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Appreciation of Her House
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THE SCENARIO
My grandmother told me about a house that she and my grandfather used to own that she'd rented to a guy for years and years. Eventually, my grandfather died and my grandmother was getting ready to move to Florida full-time, and she offered to sell the house to the tenant before going. He was interested, and they agreed on a price of $48,000.
She found out recently that the tenant had finally needed to move, himself, and sold the house for $79,000. He owned the house for 28 years.
The question: What was the average annual appreciation of the house over the 28 years the man owned the house? Assume monthly compounding.
THE SOLUTION
This one is a very straightforward question. The only thing we need to know is how many months 28 years is. 28 x 12 = 336 months.
First things first, make sure the calculator is using 12 Payments per Year.
N: 336 (The man owned the house for 336 months)
I/YR: (This is what I'm trying to find)
PV: -48,000 (He bought the house for $48,000)
PMT: 0 (Inflation calculations don't include monthly payments, in or out)
FV: 79,000 (He sold the house for $79,000)
The house appreciated 1.78% per year over the 28 years the man owned the house. That's not a huge amount of appreciation, but he had a place to live while he owned it.
What do you think? Did you expect the answer to be higher or lower? Why? Do you think houses in your area have higher or lower appreciation than this house? Let us know in the comments!
