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I’ve spent a fair amount of time documenting my financial journey here on HumbleDollar. Some regular readers might remember me documenting both the purchase of a home (in 2018) as well as the sale of that home (in 2022). I purchased the house (an 1100 square foot ‘starter’) for $375,000. I sold it for $600,000 cash.
I recently saw that the house changed hands again. The numbers, however, tell a sobering story: this time it sold for $500,000.
In less than four years, the property lost $100,000 in nominal value. When I sold it, the buyers appeared to be parents purchasing the home for their adult child. While the intent—providing stability and a “foot in the door”—was undoubtedly paved with good intentions, the math suggests a different reality.
A $100,000 drop in sale price is only the tip of the iceberg. Based on the listing photos and description it seems that after I sold it, the owners invested in a new furnace. It also appeared like they needed to replace a large section of wood fence in the backyard. I suspect they also had to deal with cutting down a very large fir tree. They listed the house with a realtor which means a standard 5% commission wiped out another $25,000.
If those parents had taken that $100,000 loss—plus the roughly $30,000-$40,000 in transaction fees, repairs and maintenance costs—and used it to subsidize a very comfortable rental for their child, it seems like the financial outcome would likely be far superior. They would have preserved their principal, stayed liquid, and avoided the headache of a depreciating asset in a shifting market. To be clear, I have no idea if they had planned on the house being a short-term investment or not.
We often conflate “home” with “investment,” especially when family is involved. But real estate is a concentrated bet. When that bet goes sideways, it doesn’t just hurt the balance sheet; it’s a missed opportunity to build generational wealth in more efficient ways.
For those considering a similar path for their heirs, it’s a reminder to run the numbers without the rose-colored glasses of home ownership.
What do you think? Would you choose the “stability” of a home for a family member if you knew the market might take a six-figure bite out of your legacy?
Kristine,
“ I purchased the house (an 1100 square foot ‘starter’) for $375,000. I sold it for $600,000 cash.” Does your “purchase price” include all the incidental closing costs as well as any subsequent home improvement expenses? Does your “sale” price reflect any incidental closing costs – at the minimum the owners title insurance fee you are expected to pay? I had lived in a home bought in 1991FL for 230 k and sold in 2018, for $ 570k. After 27 years. adding all the costs including our addition and remodeling costs etc. my “ real monetary profit “ was about $100k.
The $600K and $375K figures didn’t include the various incidentals you mentioned. That said, as far as home improvements went, I would guess I invested only about $6K over the four years I lived there. I painted the entire house (interior and exterior) myself. That alone made a huge difference in the appearance of the home. It was a horrible shade of green on the inside and outside when I purchased it. I went with neutral colors because I figured it would likely increase the curb appeal when I went to sell. Total cost of the paint and supplies was less than $1,000.
The house needed a new roof, a new furnace and a few other minor things. I assumed when I sold it, I would have to pay for at least a portion of the needed ‘repairs’. As it turned out, I didn’t because the buyer waived all inspections and repair requirements.
When I purchased the house, I was reasonably sure I would live there for less than four years. At the time I bought it, my best guess was that I would need to sell if for about $400K to essentially ‘break even’ (recoup my entire 20% down payment).
Obviously, selling it for $600K (even with real estate fees), I not only recouped my initial down payment, but walked away with a tidy additional sum.
Had the market not gone crazy during COVID, I very likely would have ended up losing money. I just happened to get very lucky with my timing.
Most Americans who bought a house decades ago are better financially now.
Paying your mortgage forces you to save and be more responsible.
The future will be similar because it’s mostly a behavioral issue.
Of course being good with money and buying at the right time help a lot.
I think it depends on the family member. We helped our daughter buy her house because the rents here are astronomical, she is devoted to dogs and she had worked in her current job ( non-profit) for over a year and liked it and they liked her. We were pretty confident she would be in town for a long time. She makes enough to pay the taxes and upkeep and is stable otherwise. We have helped with some upkeep and improvements, but if she sold today it would be at a loss.
