Say a house that’s worth half a million is bought by its first owner; first owner paid all mortgage off at some point and sell it to the 2nd owner, assuming now the house is worth one million.
Assume the 2nd owner pays $200 000 as down payment and the rest in the form of mortgage. The first owner should walk away from the deal with at least half a million cash since it’s paid off. My question is where is that money from?
In: 5
If the new buyer is paying $1m for the house and only has $200k then they borrow the other $800k from the bank. The whole $1m is then given to the original owner, leaving them with a “profit” of $500k on the transaction (although they will have paid interest on their $500k mortgage during its lifetime and still have to obtain another home of their own).
So the half-mil profit mostly came from the new buyer borrowing 800k from the bank.
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