I dont understand? if u buy a house and add vaule and sell it again, how do u make profit?

Question

if u buy a house for 400,000 100% loan. and u add value and sell it for 500,000$ thats 100,000 in profit, BUT.............you wouldnt pay back the 400,000 loan, ud pay back more because of 400,000 PLUS interest??? wouldnt the interest u owe back take away from ur profit? if u pay 5-10 yrs interest only, thats alot of interest???




if u were to sell it in less than 12 month so theres no apprechiation.

Answer 1

if you're willing to buy a house and fix it up - then purchase a house priced well below property value.

find a foreclosure or fixer-upper that's being sold for 300K or 350K but has a market value that's 400K. fix it up and place it on the market for the full market value or more. probably list it at 425 or 430 (your realtor can help with pricing) just to allow room for negotiating. THAT's how you make a profit. and if you can fix it up and sale it before the first mortgage payment is due - that's sweeter.

Answer 2

Let's make this simple. If you add value to the house, then it's assumable that you can resell it for more than you bought it for.

You need to look at all of the costs that went into buying the house ... in your example $400,000. Add the cost of interest, property taxes, the cost of the improvements you made, and any other associated costs.

Subtract the above costs from your selling price and you get your gross profit

Next you need to determine if your gross profit is subject to capital gains tax ... it depends on a lot of factors. Ask an accountant.

Subtract any applicable capital gains tax from your gross profit and you have your net (bottom line) profit.

By the way, your assumption of an 100% loan to buy a house is unrealistic unless you are getting that loan from a friend or family member.

Answer 3

Kind of, if you pay the house off before the end of the life of the loan, you don't pay back the amount of the loan plus the interest. Your payoff amount is significant less than the actually pay out amount at the end of the loan cycle.

This is called flipping, the point is to do it quick because you will save money in payments and you won't have intrest to pay.

Example: $100,000 house, 5.5%. You do $4,000 of improvements (fence the yard, do tile work, add landscaping). The $4,000 investments bring your value up to $145,000 within three years. On this type of note, your intrest is around $100-$120 a month. $120 x 3 years = $4320. Monthly payments are $625 (including interest) =$22,500. So know you've paid (in total) $22500.00 + $100,000 (original loan) =$122,500 plus $4,000 improvements =$125,500. Resale at $145,000, so even without a payout amount you make a clear profit of $19,500. Just imagine when you actually call the bank for a pay off amount which would be around $86,000 (or so). Then you would have a total paid in amount of $108,500, a bigger profit of $36,500.

These are all hypatheticals, but that is how it works. You see your actual intrest, although it is already included in your house note.

Answer 4

You are suffering from some misconceptions.

How must did it cost you to add value? What did you do to add value? Unless you are famous, just owing it won't add value.

Using your figures let's take a look at it.

Purchase price: $400,000
Cost of renovation: $ 20,000
Added value: $ 40,000
Insurance: $ 2,000
Mortgage payments exclusive of
equity (interest only, 3 months) $ 7,000
Realtor fee for selling property
valued at $500,000 $ 30,000

Total profit: $ 1,000

WOW! You made out like a bandit.

Good Luck.

Answer 5

Real Estate contracts have a clause which spells out exactly what penalty there is for sale. A good contract has no restrictions and you pay interest ONLY for the period you have the use of the borrowed funds. 100% loans are a very dangerous way of buying property and the restrictions are very heavy.

Answer 6

yes, interst is a factor you need to consider when investing in realestate.....it can cut into your profit, it all depends on your interst rate....

essentially you need the property value to increase annually more than you are paying in interest....

if you pay 5% interest, and the property value increases 10% you get a 5% return.....i think you get the picture....

Answer 7

Real Estate is a very risky business.

Sometimes you don't sell it high enough to cover your debt.

This is exactly why Donald Trump was broke and forced to sell most of their casinos and properties and he even was forced to work as an actor for just $50,000.00 USD per show for an entire season. His show was called "The Apprentice"