I think what is missing in your story is why did they sell? I would suspect something dramatic changed in the son’s life.
Kristine, thank you for your interesting article. We sold our home in 2022 also, that just could have been the best year ever to sell. For sure a Seller’s market. Our buyer not only wrote a letter to us, of why they wanted our home, but also bid 9% above the asking price, with no requests, and we could stay in the house for another 2 months! For sure, I never expected such an easy sell. All investments go up and down, but generally real estate is a win, for us a win every time. Overall just like the stock market you cannot predict the future. For us any risk was worth it.
You’re welcome!
Glad you were also able to take advantage of that crazy 2022 housing market!
We got $125K over our asking price. Full cash offer. Two days on the market. We got to rent back from them for two months for free. And, craziest of all, they waived all inspections and repairs.
I’m pretty sure I’ll never be able to take advantage of another market like that one, but never say never…
After reading most of the comments below, I couldn’t help but think about inflation. Yes, some of the increases far exceed US inflation, but others not so much. Location, location, location is mostly the driving factor. I’ve had to move (the Air Force doesn’t want you to stay in the same location very long) a lot. Ohio residence increased a very small amount; Florida a modest amount, Califoria-huge, other places in between. Luck of timing also plays its part.
No one knows what the RE market will do in advance and many will be unlucky when it comes to either buying or selling a home. My experience has been different than yours, but I attribute that to luck and timing, not any skill on my part.
What does affect whether or not the purchase of a home will make financial sense is how long you plan to live in it. Owning a home has a fairly long return tail and for many people, renting can be a much safer and less costly alternative than buying a home.
There a lot of calculators available on line that can help identify the particular break even point for purchasing a home v. renting, but any solution is at best an estimate and will vary greatly, based on market trends and interest rates.
Did I pay any attention to any of this when I bought my first home? Of course not. And, my son was no better when he bought his first house. Instead of being a rational, cold blooded decision, buying a home is often anything but.
I am surprised at the length of time some people stay in houses. We have lived in our neighborhood for nine years (it has existed for less than 15 years) and the house across the street has just sold for the second time. At the cost of houses these days and paying 5% to a realtor plus state stamps etc. with a 30 year mortgage one has never even reached neutral financially before the sale. Now the house may very well increase in value but that is not true in all economies.
My wife has hinted at moving to a 55+ community but at 68 years old and planning on moving into a CCRC in our very early eighties I told her it wouldn’t make much sense financially (not to mention moving twice at our age).
There are definitely a variety of reasons for purchasing a home and not all of them are logical.
The house in Portland that I mention in this article was purchased because my husband and I knew we would never find a rental (house or apartment) that would allow us to have four (big) dogs.
My father, a small business owner, always told me your home is not an investment. It’s a necessity and a place to live. Any other real estate can be an investment. Never confuse the two.
Thank you for a thought provoking article, Kristine. I’ll try to add something worthwhile. Your comment about your husband having a management company deal with the house, paying the management fees, property taxes, repairs, maintenance, yard care and pest control, hazard insurance and the cost of replacing appliances, etc. is almost where I’m at with my rental. I haven’t hired a management company yet because I can still handle most maintenance myself, but it’s getting harder. I also don’t want to pay their 10% fee and give up control. Last year, my profit was about $9000 not including my labor. If I sold and my net is $200,000, investing that in an immediate annuity or a high dividend yield ETF I might do better.
My husband doesn’t make much off of his rental home. But, he owns it outright and ultimately wants his son to inherit it. So, using it as a rental property makes sense.
I have a hard-to-boil-down story of how I came to buy first a condo and then a house (during the pandemic) for my “impulsive and volatile by nature” sister in two different towns. I could write up for HD readers how I found myself pledging to cover the cost of housing my sister and her then-school-aged daughter, complete with lessons I’ve learned and money I spent, if anyone requests it, but for the purposes of this comment, I’ll spare you.
Just wanted to chime in to say that sometimes renting an apartment for somebody else is impossible when the other person has no work history and no income, and they need a 2BR place NOW. If the rental market is tight, nobody wants to rent to this person, and later could throw them out for all sorts of reasons, including wanting to suddenly rent the place to a relative of their own (which just happened to a widowed friend of mine last month).
