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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.