equity and profit selling house

oldbikebloke

peppapig14 said:

after some advice on how people calculate profit when selling house.
e.g.. 
purchase house for £200k with £50k deposit
spent £15k on mortgage overpayments and £20k on improvements ( Windows, boiler etc )
£115k left on mortgage
sell house for £180k

do u calculate £180k - £115k= £65k as your profit, in effect getting deposit back and additional £15k
OR
do u calculate £180k-£115k=£65k.then £65k - £35k =£30k (overpayments and impovements) meaning you have in effect lost £25k of ur original deposit

you are confusing  "profit" with "net cash" left after sale
you are also double counting the "overpayments" since by definition they are reflected in the remaining balance of the mortgage.

1) £180k - £115k= £65k  that is not "profit", it is simply amount of cash after outstanding payments cleared. So yes, you got your deposit back. But the "extra" 15k is not "profit", since you spent more than that on the property to buy it and improve it.

2)  Your actual "profit" is price sold less all costs spent on the property being sold
sale price - less cost of purchase - cost of improvements = you made a loss 
180 - 200 - 20 = 40K loss
the "improvements" cost is included because that relates to items that are now fitted to the house and therefore (in theory) reflected in its sold price of 180k. 

Of course if you were genuinely looking to assess your "real" profit from the property the costs would include every penny spent on it: mortgage interest, legal fees, SDLT, tins of paint, screws and wood purchased to fit as shelves etc etc. You would then compare that against what you would have spent on the alternative living arrangements had you not bought that house  

Hence, as others have said, what would it have cost in rent elsewhere, or to buy a nicer property that did not go down in value...

MovingForwards

Is this the house you are buying as a home and therefore not a profit making business purchase?

If so, you have no need to calculate 'profit'. When you decide to move up / down / across the ladder you see how much your property is worth, deduct the outstanding mortgage, deduct legal and selling fees, then use that towards the purchase of your new home.

If this is, after all these threads you have been posting, a profit / business / money making plan and not a home as a FTB, you should have worked this out at the start, not when you are looking to complete.

AdrianC

peppapig14 said:

after some advice on how people calculate profit when selling house.
e.g.. 
purchase house for £200k with £50k deposit
spent £15k on mortgage overpayments and £20k on improvements ( Windows, boiler etc )
£115k left on mortgage
sell house for £180k

do u calculate £180k - £115k= £65k as your profit, in effect getting deposit back and additional £15k
OR
do u calculate £180k-£115k=£65k.then £65k - £35k =£30k (overpayments and impovements) meaning you have in effect lost £25k of ur original deposit

(£200k purchase + £20k investment into it) - £180k sale = £40k loss. But that's meaningless.

Your equity in the property now is £65k, but that includes the £35k you've repaid from the amount you borrowed. So, yes, your equity has effectively reduced by £20k.

The only figure that matters is that you now have £65k equity post-sale, to buy your new home with, or invest elsewhere. If it wasn't your home, there is no gain for CGT purposes.