Buying a house in a rush for my sister was not something I wanted or planned to do, and it’s cost me dearly (I don’t care what Zillow says that small 1920s house is worth today because I don’t get to sell it until something major changes in my sister’s life). BUT if you ignore the sunk cost of the house purchase (gulp), I’ve figured out that my annual costs for home insurance, out-of-state taxes, the town water/garbage bills, and small annual repairs add up to less than any 2BR apartment annual rental costs in the town she is living in (where her old school friends look in on her and emotionally support her). My sister pays me no rent, and never will, but so far my firm boundary has held that I’ll pay for the “roof over her head” and nothing else (including her utilities and food bills). How is she paying those other bills? That’s another story.
Final note: I don’t count the above house in my net worth. I have convinced myself that that chunk of money is just gone because, for all intents and purposes, it is.
Laura, I would be very interested in that story if you care to share it with us. I’m sure I’m not the only one who also has a dependent relative that we struggle to figure out the best way to help.
Your issues with the rental market are why we’ve also seriously considered purchasing a modest home (small house or condo) for our adult daughter. Not only are rents in California very high, but it can be difficult to qualify for a rental. I’ve been a guarantor/co-signer for her several times, but I don’t love that, and I’m actually not sure how much longer that would even be possible since I’m retired and my husband will join me soon. Will my/our monthly income be considered adequate to be a guarantor again? Depends.
A couple of times, she’s been able to move into a place and just rent a room from someone who’s already qualified for the lease, and that is easier. But she also had a landlord sell a house out from under her and her roommates when the housing market got hot in 2021, so there’s that, too.
So far we haven’t taken the step of buying a place for her to live in. If we did, it would be exactly what you describe—roof over head and nothing else, plus we’d want there to be a paying roommate. Right now we don’t think it’s a good option. But as you note, this is a complicated decision with a lot of moving parts and variables.
I’ve realized that there are all sorts of people who can’t manage and need help with their living arrangements. Could be a kid who’s a slow starter in life. Could be an adult who will always be dependent in some way. Could be someone who is getting old and needs a change in their housing. It seems to me it’s a different calculus for each situation.
I could share the story of housing my sister (who falls into the middle category I listed), but I’m not sure if enough HD readers are in my boat and would find it useful or interesting. But maybe it’s worth doing just for my own purposes, like “for the record.”
Laura,
Why don’t you view “your sister’s house” as an investment property?
Hi David. When I bought the house (and the condo before it in a different town), I hoped each would be an “investment property.” My sister was supposed to pay enough rent to cover the annual carrying costs, but that never happened. Between my carrying costs adding up year after year and unexpected expenses—like roofing issues and having to replace the basement HVAC and washer & dryer a year after she moved into the house, following a “once in a lifetime” river-flooding event that caused huge water & sewer backups throughout town—I now think “money pit” not “investment.” I guess we’ll know for sure when I sell the house someday and compare what I’ve paid over the years to what’s left after everything settles. I can’t imagine it will look like a good investment, but I’d be happy to be wrong.
If you meant “investment property” as a tax or legal term, my husband and I are planning to meet with an estate attorney this year to better define and understand the situation in case something happens to me. The attorney may also have additional advice about how to handle this arrangement. I think one lesson is: take care before making a generous offer. Ethically, it can turn into a lifetime commitment.
Because we’re right in the middle of buying and selling homes—our purchase records today, in fact—I’ve been thinking about all of this, too.
When our condo sells, that will be the third home we’ve sold here in Davis, dating back to the early 1990s:
I’m going to write a separate post about the current financial adventure of buying and selling our condo, but it’s interesting to trace the above and see that we barely broke even on the first place (that was before real estate in our area really took off, which it started doing at the end of the 1990s), are making a modest profit (after sales costs) on the condo, and had a huge windfall from the house we lived in for nearly 21 years. In fact, that windfall is still funding our current purchase and upcoming remodel. Not sure what it all means except maybe that staying longer is better, except that in your case, Kristine, you timed a shorter ownership just right.
