Investing is simple!
Investing is a lot simpler then people think, one of the easiest way to do this is with your first house. If you live for 2 years minimum and own up to 5 years (aka. your mailing address is that house), then you are entitled to $250,000 tax exemption from capital gains.
Here is how the math works out:
$250,000 (house price) + $20,000 renovation = $270,000 (total investment)
$300,000 (appraisal after renovations of the house) = $30,000 *Profit*
A house appreciates on average 5.4%, so lets say you own the house for 5 years with compounding appreciation of 5.4%
$300,000 x 5.4% (compounding) = $390,000 by the end of the 5th year.
Total Profit = $120,000 Capital Gain Tax Free (if sold within 5 years and lived in at least two)
Lets take this math a bit further. You decide to move on after living at your house for 2 years and decide to rent it out for 3 years before you sell, (this model is what some of the smartest investors follow with the houses they live in and own)
Average mortgage payment of a $270,000 at 4.5% is $1,350 a month (Jan, 2019 pricing)
Average rent for a house priced at $250,000 (which is extremely conservative since our house is now worth $300,000) is anywhere between $2,000 to $2,750
We’re going to take the lowest rent price and work with that. That means every month its rented out you make a passive income of $650 a month.
At 80% occupancy rate (average) you will gain a net profit of $18,720 for within 3 years, but here is the cherry on top, the rest of that rent goes towards your equity in the house (aka still your money) meaning you garnered $38,880 towards your equity, add that up with the profit from rent you will garner a total of $57,600.
Now its time to sell. At the end of the 5th Year your house is now worth:
$390,000 – $270,000 = $120,000
$120,000 + $57,600 = $177,600
That is $177,600 profit *TAX FREE* within a 5 year period.
That’s why real estate is always going to be one of the best investments someone can make.
If you have any questions or need help in any way please feel free to contact us!