ER, home value and net worth

[W2R]

Quote:

Originally Posted by daylatedollarshort We live in an urban area where housing has become very expensive, and we know more than one family who decided their house was literally their retirement savings. It worked out really well for some. Others ended up not really fitting in more blue collar / rural America or a foreign country and now with home price increase here they can't afford to move back, not to the same standard of living anyway. Downsizing or relocating are probably great options for many in retirement, but I wouldn't buy a house in my younger years making downsizing or relocating my only retirement option.

During the housing crash a few years ago, I felt so sorry for those Californians who I knew that were living in a high COL community and relying heavily on their homes to fund retirement. What a nightmare for them! I think you were smart to not make downsizing or relocating your only retirement option.

I also feel sorry for those who can't move back. In a way, I'm in that situation too in that I really can't afford to move back to Hawaii with the same standard of living. But in my case, I haven't actually lived there in 43 years so the Hawaii I remember is long gone anyway; no big deal, I am happy here.

[NW-Bound]

Quote:

Originally Posted by Teacher Terry I have seen people move to foreign countries, not like it and can't afford to come back also. If we ever needed some of our home $ we would downsize to a small condo. I could never live in our motorhome. 1 month traveling is sufficient.

As long as I can take care of my homes I will keep them. We need room to spread around.

We will be living in our motorhome for a couple of months later this year on a long trek through Alaska. It is kind of fun, like children in a play house.

And if one lives full-time in one, well, people live in small places like a boat all the time, so it's surely doable.

[pb4uski]

A home is a place to live. I've know and have heard of people who for different reasons moved and sold at a gain (including us) and who sold at a loss. My attitude is that it is a place to live and if I later sell it at a gain then that gain is gravy.

IMO, it would be the ultimate in foolishness to rely on your home equity as your sole retirement fund.

[tb001]

Quote:

Originally Posted by daylatedollarshort We live in an urban area where housing has become very expensive, and we know more than one family who decided their house was literally their retirement savings. It worked out really well for some. Others ended up not really fitting in more blue collar / rural America or a foreign country and now with home price increase here they can't afford to move back, not to the same standard of living anyway. Downsizing or relocating are probably great options for many in retirement, but I wouldn't buy a house in my younger years making downsizing or relocating my only retirement option.

Agreed it shouldn't be your only option! Just the swings in home values can be huge. We bought from an almost retired couple who got hit hard in 2008-2010 and had to sell the dream home they'd built. It worked well for us, but I know was heartbreaking for them.

I believe you've posted that you're in the Bay Area. We're in the Bay Area as well and have been exploring taking equity out of our home and moving to a LCOLA. I grew up in a more rural, blue collar community and would move in a heartbeat, but DH is less interested. As an alternative, we're looking at areas where we can purchase a similar or nicer home with no mortgage, so maybe a happy middle ground.

And home value swings can obviously be huge. That said, it also likely depends on the home value in question. So if you own outright, a 500k home isn't necessarily a great cat food prevention strategy, while a 3mm home gives you a decent nut, even if you see a 50% drop.

[NW-Bound]

Quote:

Originally Posted by pb4uski IMO, it would be the ultimate in foolishness to rely on your home equity as your sole retirement fund.

Not if your home is worth megabucks, like a nice home in California, and if you do not mind relocating somewhere less expensive.

As for me, RE is a small enough portion of the networth that if I had to sell for monetary reasons, I would be in a big trouble having spent the bulk of the stash.

Converting my homes to cash would not keep me afloat for long, if I insist on continuing living the "Evil Ways". I would have to change.

https://www.youtube.com/watch?v=_tKIPuLfeKg

[RunningBum]

Quote:

Originally Posted by joeea My two homes are about 28% of my net worth. Back in 2011 it might have been different. A few years from now it might be different. But I can't see how that matters much today. If and when I sell one or more, only then will I know what kind of "windfall" I could extract from their sales (if any). And I'd still need to live somewhere. At that point in time, I might revise my net worth numbers by the amounts netted. For now, whenever I want to project retirement income and expenses, I generally leave out the equity in the houses. I also leave out the value of all other non-liquid assets (like our cars, electronics, etc).

Isn't that (bolded part) true of any investment? I've got some Wellesley in my Roth that I won't be touching for many years. I don't know what it will be worth then.

[PandaBear]

Quote:

Originally Posted by daylatedollarshort If I had to do it over again I would have bought a smaller house - no more than 3 bedrooms and 2 bathrooms. Downsizing sounds like a good plan but the reality is it is a lot of work to declutter and fix up a big house to sell, and you might not want to leave your neighbors and neighborhood when you are older. Bigger houses usually cost more to insure, upgrade, heat, cool, repair, furnish, pay property taxes on, etc.

