Hi Mike,
Let me try to break this down. In short, no, you would not have to sell it for $274,000 to make money. You could make a lot if you sold it for that. You just need to sell it for enough to cover the fees, and what you owe the bank at the time of the sale to come out in the positive. Let's take a look.
The purchase price is $200,000 the theoretical downpayment is $40,000 (You can find loans with smaller downpayments too, but we'll talk about that later.) This leaves the loan amount at $160,000.
For the purposes of this discussion, we're leaving out any fees or closing costs. They wont be enough to stop you in your tracks, but enough to know they're there, got it? :)
Now to look at your monthly payment, I like to use this website: www.amortization-calc.com
Follow the link and punch in the numbers we just discussed. Keeping in mind, the loan amount is 160K.
This site gives you a table as an output with all kinds of info. Monthly payment is nice to see and the amount that goes to principle and interest is good too. This is similar to an Amortization Schedule that any bank or lender should provide you when getting a mortgage. The info I'd like for you to look at is the last column to the right: the "Balance."
This basically shows how much you still owe the bank each month. As each monthly payment is made, a portion of that will pay down the balance. Whenever you sell your home, you only owe the bank for this balance, and no more. It's likely that your house will be worth more than this when you sell it. We can go into the theories of appreciation later on. Just know that when you sell, you'll take the sale price, subtract necessary closing costs, fees, a cut for the realtors, and pay off this balance to the bank. What's leftover is what you keep.
The longer you stay (making your monthly payments) and the more your home's value appreciates, the more you stand to make when you sell it. There are all kinds of strategies people use to 'force' this number higher. The basic principle is pretty simple though: buy a house you can afford to make payments on for a long time. You'll build wealth in no time whether you decide to sell in one year or 100 years.
Clear as mud?
