What this calculator does
Buying and selling a property costs money at both ends, and the two together are usually larger than people expect. Duty and legals on the way in, commission and marketing on the way out, and the holding shortfall for every year in between all have to be recovered from the sale price before a single dollar of profit appears.
On a $750,000 purchase held three years, those costs mean the property has to sell for $856,851 just to get you back to even. That is 14.2 per cent growth, or 4.54 per cent a year, before the transaction makes anything at all.
The formula
Add the purchase price, the purchase costs, anything spent on improvements and the holding shortfall across the period to get your total outlay. The sale then has to cover that plus the fixed selling costs, after commission is taken out. Because commission is a percentage of the sale price itself, the equation has to be rearranged rather than simply added: price = (outlay + fixed selling costs) ÷ (1 − commission rate).
| Term | Meaning |
|---|---|
| Outlay | Everything you have put in: price, purchase costs, improvements and holding shortfalls. |
| Commission | Charged on the sale price, which is why it cannot just be added to the total. |
| Break-even price | The sale price at which you recover your outlay exactly, with no profit. |
| Growth needed | How much the property must appreciate from the purchase price to reach that figure. |
The inputs explained
| Field | What to enter |
|---|---|
| Purchase price ($) | What you paid for the property. |
| Duty and other purchase costs ($) | Transfer duty, legal fees, inspections and loan establishment. The stamp duty calculator works out the largest component. |
| Spent on improvements ($) | Capital spending on the property. Repairs that you treated as holding costs should not be double counted here. |
| Net holding cost per year ($) | The yearly shortfall from property holding cost, or zero if the property pays for itself. |
| Years held | How long you hold it. The holding cost is multiplied by this. |
| Agent commission (%) | Agent commission as a percentage of the sale price. |
| Legal and marketing to sell ($) | Fixed costs of selling that are not a percentage: conveyancing, marketing, styling, photography. |
When to use it
Deciding whether to sell now
Compare the break-even figure against what agents are telling you the property would fetch. If the appraisal is below it, selling crystallises a loss that holding does not, which is a different decision from whether the property is a good investment.
Working out how long you need to hold
The annual growth figure falls as the holding period lengthens, because the fixed transaction costs are spread over more years. At one year this purchase needs 9.88 per cent growth; at ten years it needs 2.62 per cent a year. Transaction costs are the main argument against short holds.
Checking what a short hold really costs
Set the years to zero. Buying and immediately reselling still needs $807,771, or 7.7 per cent above the purchase price, purely in transaction costs. That is the hurdle before any market movement.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How long do you need to hold?
Only the holding period changes.
| Years held | Break-even sale price | Growth needed on the purchase price | Growth needed each year |
|---|---|---|---|
| immediate | $807,770.96 | 7.70% | set a holding period |
| 1 yrs | $824,130.88 | 9.88% | 9.88% |
| 2 yrs | $840,490.80 | 12.1% | 5.86% |
| 3 yrs | $856,850.72 | 14.2% | 4.54% |
| 5 yrs | $889,570.55 | 18.6% | 3.47% |
| 10 yrs | $971,370.14 | 29.5% | 2.62% |
What does the commission rate cost?
Only the agent commission changes.
| Commission | Break-even sale price | Commission at that price |
|---|---|---|
| 0% | $838,000.00 | $0.00 |
| 1.5% | $850,761.42 | $12,761.42 |
| 2.2% | $856,850.72 | $18,850.72 |
| 3% | $863,917.53 | $25,917.53 |
| 4% | $872,916.67 | $34,916.67 |
Questions
Why can I not just add the commission to my costs?
Because it is a percentage of the sale price, which is the thing you are solving for. Adding a commission calculated on your outlay understates it, since the actual sale price is higher. Dividing by one minus the rate handles it properly.
Does this include capital gains tax?
No. Tax treatment depends on your jurisdiction, how long you held the property and whether it was your home, and none of that is modelled. The figure here is a pre-tax break-even.
Should improvements count as outlay?
Capital improvements, yes. Ordinary repairs and maintenance belong in the holding cost instead, and counting them in both places inflates the break-even.
Why does the annual growth needed fall with a longer hold?
Because the fixed transaction costs are spread across more years. They are the same whether you hold for one year or ten, so the yearly rate needed to cover them shrinks even as the total rises.
What if the property pays for itself?
Set the holding cost to zero, or to a negative figure if it is positively geared. A property that generates surplus cash lowers the break-even rather than raising it.
The holding cost that feeds this comes from property holding cost per week, and the purchase costs from stamp duty. For commission on its own there is real estate commission, and for a renovation project house flip ROI.