If You Sell Your House for $100,000 More Than You Paid, Will You Make a Profit?

When you buy a house, you most likely hope to live in it for a long time -- and potentially also make a profit when you sell it. And in many cases, you will indeed be able to sell your home for more than you paid for it.

But even if you do sell for a larger sum of money, does that mean the transaction was definitely profitable? Let's look at what would happen if you sold your house for $100,000 more than you paid for the property.

It may take more money than you'd think to profit

Selling your house for $100,000 more than you paid may seem like earning a great profit, but that's not always the case. A lot depends on how much you paid for the home and what your transaction costs were.

Specifically, when you buy and sell a property, you must pay closing costs. These costs are typically between 2% and 5% of the purchase price of the home when you're purchasing a property with a mortgage loan, and between 6% and 10% of the purchase price of the home when you sell (with a significant percentage of this money going to pay the commission to the real estate agents involved in the transaction).

The table below shows how you would fare if you got an offer for an extra $100,000 compared to the amount you originally paid and if you paid average closing costs on the property.

As you can see, even in the best case scenarios, your profits after accounting for closing costs are nowhere near $100,000 -- even if you did sell your house for that much more than you paid. And this doesn't even take into account the mortgage interest you would have paid over the years or the costs of property taxes, homeowners insurance, and repairs.

For example, if you borrowed $320,000 to buy a $400,000 home using a 30-year mortgage loan at 4.5%, you would have paid $68,988.91 in interest in the first year that you owned the home. That alone wipes out your profits, even without taking into account property taxes, insurance, HOA fees, or repairs.

Owning a home can be a good investment, but it isn't always

As you can see, when you sell your home for a lot more than you paid for it, this doesn't always necessarily mean the sale was a profitable one. This doesn't mean you shouldn't buy a house. After all, you need a place to live, and it can be better in many situations to own and build equity in your house rather than pay rent and end up with nothing to show for it.

But you do need to understand how much your home is costing you. Plus, because of the high transaction costs, it usually does not make sense to buy unless you plan to stay put in the property for quite a long time to defray the closing costs over many years of ownership. And even then, there's no guarantee of a profit depending on just how much your home sells for above what you've paid.