This may seem like an obvious answer, wouldn™t it be $100,000?

The answer is no, in actuality it™s quite a bit less than that.   When our market was hot, people liked to believe that if they bought a house for $400,000 and the value went up to $500,000 than they made $100,000.   The industry supported that belief to create more transactions, but it™s really important to understand the economics of real estate before you count that $100,000 value as money in the bank.

First, when you initially buy a property, you pay a lot of money just to acquire it, which are all sunk costs.   Then to sell the property you have many more costs just to dispose of it, including agent™s fees, house preparation, transfer taxes, and many more in closing costs.   So if that house went from $400,000-$500,000 in value, you did gain equity, but NOT $100,000.   Also, that equity is only real if you are cashing in as we have seen many properties go up $100,000 a few years ago, just to go back down in more recent years.

I do encourage home ownership for the many great things that go with it including the long term financial gains, but I strongly encourage everyone to look at the real numbers of how much it costs to acquire property and how much it costs to sell property, and then subtract those amounts from any potential gains in equity.