At the end of the day, I don’t typically think of the house you live in as a way to make money, so I don’t feel particularly good or bad about the first and third purchases/sales—those were just where we lived—but I do feel grateful for the hand up that the second house gave us.
I have to comment on the huge windfall on the sale of your house of 21 years. The annual return on $235k growing to $780k over 21 years is less than 6%. Not bad but the S&P 500 would have returned over 10%, or $1.7M, on the same investment. Home ownership provides a lot of benefits (including “rent free” living) but it often isn’t the great investment it seems, due to the very long holding period.
You can’t live in the S&P 500.
S&P 500 didn’t have to pay property taxes, insurance, interest on a mortgage, HOA, maintenance & repairs, lawn care, etc. But S&P in a taxable account also throws off dividends that are taxable.
Primary residences aren’t investments.
Good point. As I said above, I don’t really think of the roof over our head as an “investment.” But it was nice to walk away with some cash in hand.
Dana, we experienced something similar with our first and 2nd homes (almost the same year of purchase as well), except that we sold our first home for exactly what we paid for it and had been underwater for the 8 years (4 more than the original plan) we owned it. The 2nd home, the one we raised our kids in and still own has more than tripled in value. Of course we have done lots of improvements that we wanted to and ultimately we have a relationship with our home-comfort, memories, a solid sense of security-and it has been a forced savings that has allowed us to build a certain amount of wealth which we can touch if needed. I see the memes about moving every 2 years and pocketing the increase in value tax free but real estate (like all investments) is volatile and if you’re counting on it always going up, there will sometimes be disappointment. But if you are purchasing a home for reasons other than “just” investment” there is nothing like a place of ones own.
Like the stock market, timing and location are everything when considering a home purchase/sale. If you spoke to someone who bought during Covid and has a 3% or less mortgage, they would still be happy. This is our 47th year in our current home. Over those years, the price/value of the home has gone up, down, and been unchanged over different periods of time. With real estate, you cannot have a short term approach….
In 2006, we sold my wife’s parent’s 1700sf home in Albany, CA for $1M. Four years later it resold for $875k. Today, it is worth $1.7M. Just as with declines in the stock market, over time, most of those who stay invested will come out ok.
Yowzers. That’s a sobering anecdote. This really shows the volatility of certain areas in real estate, particularly the coasts, and some select large cities.
Fortunes have been made and lost just in the decision to buy a house.
For better or worse I live in the most boring midwestern city. Real estate has gone up mostly very, very slowly. I didn’t get rich nor lose anything from buying. Plus my family loves our house, so it’s been great on the whole.
Ben: Unless you are my neighbor, yours is the second most-boring midwestern city. John Denver wrote a song about mine:
“Saturday Night in Toledo, Ohio.”
I won’t lie…I sometimes think living in a boring midwestern city sounds positively sublime.
I got lucky on the three homes I owned in Portland. But if the timing on any of them had been off by a couple of years, it could have been a different story.
Kristine, my boring mid-west city could use a good dog trainer. Perhaps you could help us train Sophie, the wonder cat! Lord knows we haven’t had any luck.
We have a friend who is getting ready to move to Des Moines and she’s trying to convince us to come set up a dog training business there.
Cat training could be the next big business opportunity–there just aren’t a lot of cat trainers out there :-).
Timing and time make a difference.
The real-estate market is always in flux.
You make a decision based on the best information at that point in time.
My first home, bought in 1975, cost 45k.
Lived in it until 1999. Could not sell at the asking price of 300k. The market was not good but we got a great deal on what we bought as our next home.
Rented out the first home for $1,600 a month for two and a half years. $48,000 collected in rent.
Put first home back on market for 399k. Sold the first day.
Other homes have lost money and some made money. Overall we are ahead.
Inflation of the late 70s and early 80s played havoc with everything. 2009 Great Resection did the same. Covid has altered every aspect of our lives.
