house buying 101 - short term
January 5, 2019 1:09 PM   Subscribe

Say I buy a house and put 30k down. 3 months later I sell the house for what I bought it for. Do I get the 30k back? If not, how much of it do I lose?
posted by january to Home & Garden (11 answers total) 4 users marked this as a favorite
When you sell a house, the money first goes to pay off your mortgage, and then you get the remainder. That's going to be your 30k, minus the closing costs of the home (2-5%), which include things like inspections, title fees, realtor fees, etc. This article has a decent overview of those costs.

Unless the home appreciates substantially or you put a lot of work into it, you're going to lose substantial money on that transaction.
posted by chrisamiller at 1:13 PM on January 5 [20 favorites]

If you buy a $100k house, putting $30k down and financing $70k, and then sell it for $100k, you’ll pay off the $70k mortgage and then get $30k in cash. This assumes, of course, that all these numbers are after fees, costs and taxes.
posted by chesty_a_arthur at 1:23 PM on January 5

So, what chrisamiller said — yes BUT there are tons of transactional costs that can eat into that money.
posted by chesty_a_arthur at 1:24 PM on January 5 [5 favorites]

In my neck of the woods, the buyer pays closing costs, however the seller and the buyer realtor both get a cut out of the purchase price.

So for instance:
1. You buy for 100k, putting 30k down and 70k in a standard 30 year mortgage at 4.25%.
2. Over the next three months, you pay about $1000 to the mortgage company.
3. According to this amortization schedule, you get about $100 in equity with each payment, so at the end of 3 months, you have put 30,300 in the house, and the bank owns 69.7%
4. You sell for 100k, your realtor takes 3k, the buyer's realtor takes 3k, the bank gets their 69.7k, and you get the rest, at a significant loss.
posted by basalganglia at 1:33 PM on January 5 [4 favorites]

There's so many fees and taxes (which vary by locality), you will not make money on a house if you sell it for what you bought it for, even putting aside the amortization schedule stuff. Typical advice for home buying is don't even think about it unless you intend to stay for at least 5 years. That gives you a a fighting chance of appreciation that outpaces the cost of sale.
posted by soren_lorensen at 1:38 PM on January 5 [3 favorites]

I would add to basal ganglia's comment that when you buy the house for $100k, you are actually paying more than that, since you have to pay the buyer's share of all the closing costs.

But the basic rule is that you get to keep whatever is left over from the proceeds after the selling expenses are paid and the mortgage to the bank is paid off. Say, you bought a home in foreclosure for $100k (with a $70k mortgage), spent $20k fixing it up and sold it for $140k. After deducting fees (say $4k) and paying the mortgage (say 69.7k), the escrow agent would give you $66.3k. Of course, that isn't all profit - you spend another $5 in fees when you bought it, $20k fixing it up, another maybe $6k in carrying costs (interest on the mortgage, property taxes, insurance) so after all those expenses ($31k) you would be getting back your initial $30k down payment plus about $5k in profit. You see why flipping is so risky - if you find some unexpected repairs or it takes a few months to sell it, it is easy to eat up the hoped for gains.
posted by metahawk at 1:53 PM on January 5 [1 favorite]

So purchase price 100k house, 30k down.
Purchase costs: add 2 to 5% for closing costs. $2k to $5k
Add lawyer fee. $1k Add title fee. 0.5k. Add appraisal cost. 0.5k.
Sale: add 6% for broker fee. $6k. Add municipality sale taxes/fee. Unknown.

Sell house for sale price $100k.
Receive 30k plus slight amortization equity.
Additional costs paid: (2k to 5k) plus 1k plus 0.5k plus 0.5k 6k plus municipality taxes/fee = 10k to 13k plus unknowns. Plus interest on the mortgage for 3 months.

If you sell flat, without having put money into repairs, you get your 30k equity back, but separately have spent 10k to 13k plus unknowns and mortgage interest on the transaction.

You have a minimum 10k loss on the transaction.
posted by perdhapley at 3:19 PM on January 5 [1 favorite]

Hmm. Ok, so you won't make a profit, you won't break even, you will definitely lose. Say the point is not to try to flip and no repairs are made or anything. In this example, I would lose at least 6700 according to basalganglia's math.
posted by january at 3:23 PM on January 5

We posted at the same time perdhapley. Thanks for clarifying.
posted by january at 3:24 PM on January 5

Hidden in the numbers is this: the mortgage creates leverage. It lets you buy, say, a $100k house for $15k down. But if you sell right away, the leverage works against you. You pay 100% of your your fees, etc which is going to take a big bite out of your 15% of the selling price.
posted by SemiSalt at 5:18 PM on January 6

There's also capital gains taxes if you sell a house before two years after purchase, which likely wouldn't affect you if you're selling without realizing any profit, but are still worth mentioning as a consideration.
posted by elsietheeel at 7:44 PM on January 6

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