Poll - House value to net worth

[RunningBum]

If you don't include your home as part of your net worth for purposes of this poll, some people could wind up with negative %, or even worse, could blow up the poll with a divide by 0 error. I assumed the OP wanted it included since the mortgage was deducted from the net worth.

[Live And Learn]

Quote:

Originally Posted by rodi I live in coastal SoCal... nuff said. Doesn't matter... I like where I live. My house is paid off and moderately sized (2k sf). It doesn't cost much to stay here since Prop 13 keeps the taxes low. I could sell and buy something cheaper elsewhere... but I have enough nest egg I don't need to. And, like I said... I like where I live. I like being a 15 minute drive to the beach (where I walk the dog, daily). I like being coastal with the moderating breezes/temps. I like my neighbors.

Well, it does matter ... sometimes It's not so much the tying up capital that led me to my small home. It was the ongoing maintenance. Lower ongoing expenses allowed me to retire early.

[nash031]

Just above 25%. I don't include home value in my FI calculations until I sell and it becomes investible. Unfortunately, since you always need someplace to live, and that place always costs money, you're going to lock up some capital in a living space anyway. For us, I consider our $120,000 down payment plus the accelerated payoff of the HELOC of $108,000 to be that sunk capital in our house. The regular mortgage payments, then, are basically our "rent", except that we get to "keep" part of that "rent" in the form of equity each month.


I've always looked at owning a house as a conservative means of savings until we settle on our forever home. My growth is kept in my stock portfolio.

[MichaelB]

Quote:

Originally Posted by Koolau At least a couple of questions occur from responses so far? 1) Should we (how should we) use NPV of SS and/or pension? I've never used these in NW calc. 2) Should we include the value of home in NW? Currently I don't do that but it would make a significant difference in the answer.

I doubt anyone is calculating net worth including the NPV of any pension or annuity income. In my mind net worth includes all assets, but I understand some people don't see it that way.

[MichaelB]

Thanks for all the responses (so far). It is not a surprise to see almost half own homes that represent less than 15% of their net worth. In my mind (and very unscientifically), the "10% but less than 15%" is the sweet spot of the LBYM range for home ownership, and I would also guess it is in the top decile of all households in the US.

If I were to answer this poll the month after we bought our first home, my response would have been >50%. So much depends on age, demographics, and other factors not reflected here.

[Danmar]

Quote:

Originally Posted by MichaelB Thanks for all the responses (so far). It is not a surprise to see almost half own homes that represent less than 15% of their net worth. In my mind (and very unscientifically), the "10% but less than 15%" is the sweet spot of the LBYM range for home ownership, and I would also guess it is in the top decile of all households in the US. If I were to answer this poll the month after we bought our first home, my response would have been >50%. So much depends on age, demographics, and other factors not reflected here.

How would you define "sweet spot"? Probably a personal opinion to some degree? Probably your percentage? Most of us think our spending habits are "in the sweet spot" or we would change them, no? Depends mostly on where you live. I guess most people think they live at "the sweet spot" or they would move? Just wondering.

[MichaelB]

Quote:

Originally Posted by Danmar How would you define "sweet spot"? Probably a personal opinion to some degree? Probably your percentage? Most of us think our spending habits are "in the sweet spot" or we would change them, no? Depends mostly on where you live. I guess most people think they live at "the sweet spot" or they would move? Just wondering.

Yes, a personal opinion, and quite unscientific, as I indicated in my post.

No, it's not my current level. "LBYM Sweet spot" for me means spending less on housing than the median and the average in the US. Most people spend far more than 15%, that's for sure.

If median household savings are $60k and average retirement savings for households near retirement (age 60) are less than $200k, and the median home price is less than $200k, it looks like the typical household in the US would have a home value to net worth of around 50%. Back of the envelop math.

So, with that in mind, my comment was this group has a much lower number, probably because we deliberately spend less on housing and save more, and that shows in the numbers. That's what I meant by "sweet spot".

[Happyras]

Sweet spot is nebulous. If your NW is 1M or less, it would be hard to justify more than 10-15% in housing, as the balance would be a small sum to amortize over the retirement, particularly if you have limited sources of cash flow from investments or pensions. But if you have 4M or more in NW, you deserve as much home as you wish, as you can afford it since your other investments and income sources likely more than cover your desired needs. I expect it might be a linear growth in housing % proportional to gross NW. My friends, much better off than us, have multiple homes in the 1m+ range in various places they like to be. They might be 25% of their NW, but what else can you buy besides homes, cars and yachts for fun. Most remove $ from NW by form of trusts to the kids.

Fun poll, but missing some key variables to be correlated.

[NW-Bound]

Quote:

Originally Posted by Happyras ...what else can you buy besides homes, cars and yachts for fun. ...

Jimmy Choo shoes and expensive show tickets?

Well, one must be like Imelda Marcos to put a sizeable chunk of money into shoes, compared to buying a 2nd home.

[W2R]

I am such a homebody, and I suspect that there are quite a few other women who, like me, always wanted the home of their dreams more than just about anything.

To me, spending discretionary money on my home is the BEST possible use of it. It is just my nature to love my home. When I awaken in the mornings and look around, or when I gaze at the view (of my backyard and fence) out of my French doors, or when I shower in the wonderful big tile shower that I always wanted, or park my car inside my nice, safe garage, or whatever, I feel special, pampered, and so privileged.

Just to keep it real, so that you don't think I am one of the high rollers here, I should mention that I checked just now and my home cost less than the median US existing home cost when I bought it. But to me, it is a dream come true and it is my Taj Mahal.



Well, maybe it isn't all THAT, but you get the idea.

On the other hand, I have known some men who really wouldn't care if they lived in a dream home, or if they lived in the back seat of a rusted out '56 Chevy parked down by the river because they don't personally value a home as much as I do. It would be silly for them to spend very much on their home.