When I arrived in California nearly broke in 1993 — I had a car and $22K that I had inherited from my dad — I was ecstatic to find a 2-bedroom rental condo with a gorgeous ocean view at a reasonable rent. I’d have likely stayed there for a decade.
Sadly, however, the owner died and her kids wanted to sell the place. I hated to lose it and local rents were skyrocketing, and $154K seemed like a fantastic opportunity. So I swallowed hard and asked my mom and grandmother to kick in the extra $10K I needed to cover the 20% down payment. Embarrassing at age 40, but there was no choice. They agreed, although they probably thought I was overpaying.
Coastal real estate promptly went nuts. I sold the condo three years later for $325K. More than double. It was my first big step up the ladder to financial respectability.
Thanks Kristine for a great article. Typically only “winners” relate their real estate stories, so it’s good to hear the honest reality that it can go both ways.
Investment in residential property is somewhat of a fascination for Australians. However whenever I hear someone telling how much they made on their rental property, they inevitably leave out maintenance costs, government rates, management fees, repairs, loan interest etc.
Personally, all of this makes an index fund look very attractive!
Greg, my dad used to say something similar about people who bragged about casino winnings.
Thanks Greg!
My husband owns a rental property and I can tell you an index fund would be my preferred investment.
Because the property is in another state, he has a management company deal with the house. He pays the management fees, property taxes, repairs, maintenance, yard care and pest control. There’s also hazard insurance and the cost of replacing appliances, etc.
I don’t understand the appeal of being a landlord.
This is a useful reminder that renting for shorter term periods can make more sense than purchasing, particularly when prices are booming. Your timing was spot on.
For sure. If they had invested $500K of the $600K they spent on the house, in a couple of high-yield savings accounts, they could have been earning around 5% by 2023. The interest alone would have made for a nice rent payment.
I suspect they anticipated the child staying in the area for a longer period of time. As almost everyone here knows, plans and lives can change in the blink of an eye and we don’t always have control over those changes.
Excellent article, Kristine! I’ve followed your story with interest over the years, including your adventures with housing. As I recall, the timing of your most recent house sale was just right, wasn’t it? I was cheering you on!
I’ve talked to a number of folks who bought or sold houses on both sides of the pandemic price run up. Many fail to understand the cyclic nature of real estate. That can be costly ignorance if the home price represents a large percentage of their financial wherewithal–which is the case for the majority of us
As Marilyn Lavin says, I think it boils down to the “buyer’s ability to absorb the financial loss”. Some parents scrape together enough dough to buy an old car to provide their child transportation, while others plunk down money for a house at the top of the market cycle.
Chris and I did lose about $30k on a condo shortly after the financial crisis. The loss was relative however, as we purchased another condo from a bank for $100k less than it sold for three years prior.
I never had to make a decision to help out my daughters. I would definitely help, but would have to do some serious number crunching to decide rent versus buy. Of course, where we live, a decent home can still be purchased for $150k, so the potential for loss is rather limited.
Just to put the cost of Toledo real estate in perspective, the condo we bought from the bank was 2150 square feet, on a golf course and a lake. We paid $120,000. It is worth about $250k today.
If you add in four years of property tax and insurance, the “loss” would be even greater. But 4 years of rent at $1500 a month amounts to $72,000. I would find this a hard call. It probably would come down to the buyers’ ability to absorb the financial loss vs any even short term hope that the adult child might benefit.
And how much could the rent increase in that time!?
Then there’s the opportunity cost of not having the money in the market. From 2018 to 2022, they could have made 30% to 50% had they left the money invested. (It’s fun being a Monday morning quarterback). Of course, that sword cuts both ways.
The property taxes on that property would have added another $12K-$16K over a four year period.
I’m assuming since they had $600K in cash to buy the home, they weren’t too concerned about any future financial loss they might face.
At the time they made the purchase, the real estate market was ridiculously hot. Perhaps they assumed it would continue to be that way for years to come.
