I would gain about 60k over the past 9 yrs.

    -20k for repairs, improvements, paint, carpet, etc +15k cash out when I refinanced -payments, that covers P&I, taxes and insurance (21 mos @ 450=9450)&(74 mos @ 950=70300)-72k payoff +135000 selling price -4k fees.

    ...or continue to pay 950/mo and the 72k would cost 103k but the house would be worth ??? (and probably need a new roof somewhere along the line)

    Interest will get you for sure. That is why the next house I buy I'm going to put down 20-30%. Unlike the $100 I put down on this one:doah:
     
  8. gjk5

    gjk5 3/4 ton status

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    I bought my house for $245K in Jan '05, have put about $20K and a lot of hard work into it and it just appraised for $435K, without the kitchen and master remodeled. Once finished is should be +/- $525K.


    And JEK, I beg to differ. EVERYONE pays for housing one way or another, whether it be rent or mortgage. I have also made a profit of about $50K off of the $48K line of credit I took out on the appreciated value, a little over 100%, in about a year. The credit line is now paid back to zero and I still have the $50K, so I guess I don't get your math. My mtg payments run about $25K /yr so I've paid a little over $50K to live there (in interest), but from simple appreciation and effective use of my line of credit I have made approx. $170K from that house in the last 2 years, that covers a whole lot of "upkeep", utilities (which I would have paid anyway own or rent BTW), and insurance (OK, I guess you can back $1800 out of the $170K profit).


    And I'll be posting up before and afters in about two weeks when we complete the flip property we are working on, but that math is real simple:

    Paid $179K
    Improvements, carry cost, labor, utilities: $33K
    It should sell in under 30 days for $279,900
    $67,900 profit for my partner and I to split for roughly 8 weeks of work, seems like good math to me.
     
  9. 4X4HIGH

    4X4HIGH 1 ton status Premium Member GMOTM Winner

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    I don't know if you factored in the amount of interest that you write off on taxes at the end of the year. You also can write off upgrades either each year or all of them when you sell.
     
  10. jekbrown

    jekbrown I am CK5 Premium Member GMOTM Winner Author

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    I'm not saying that its impossible to make a pure profit, just that hardly anyone actually does. Of course you have to "pay for housing"... the real question is: how much.

    A security super in San Fran was bragging to my boss a few days ago how his house is worth sooo much more than when he bought it. My boss asked him what his payments were... and we did the math, and the guy is paying well over $1,000,000 for a house that he "bought for $450,000" and is now super-proud of himself because its worth "about $700,000". That doesn't include taxes (got to be god awful in san fran), insurance (ditto, quakes?!?), upkeep, inflation etc etc etc etc etc. In the end, the guy is prolly going to lose 50% of his cash over the long term... and not make any profit at all.

    Also, some people have been lucky enough to live somewhere with an exceptionally hot market of late.... that isn't a guarentee of future performance. There are plenty of housing markets where there has been hardly any appreciation in value over the last decade. (which means negative growth, because there has sure as hell been some inflation). If you bought a house in So Cal 25 years ago and are now cashing out to mad profit, good for you mang.. good score... but it doesn't mean that every housing market is like that... that the future in that same housing market will be similar... or that is proves that home buying is generally a profit-making move.

    People talk incorrectly about houses ALL THE TIME. I'm not here to rain on anyones parade or to suggest that buying a house isn't a great move (I'm aboot to!), I'm just saying it is RARELY the money making machine people like to tell themselves that it is. Additionally, $ poured into a house rarely turns a profit either. If you put in $50k and got $100k in value out of the upgrades, good for you... gj. But the vast majority actually lose money on the deal.

    j
     
  11. wraenking

    wraenking 1/2 ton status

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    everything depends. my friend bought a condo here with his girlfriend at the time for 167000, sold it less than a year later at 298000

    there is some profit. only thing they did was paint . (his dads a painter)

    now theres some profit. living near the beach never hurts either


    I close on that house by the way jek on the 30th. next friday!

    i cant wait!

    let us know how you make out.
     