I don't want a yacht, or even a row boat. I don't want a sports car, or a private plane, or a second home. (That's probably good because I couldn't afford any of that!) But now that I have my Dream Home, I feel like I have everything I ever wanted in life. That's a wonderful but slightly unsettling feeling.

[RISP]

Quote:

Originally Posted by MichaelB What is the value of your house to your total net worth, as a percent, using your best guess at the current estimated market value. If you have a mortgage, subtract it from your net worth.

Of course you exclude your mortgage from your net worth. It's called 'net worth' after all, as in 'assets net of liabilities'.

For us, Market value of home / Net worth would be 88%.

I assume what you really meant is "If you have a mortgage, subtract it from your net worth home value, and count only the equity".

Then we get:
(Market value of home - Mortgage balance) / (Market value of all assets - All debt) = Home equity / Net worth = 65%.

Those of the previous posters who replied "10-15% in California" probably made the same assumption, or you guys are all crazy rich.

[USGrant1962]

Quote:

Originally Posted by bloom2708 Ah. Another what is in your "net worth" discussion. :-) I don't count my house or cars in my net worth..ok..well..that is not your net worth, that is your "selective worth". :-) I count this asset, but not that. I count this liability but not that one. Well, that isn't your "Net" worth then. :-(

+1

[phil1ben]

Quote:

Originally Posted by Happyras "But if you have 4M or more in NW, you deserve as much home as you wish, as you can afford it since your other investments and income sources likely more than cover your desired needs. I expect it might be a linear growth in housing % proportional to gross NW."

I agree with the above. Someone with a 30MM NW may have homes which are worth 10MM (i.e. 33%) but there is enough to support them even in retirement. If that same person reduced the percentage of his home values/NW to 5% then he/she would have a home worth 1.5MM and an additional 8.5MM to invest. However, the issue at higher NWs is not affordability or having enough money....... but living out the remainder of your days where you want and how you want. The additional 8.5MM in investable assets (aside from home equity) does not advance the ball any, except to perhaps leave more money to heirs. So I am saying the percentage cannot be analyzed in a vacuum.

Also, I believe it is more logical to include home value in NW when one has multiple homes because (not based on any scientific research) the owner may be more likely to look at the equity in each home (often no mortgage in place because of itemized deduction phase-outs under the tax code) as an investment and trade them somewhat as a commodity when local markets move up or down.

[Danmar]

Quote:

Originally Posted by phil1ben So I am saying the percentage cannot be analyzed in a vacuum.

This would be my view. Overall level of NW could have an impact, in either direction. Just because you can afford more real estate doesn't necessarily mean you will want more or have more. There are plenty of reasons why you might have more or less real estate as a percentage of total net worth.

Where you live has to be a big reason. Toronto vs Tupelo?

Whether you highly value real estate, like W2R or not.

Age, dependants

Whether you include your pension in NW (I do).

Each person decides on their own "sweet spot"

Remember averages can be misleading. The average American has one testicle.

[stepford]

Quote:

Originally Posted by MichaelB I doubt anyone is calculating net worth including the NPV of any pension or annuity income. In my mind net worth includes all assets, but I understand some people don't see it that way.

Well, you'd be wrong in at least one case. My pension is a relatively small part of my NW (under 20%), but I do include its NPV in my calculation. I think this would be particularly important for poll participants who are "pension rich but asset poor". Otherwise you might start to get housing percentage results skewing anomalously high.

[Ready-4-ER-at-14]

I wonder if part of the disparity in thinking about whether or not a home should be included in net worth or not might be our mindsets about selling it for a profit?

I have purchased, fixed up while living there and sold for profit a number of times. It was always home sweet home but never symbolically Tara, my home plantation (from gone with the wind), to me. Place I am in now, I have a sign that says welcome to Paradise, but eventually I will probably sell and move.

Way I calculate things about 8.5% of net worth. But it is an ongoing expense, and not an asset to me UNLESS I am willing to sell some day, which I or my estate will.

[kcowan]

Quote:

Originally Posted by Happyras My friends, much better off than us, have multiple homes in the 1m+ range in various places they like to be. They might be 25% of their NW, but what else can you buy besides homes, cars and yachts for fun. Most remove $ from NW by form of trusts to the kids.

Yes I have noticed the same thing. They seem to trust real estate more than stocks. Often their multiple houses are shelters for their children too.

[W2R]

Quote:

Originally Posted by Ready-4-ER-at-14 I wonder if part of the disparity in thinking about whether or not a home should be included in net worth or not might be our mindsets about selling it for a profit?

Maybe so.

I do know this: the only purpose ever I have for calculating my net worth, is to use it in threads like this one. It is a completely worthless statistic to me.

I do not plan to ever sell my home or move again.

I included some phonied-up best guess as to the value of my home when doing the calculation for this thread. However I forgot to include the NPV of my pension and SS in my net worth, and included nothing for the contents of my home. For my car, I used the trade-in value that the local Hyundai dealer mentioned in a recent spam snail mail designed to get me to trade it in for a Hyundai. I'm not too concerned about the effect of any of these errors on computation of a meaningless quantity.

[RobbieB]

I include the value of my house in net worth because it belongs there by definition and it is a significant amount.

If you want to talk about investable assets I won't.

[Ready-4-ER-at-14]

I do find including everything useful for a couple reasons. Legally a home might be attached somehow say in a car accident and you probably need to protect that somehow, and that might include umbrella insurance besides your regular auto insurance.

The entire size of the estate might be determining if you use a roll over trust or not. Better to see the need approaching five years earlier than be surprised.

Finally I found it a fun challenge to determine net present value of cash flows of things I initially had no idea how to measure or estimate so had to fill in the other blanks.