Kristine, this reminds me about Spouse’s mom and her recent home sale. At the time she bought, 2 years ago, we didn’t realize her dementia was as bad as it was, and she hadn’t been diagnosed with Alzheimer’s yet. She had a nice ranch house that was perfect for her but she had “always admired this house” in the rich part of her neighborhood. She overpaid for a house that needed a lot of deferred maintenance fixed. When Spouse and Brother sold it after they got guardianship, the market had changed and they had to give a large price reduction after the inspection. And the realtor fees, like you said. She put a new roof, new HVAC, new water heater and softener, all installed in the 2 years she lived there. I did not add everything up, but know she lost over $100k when she sold. It is what it is. At least Spouse and Brother were able to intervene before she lost all her money like her sister did…. Chris
I’ve been fortunate when it comes to real estate. I’ve owned and sold three homes and made money on each of them. Until recently, I believed that almost all real estate increased in value over time, even if just by a small amount. But seeing my former house sell for $100K less than what it sold for four years ago has made me reassess my beliefs.
In our retirement community, the real estate market is quite interesting. Because it’s an age restricted community, ownership is limited to those over the age of 55.
What makes it a relatively volatile market is what happens to the home when an owner dies. Some of those homes start out at ridiculously elevated prices and are slow to get reduced. Those homes can sit around for one or two years. Other homes are let go for ridiculously low prices. My assumption in those situations is that the heirs are looking to quickly unload a home they don’t have any interest in.
Real estate doesn’t always go up. We lost money on a home in the mid ‘90s when we moved from our HCOL area to a lower COL area. This was back before the real estate rules changed in’97 and the way the math worked out, we still had to pay capital gains. Chris
I did a little searching and learned that US rentals increased by 29% pre pandemic to 2024. So wouldn’t this also affect the bottom line?
I cover the rent on a property for one of my daughters. The idea of buying a place has crossed my mind more than once, but her volatile and impulsive nature has always stopped me from doing so. For all I know, in six months, a year, maybe two, she could decide to up and move to another city or another country entirely — leaving me to sell after a short ownership period and exposing myself to real market risk. Keeping the property and becoming a landlord would hold zero appeal for me.
I could have written this comment word for word. Daughter with “impulsive and volatile nature,” “could decide to up and move,” yup, yup, yup. We have also thought of buying a place for her to live in because covering rent gags us, but the thought of the transaction costs and maybe being stuck with a rental property continues to stop us.
I agree that renting is a better option in your case.
Sounds like the well-meaning, but overzealous parents overpaid. As I recall, they paid over your asking price. If they had been more prudent in what they paid, I think it would have been a good move.
On the other hand, maybe not a good move if they had any idea they would sell in four years.
Paying asking price or above, goes against every fiber of my being, however, 2022 was a sellers market. If you wanted to buy during that period, you had to compete with a slew of other shoppers, throwing the most money at the seller.
Yep–houses in our area in Feb/March 2022 were selling 2-3 days after being listed and for well-over asking price.
My house was listed for $475K. Two days after listing it, the buyers came in with a $600 cash offer and agreed to let me rent it back (for free) for two months. The real kicker was that they waived all inspections and repairs. The house needed a new furnace, a new roof and probably a few other things as well.
The timing was nothing more than pure luck. I needed to stay in the house until I turned 55 and retired (in May of 2022). If I had sold even one year later (or earlier) I wouldn’t have walked away with nearly as much money.
I think that coming in with an offer $125K over list, after just two days, and waiving an inspection tells me all I need to know about these buyers. Perhaps I missed it, but did you mention if they were represented by an agent? Hard to imagine an experienced, ethical agent recommending the course of action taken by these buyers. But … no one put a gun to their heads.
They did have an agent.
It was a really hot market at the time but even I couldn’t believe the conditions of the sale. Trust me, I couldn’t sign the papers fast enough. I feared they would change their mind and I knew it was unlikely I would find anyone with as generous of an offer.
You sure hit the lottery that day. Right place, right time (for you at least).
Absolutely! Having the ‘bonus’ money has made the first four years of my retirement a bit more enjoyable than they might have been without it.