Paper Gain

A paper gain is a profit on paper but yet to be realized.

For example, if a house was purchased 10 years ago at $300,000 and now appraised at $500,000, the property owner is looking at a gain of $200,000.

However, this $200,000 is just profit on paper as it will only be realized when he sells the house to a buyer at $500,000.

This makes it possible for someone to be a millionaire in net worth by virtue of the value of his house, but have no cash on hand and forced to live a frugal lifestyle.

Paper gain is sometimes referred to as paper profit or capital gains.

It must be noted that from the example above, even if the property is sold for $500,000, paper gains seldom equal that of the net realized gains from proceeds.

This is because the sale of the house will have to account for closing cost expenses. And there is no guarantee that the seller would be able to sell to a buyer willing to pay market price.

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