Let’s do the Math
Bought in 2012 for $1.3mm – put down $.3mm and financed $1mm. Added $.4mm of improvements, which let’s say is 50% financed. So, out of pocket $.5mm with $1.0mm debt. Sell for $3.3mm. Pay closing costs of $.2m and debt of $1.0mm and have $2.1mm left. Basis is $1.3mm purchase plus $.4mm improvements + $.2mm closing costs = $1.9mm. Pay capital gains taxes on $3.3mm – $1.9mm = $1.4mm * 35% ~ $.5mm. Walk away with $1.6mm after investing $.6mm eight years ago. Linear return – 33%. Compounded return – 13%.