PURCHASE

PURCHASE

Year house bought: 2005

House buying price: $ 500,000

Downpayment (20%): $ 100,000

Mortgage amount: $ 400, 000

Mortgage term: 30 years

**SELL**

Year home sold (10 years after purchase): 2015

Home selling price: $600,000

Total mortgage payments to the Principal after 10 years: $ 60,000

Market value increase: $600,000 - $500,000 = $ 100,000

EQUITY

EQUITY

Equity Quick Calculation:

Total Equity = Down Payment + Market Value Increase + Mortgage Payments

Total Equity = $ 100,000 + $ 100,000 + $ 60,000

Total Equity = $ 260,000

SELLING COSTS

SELLING COSTS

Breakdown of the Total Cost of Selling Home (8%):

a. Sales commissions (6%): $ 36,000

b. Title and escrow fees (1.5%): $ 9,000

c. Property marketing preparation costs (0.5%): $ 3,000

d. Renovation costs: $ 12,000

Total Cost of Selling Home = $ 36,000 + $ 9,000 + $ 3,000 + $ 12,000

Total Cost of Selling Home = $ 60,000

NET PROFIT

NET PROFIT

Total Profit Calculation:

Total Profit = Market Value Increase - Total Cost of Selling Home

Total Profit = $ 100,000 - $ 60,000

Total Profit = $ 40,000

YEARLY PROFIT

YEARLY PROFIT

Yearly Profit = Total Profit / 10 years

Yearly Profit = $ 40,000 / 10

Yearly Profit = $ 4,000

MONTHLY PROFIT

MONTHLY PROFIT

Monthly Profit = Yearly Profit / 12

Monthly Profit = $ 4,000 / 12

Monthly Profit = $ 333

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RENTING for 10 YEARS & SAVING $2000 per month

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RENTING for 10 YEARS & SAVING $2000 per month

Yearly Savings = $ 2,000 x 12

Yearly Savings = $ 24,000

Total Savings for 10 years = $ 24,000 x 10

Total Savings for 10 years = $ 240,000

COMPARISON: BUYING HOUSE or RENTING & SAVING

COMPARISON: BUYING HOUSE or RENTING & SAVING

In order to match the $ 240,000 total savings on renting for 10 years,

the market value of the house after 10 years must be 60% greater than the original purchase price.

**Calculation Proving:**

60% Market value increase after 10 years:

60% Market value increase after 10 years:

Market value = $ 500,000 x 1.6

Market value = $ 800,000

Market value increase:

Market value increase:

Market value increase = $ 800,000 - $ 500,000

Market value increase = $ 300,000

**Net Profit:**

Total Profit Calculation:

Total Profit = Market Value Increase - Total Cost of Selling Home

Total Profit = $ 300,000 - $ 60,000

Total Profit = $ 240,000

Return on Investment (ROI):

Return on Investment (ROI):

ROI = Total Profit / Original Price

ROI = $ 240,000 / $ 500,000

ROI = 48 %

**Conclusion:**

In order to match the $ 240,000 total savings on renting for 10 years,

the ROI on buying and selling a house must be 48%.