  12. jekbrown

    jekbrown I am CK5 Premium Member GMOTM Winner Author

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    cool beans dude, glad to hear things are goin' good for ya. :thumb:

    Stories about people making mad profit in real estate are sort of dangerous. Its like when you meet someone who is just starting to invest in the stock market and they come up to you and say "hey man, I found this guy who picks stocks... his portfolio went up 1200% last year... I am totally gonna put all my $ where he tells me!". A little bit scary... as always, buyer beware... especially right now where it looks like housing has peaked in many areas. If your goal is to buy and sell in short order, you could get royally hosed.

    oh yeah, people never add in realtor costs either. If they sell a house for $500,000 they say "I scored 500k from my house!" when they really might mean "I scored $465,000 for my house". Small difference, lol!

    j
     
  13. gjk5

    gjk5 3/4 ton status

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    I do understand that you are looking at this from your uber-conservative fiscal perspective (which in a lot of ways I respect immensely) but there are a few errors in the way you are looking at it:

    The guy you reference will END UP paying $1MM for that house after paying off his loan in 30 years, the bottom line is that if he sold it tomorrow, he has still realized a healthy profit, if he waits out the 30 years unless there is a catastrophic loss of value the home will be worth much more than the current $700K, in the long run, real estate almost invariably appreciates.

    And you are also ignoring the fact that EVERYBODY pays for housing, insurance, upkeep and utilities one way or the other. If you rent, it's built in and I guarantee even with those items, the landlord is still making a profit, why else would they have rentals? Yes, if you own a home and mortgage it, and run it out over the full amortization you pay out the nose (usually double or more your purchase price) but there are ways to beat the system, one extra payment a year saves you approx. 8 years of interest over a 30 yr Am. (so 22 payments extra to do away with 96 payments, @ $1K int./mo you've just saved yourself $74K). In addition, most homes double in value much quicker than 30 years, so it is still an effective use of funds to mortgage a home. Another thing is, why would I buy a home cash? I can make much more than 6% on that same money by investing it. So for example, you buy a home in a 10% appreciation market, you pay 6% on the money, you are still making 4% on the home, plus the cash you could have used to buy the home should be making you 10%-14% in a decent investment. I choose to put my money into either reale state assets or hard money loans which either pay a great return or yield an additional real estate asset at a highly discounted price.


    Disclaimer:

    I'd be kind of a hypocrite if I looked at this any other way being as I have been a Mortgage Lender for 12 years and a Real Estate Broker and investor for a couple years. It's my chosen profession to encourage others to buy real estate and to do so myself.
     
  14. Strahan

    Strahan 1/2 ton status

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    I have a friend at work said he used to flip ghetto houses in the city and made decent money at it. He'd buy a ****ty house for like $30k, spend $20 or so fixing it up then was able to sell it for $80-90 or so. He said he flipped them so fast he didn't even have to make a mortgage payment. Sounded nice. He also pointed out that working with inner city ghetto homes he was able to get some sort of government assistance through a neighborhood revitalization grant. On the same token, he said some he'd keep and rent to section 8 tenants. The landlord gets a check from the state for like 80% of the rent so he doesn't have to worry much with people not paying, it's guaranteed. I dunno how much was blowing smoke, but it certaintly sounded intriguing.
     
  15. Fubeca

    Fubeca 1/2 ton status

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    You can't deduct upgrades to real estate on your taxes. They are added to your basis and reduce your any taxable gain when you sell the property.
     
  16. Fubeca

    Fubeca 1/2 ton status

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    Let me see if I can spell it out. Jek brings up some good points that people often don't consider - but there is also some truth to the everyone pays for housing side.

    Here's a hypothetical. In my area, for the past few years rent and total mortgage payments have been pretty close for a property of similar size.

    So my neighbor buys his house for $215,000 two years ago - with 0 down at 5.5%. He pays $1,571 per month ($100 insurance, $250 taxes, 1220 mortgage) for a 2,000 sq ft. home. After 2 years he sells it. He's paid $37,704 in payments ($2,400 insurance, $6,000 taxes, $5,956 principal, $23,348 interest). Since the insurance and taxes are deductible they are effectively reduced by his tax rate - we'll assume 15%. So the total payments effectively equal $33,301.

    He sells the house for $235,000 ($220,900 after realtor fees) a relatively modest increase of 5% per year. Since he only owes $209,044 on the loan he walks with $11,856. Since he lived there for 2 of the last 5 years he can exclude the entire gain from tax.

    So he paid $33,301 and walked with $11,856 for a net loss of $21,445.

    The other neighbor rented the same size/style of house for $1,600/mo. At the end of 2 years he's paid $38,400 and walks with nothing.

    So in the end - I think you could look at the home owner as if he had "profitted" the difference in what he lost and the renter lost.

