I live in what I would call a new subdivision. Most houses have been built in the last 4 years. A few are still under construction. What I find unusual is the amount of for sale signs that have gone up in the neighbourhood, recently and over the last few years.
I understand that you can’t foresee the future perfectly and unknown opportunities and unexpected circumstances will arise, which I’m sure account for a small percentage of these sales. (I am also someone who put a home up for sale less than a year after moving in.) I would estimate there are about 60 homes in total in my neighbourhood, and no fewer than 10 are currently for sale. Most of these people must be losing money hand over fist in these sales. You just can’t build enough equity over 4 years to cover expenses. Lets look at my home as an example.
Say I bought my home for 190,000 4 years ago. And I think a realistic asking price would be $225,00 (I stay current on real estate in my area). I’ve put in about 6K in home improvements, and the rest is due to increase in real estate value. That would work out to about 4% per year, remember I’m on the East Coast, not Tdot or Vancity where prices rise and fall like a roller coaster. So you are looking at those numbers and you think, not bad, you cleared 35K in 4 years. What is the fuss? First, 225K is my asking, and if most of these people are forced/need to move, they don’t hold the position of power. So lets say I accept a price of 220K, down to 30K. Now, lets take back my $6,000 for home improvements, down to 24K. Next lets get stung by the 4% real estate sales fee, 4% of 220K is 8800. Down to $15200. Add in 2K for lawyers fees, down to $13200. And I also need to recoup my 5% down when I bought, which is $9,500. I’m left with a profit of $3,700. Looks like all the major expenses are taken care of….EXCEPT THE MORTGAGE PAMENTS I have been making for the last 4 years, remember those? Say PIT (Principle, interest, taxes) monthly payments of $1200, I’ve made 48 of these puppies, which turns out to be $57,600! So I have spent over $57K in 4 years to “profit” $3,700. That is less than a 1.5% annual return on my initial $9,500 “investment” the down payment. So I guess I was lying when I said there was NO equity. Wait, maybe not, what about all the money you spent on the “little” stuff? The paint, new light fixtures, maybe appliances that won’t be moved? I guess I was right after all 🙂 Thanks for reading.