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"If my house in the bay area goes up 30% i sell that and relocate to illinois you can bet i will cover the short and come out ahead since home prices in illinoi
by moocow01 14y ago
"If my house in the bay area goes up 30% i sell that and relocate to illinois you can bet i will cover the short and come out ahead since home prices in illinois lag ca by a good 150-200k"
You need to factor in interest paid on your bay area loan to get the full picture. Just because your house value goes up by a certain margin does not come close to meaning you have profited by that much. This is especially important to understand in areas with large home prices in that the cost of holding the asset (interest) is very high especially early into the loan.
- simonh 14y agoVery true, but don't also forget to deduct the cost of renting liveable accommodation from your mortgage costs. Otherwise your comparing the cost of living in a house to the cost of living in a cardboard box.
- pbreit 14y agoActually, you have profited much more. If you put 25% down and your home appreciates by 25% you have doubled your money (net of interest and other costs). Also, newsflash: interest rates are very low these days.
- moocow01 14y agoBut that last portion "(net of interest and other costs)" is my argument. Interest, property taxes, capital gains taxes, real estate agent fees are all apart of the cost of owning and selling the asset and it usually adds up to quite a bit. Within the first 5 years even with a 3.5% loan you pay around 20% of your mortgage balance just in interest.