Real property profit calculations

ArraMusha

A friend is selling his house and though he made a profit.. until I went through it, as below

Bought it for 150,000 few years ago.
Selling it for 230,00

Remaining on his mortgage is 100k.

He thought he made a profit of 80k (230-150)
I reminded him he needed to pay off the remainder on hi mortgage, so his 230k is now minus 100k =130k.

But here's the real sting in the nads..he paid a deposit of 30k and about 50k in total in mortgage payments in past few years. So taking that away he's only got a real profit of 130-50-30 = 50k

I realize he's got about 130k in his ass pocket (minus fees etc). But real money is real money.
:P

thewing

I calculate that he is not in negative equity.....

D3PO

negative equity equals selling and still owing the bank cash.

so how do you figure hes in negative

20goto10

Well it depends on what his expenses were but lets say for arguments sake he spent 5K on fees and 20K on mortgage interest.

Bought it for 150K
sold it for 230K
expenses of 25K

230 - 150 - 25 = 55K profit

Am I missing something?

plus he gets his deposit back on top of that. It's not profit but its money in his ass pocket as you put it

D3PO

Negative Equity

Definition:



a situation when the market value of a property falls below the outstanding amount of its mortgage, sometimes forcing foreclosure


Your not missing anything this person is not and was not in negative equity. The OP is talking about the seller thinking he made x amount of profit.

This is completly seperate to being in negative equity.

ah and OP when your working out the profit you need to feature in amount of rent saved. If your working out how much mortgage payments cost then you have to balance this !!

also I see no Capital gains calculation in your calculation

Kipperhell

D3PO wrote: »

also I see no Capital gains calculation in your calculation

No CGT on your private residence so it is not a factor if it was his own residence. It was well worth pointing out the rent cost as the OP seems to completely lost control of himself on the understanding.

If CGT is a factor then the actual costs of how much the repayments were to him (i.e. mortgage minus any rental income would need to be calculated)

Anyway OP you are simply wrong and did not consider rental costs. It should also have calculations for furniture and decoration the chances are there were other costs you are ignoring such as sales agent and lawyer fees too. Your friend still made a decent profit and you are the ass who appears to want him to have made less.

ArraMusha

I accept the point that this is incorrectly titled..i.e. the negative equity should be replaced with profit, and the inaccuracies associated with its calculation.

In this case the buck can stay with Mammy so rent was not a issue.
But it would be in the majority of cases.

And Kipper theres no need to be an ass whipper as the assumption that I begrudged the friend (who may be fictitious or me) was wrong.

D3PO

ArraMusha wrote: »

I accept the point that this is incorrectly titled..i.e. the negative equity should be replaced with profit, and the inaccuracies associated with its calculation.

In this case the buck can stay with Mammy so rent was not a issue.
But it would be in the majority of cases.

well most people could stay with their parents they would however choose not to. So rent definatly should be taken into account

havana

Plus you can't really live off mammy for free either. At least i hope you wouldn't!

Senna

He sold property in this market and made a profit, he should be congratulated. There's people who bought in the 90's and couldn't sell for a profit, far too many top-ups and equity releases.

Victor

Title revised.

chicha

It really depends how long ago he bought the place. If it was in last 2-3 years than he made profit if it was 7-8 years ago than maybe he did not considering that he would probably save the same amount if he was renting.

johndaman66

You would also need to consider the time value of money and inflation in your calculation. I'm not sure how many years ago a few years was but on the assumption of 5 years (it may be more or less, I don't know) I work out that 150k invested 5 years ago and compounded at an annual rate of 4% (surely possible I'd imagine) would give 182k odd today.

dennistuam

if he bought it before feb 2007 when it peaked
he could be in trouble