Useful Knowledge: How to Quiet a Real Estate Braggart

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Here’s one to spring on your annoying buddy who’s always bragging about how much money he’s making on his house: The Motley Fool explains that most homeowners miscalculate, and exaggerate, the real investment gain on their house:

‘Here’s a not-so-uncommon scenario these days: You bought your lovely home, be it a castle, bungalow or yurt, for $200,000 five years ago. Today, it’s worth about $300,000. That’s a tidy 50% total gain, or 8.5% on a compound annual basis. Right?’

‘Not so fast -- you’ve probably oversimplified matters. For example, think about what you’ve put into the home over the years...

New roof: $5,000
New windows: $3,000
Landscaping: $1,000 per year, or $5,000 total
Updating of bathroom: $10,000
Repairs: $2,000

‘Those items total $25,000. Subtract them from your initial ‘gain,’ and you’re left with an increase of $75,000, or 37.5%, which is still significant. Annually, though, it amounts to 6.7%. Factor in expenses such as insurance and property taxes, and your gain (at least compared to options such as renting) shrinks even further.’

Photo Credit: Reuters
Thanks for the link: The Norris Group’s California Real Estate Headline Roundup