Question: Prices have gone up so much in the last 5 years. I’m worried about buying at the peak and overpaying for a house. The house I’m considering is a fixer upper in North Oakland. It is 1100 sq. ft. and needs a new roof. The asking price is $675,000. What should I do?
Good question. First of all, remember, you can not over pay for a house. In fact, as I proved previously, the more you pay for the house the more money you’ll earn in the long run. I know some deluded renters are screaming at their monitors right now “that’s the stupidest thing I ever heard!” Here’s the proof. Let’s say you buy that house for 675K and we’ll be very very conservative and assume only 10% yearly appreciation instead of the industry standard 20%. After 10 years you’ll have a little over 1 million in equity (even if you negatively amortize a few hundred thousand you’re still sitting on a mountain of cash). Now, let’s say you aggressively bid 750K on this Oakland charmer. After 10 years at ONLY 10% appreciation on the higher price you’ll have over 1.2 million in profit. That’s right, you made an extra $200,000 by “overpaying” for that house. As the math above proves you can not make a mistake of overpaying for a home. In fact the only mistake would be passing on that cute Oakland home.
