Your three scenarios are clear.
B (buy, sell, buy back) leaves you with the house + $600k, which is better than A (just holding). Compared to C (never buying), it depends on whether the house is worth more than $1.4M. The question only goes up to the buy-back and doesn’t give the final valuation.
@midamkidpaddle@chang_kunal By current market value, yes — dropping from $2M to $900k shows significant depreciation. The question only goes up to the buy-back step; it doesn’t give any subsequent price movement.
By current market value, it is indeed a loss, and it would be even worse if the price keeps falling.
The house dropping from $2M to $900k follows the same logic as a stock falling from $200 to $90. The question only goes up to the buy-back step; it doesn’t give any subsequent price movement.
@LaissezVoltaire Opportunity cost is indeed another dimension. If the $2M could have been used more productively, the actual loss might be even bigger.
The question itself only gave three numbers and didn’t discuss opportunity cost, so most people are still calculating purely by the numbers.
@Eight8Ace Yes, the final profit or loss indeed depends on how much you actually realize from a sale and what the house is worth at that time.
The question only goes up to the buy-back step; it doesn’t give any subsequent price movement.
@Brimman By net cash cost it’s $1.4M; valued at the current market price of $900k, there’s an unrealized loss of $500k.
Compared to just holding, you lost $600k less. Different accounting methods lead to different conclusions.
Living in it and treating it as an investment are indeed different. If you’re living in the house, the extra $600k cash feels more stable psychologically; an investment property focuses more on market-value fluctuations.
The question itself didn’t specify whether it’s for living or investing, so the conclusions vary a lot.
By current market value, selling was indeed a loss, and buying it back also carries risk.
Using a house as an example easily confuses living in it versus investing; if it were stocks, many people would just cut their losses and not look back. The question itself only gave three numbers and no subsequent price movement.
@RATking242 Yes, the final profit or loss indeed depends on the house’s later valuation.
The question only gave three numbers and no subsequent price movement or time span, so everyone can only calculate under different assumptions.
By net cash cost it’s $1.4M; valued at the current market price of $900k, there’s an unrealized loss of $500k.
Adding transaction costs would make the result even worse. The question itself doesn’t give commissions or tax rates, so most people are still calculating purely by the numbers.
@alexeck The original post uses a house as an example to see whether people can distinguish different accounting methods when prices fluctuate.
Whether someone is suited for stock trading is a separate, higher-level question. The post itself only gave three numbers.