    Renter lost $38,400
    Homeowner lost $21,445

    So the homeowner has a profit of $16,955 compared to the renter and he has almost $12,000 in his pocket.

    Sorry its so long - and there are other issues to consider - especially with older homes. I'm not saying home ownership is always better or profitable.
     
  17. Can Can

    Can Can Pusher Man Staff Member Super Moderator

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    Sorry, brother, but that comment has to be one of the dumbest you've ever made. I could swear you ate some sour grapes for breakfast. :thinking:

    Could you please explain to me how I'm losing money when the initial purchase price of my townhouse was $174K, and the current value, 8 years later is $430K. For the record, I've spent about $8K in upgrades and maintenance, and have paid less than $30K in mortgage interest on my loan.

    Additionally, please explain how I lost money on my rec property. It was originally purchased 5 years ago for $71K, and I've since spent just shy of $16K for services and development costs. I recently had it appraised for just under $260K. Overall carrying costs so far have been approx. $16K.

    Annual taxes on BOTH properties combined are about $2K, and annual insurance payments of approx. $1200 TOTAL. With an average annual inflation rate of around 3%, I'm really curious how I haven't made a penny. :confused
     
  18. bowtiepower00

    bowtiepower00 1/2 ton status

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    The problem is that many people get crappy ARM's that screw them with bad rates, and that many people continue to refinance and pull their equity out, so that their 250K house ends up costing them lots more. Your interest is tax deductable, so that helps quite a bit.

    Another example is this: I have a friend who has built and remodeled houses throughout his life. He paid off his initial investment over 20 years ago, and has had no mortgage payment since. He built his current house about 10 years ago for $125K. It now appraises for about $500K, and has for several years. He's middle aged, and has no house or car payments. He's got a good amount of money in the bank from his previous house sales, too. Bottom line, he doesn't have to work because he doesn't live beyond his means. I know of several other people who have done the same thing.

    Another friend of mine flips higher end houses. He starts with a $250-500K fixer upper, puts a year or two of work into it, and sells them for over a mil, every time. Do that 10 times and see how much money you end up with. Plus, if you're smart, you can set things up as a business and write off all sorts of stuff.

    Another step beyond that is land development and commercial property. The amount of money you can make in those arenas is truely astounding. It's not unheard of to make 10X your investment if you've got seven figures to invest in the first place.

    It's not always easy, and it really depends on the market, etc. But it can be done.

    Many people keep living beyond their means and refinancing to cover the difference. Now they have huge mortgage payments and owe more than their house can be sold for, particularly when the market is soft, like right now.

    Obivously, interest adds up, especially on a large note. Duh. The bank only cares about one thing, and that's making money. They make even more if they can take your house after you've been paying on it. A house is the best tax break that most people have, but many don't use it to it's full potential.

    Buy a house for under market (IN A GOOD AREA) that needs work, put it on a 30 yr fixed rate, fix it up, and don't pull your equity out. Then you'll be fine.
     
  19. jekbrown

    jekbrown I am CK5 Premium Member GMOTM Winner Author

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    me thinks you missed the word "almost" in the quote. Some people in some regions have made out like bandits (this means you) other people in other regions have got hosed. There are places in the US where home values haven't gone up 10% over the last decade... in others there has been a crazy (translation: unsustainable) run up in prices in the last decade. Additionally, there are a TON of people with crappy loans... another ton who default on their loans... another ton who sell at a bad time because their situation demands it etc etc etc. There are a lot of these people out there... way more than there are people who scored big.

    I'm not saying buying a house isn't a good idea... I am doing it myself right now... all I am saying is that some people think its a money machine and circumstances can VERY easily make it so its far from it. Here is an interesting read, and exactly what I am talking aboot:

    http://www.nytimes.com/2005/08/19/realestate/19real.html?ex=1282104000&en=f5ee3bed3ea4ed2f&ei=5090&partner=rssuserland&emc=rss

    yes, its the slimes... but bear with me on this one.

    j
     
  20. Can Can

    Can Can Pusher Man Staff Member Super Moderator

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    Nope, I didn't miss the "almost".

    To me, "Almost no one" means that a very small percentage. Let me reiterate that a much bigger percentage then "almost no one" make very good money on their real estate investments. Geez, pretty much every homeowner in Alberta and British Columbia(the markets that I follow the closest) has AT LEAST doubled their money in the last 3 years.

    So, I stand by my opinion that your statement is innacurate, to say the least.
     

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