Real estate gains not as healthy as they seem – Financial Post

Jeff Evans

I came across an article on the Financial Post today that addressed the costs of buying and selling real estate, and how it can minimize what looks like substantial profits on a real estate transaction. From the article:

Add it up, using the 7% figure for the first three sales and 9% for the last two, and that house that sold for $1.15 million has had close to $300,000 sucked out of it over the past decade through taxes, realtor fees and other costs. And, it should be noted, the owner who sold for $1.05 million in 2012 put $100,000 worth of renovations into the home. As long as real estate prices rise 5% to 10% year over year, the fees seem tolerable if you hold for a decent stretch of time. But moving five times in a couple of decades can destroy your equity gains even in the best of times.

I agree with much of the article regarding fees and how they take substantial amounts from the profit obtained from a real estate transaction. I have stated on here a number of times that flipping homes is not an ideal way to profit from real estate, mainly due to the costs involved in real estate fees and taxes. However, one aspect of the article I do not agree with is that it seems to imply that realtors should be paid less or that maybe you should avoid fees by not paying a realtor to sell your home. From my experience, this is not a good idea.

There are realtors out there that are not good at their jobs, and there are dishonest ones, and there are lazy ones who just hang a sign on the front lawn and hope it will sell. However, the real estate business is a difficult one and realtors who work hard for you are worth the full commission that they receive.

In conclusion, I do not advise buying a residential property as a short term hold and there is no way around the costs except to hold for the long term. The infamous Donald Sterling (not to say to be like him in many ways, but you have to give him credit for his business strategy) bought a property and would never sell. In his life he went from a middle class family to be a billionaire. He was not one to pay those fees and it worked in his favour. Buying a home is not a bad investment, but buying one for the short term is questionable.

Author: Jeff Evans

I am a mortgage broker, hair salon owner, squash player, student, and husband, aspiring to do good for people.

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