We always assumed the house we currently live in was our "starter" house. 4/2, not quite 1800 square feet, 1 level. But we live in a super HCOL area, and those pesky kids we had were pricey so we never moved up.

Our friends in CO downsized to a house bigger than ours, lol.

[daylatedollarshort]

Quote:

Originally Posted by NW-Bound Not if your home is worth megabucks, like a nice home in California, and if you do not mind relocating somewhere less expensive.

We know one family who had the attitude you can't live in your stocks and bonds, so they bought a very expensive house and entertained a lot in it. But they are some of the ones who sold their house to fund retirement, now do not like their LCOL retirement location and there is no going back.

[street]

I don't use net worth as a number or tool for my retirement worth. I use only money assets for a number of worth.

My home and ranch would be a number that would be only a guess what the real value would be at any given time.

There has been a lot of good input and thoughts on this thread of how people look at their own worth.

[ncbill]

Quote:

Originally Posted by daylatedollarshort We live in an urban area where housing has become very expensive, and we know more than one family who decided their house was literally their retirement savings. It worked out really well for some.

It's worked out fine for an old college buddy of mine...so far.

The small home he bought in a suburb of a large California city (not LA or SF) 15 years ago has grown in value from ~$400,000 to $1,500,000.

However looking on Zillow shows the last million of that increase has come only in the last 5 years.

So while we see increasing numbers of people concerned about a stock market bubble, it's scary that there are those who live in HCOL areas that still seem very confident (here and on bogleheads) their home values will never go down.

[joeea]

Quote:

Originally Posted by RunningBum Isn't that (bolded part) true of any investment? I've got some Wellesley in my Roth that I won't be touching for many years. I don't know what it will be worth then.

If you wished to sell Wellesley today, you could find out what it's worth - today. The vast market tells you what your stocks are worth.

If you wished to sell your house, you would have to find potential buyers and negotiate a selling price. The one ultimate buyer tells you what your house is worth.

When I was looking to purchase a 2nd home, the elderly couple who owned it had put it on the market for $420k 15 months earlier. They dropped the prices some, took it off the market for a month, put it back on the market, dropped the price again - no buyers. I bought it for $330k.

[Cobra9777]

The two of us are still in a huge house that we bought 15 years ago when the kids were 10 and 13. My retirement spreadsheet includes $250K coming in 12 years from now, representing estimated net proceeds from downsizing. The plan does not need the $250K to work, and there's a chance we might never sell... or that we might "downsize" to a place of similar value. So it's really just one of several possible scenarios to generate additional funds if needed as we age. Our spending today does not consider the $250K downsize scenario.

[Scuba]

Another vote for excluding from net worth calculations, but considering it as long-term care insurance. By the time one of us is likely to need long-term care, we should have 7 figures of equity and we have no children. So either a HELOC or a reverse mortgage will give us funds needed for LTC, if any.

[Clone]

Quote:

Originally Posted by daylatedollarshort so they bought a very expensive house and entertained a lot in it.

The other piece of that puzzle that works against folks- a big expensive house will typically have larger costs associated with utilities, taxes, upkeep, etc. So you convert your cash into non-performing assets, with a burn rate associated with the 'pride of ownership'.

[tb001]

Quote:

Originally Posted by Clone The other piece of that puzzle that works against folks- a big expensive house will typically have larger costs associated with utilities, taxes, upkeep, etc. So you convert your cash into non-performing assets, with a burn rate associated with the 'pride of ownership'.

That's true, but why work for the money if you don't enjoy it? If having a large, nice property brings you enjoyment, the dollars are well spent. It's all a matter of priorities. Money for the sake of money's sake isn't what it's about for me. It's about the experiences we have with it.

[daylatedollarshort]

Quote:

Originally Posted by tb001 That's true, but why work for the money if you don't enjoy it? If having a large, nice property brings you enjoyment, the dollars are well spent. It's all a matter of priorities. Money for the sake of money's sake isn't what it's about for me. It's about the experiences we have with it.

I don't think most posters here have anything against expensive homes. But if it means putting all your retirement nest eggs in one basket, it is a risky strategy, especially in an area that historically has had a boom and bust kind of local economy.

[NW-Bound]

Quote:

Originally Posted by joeea If you wished to sell Wellesley today, you could find out what it's worth - today. The vast market tells you what your stocks are worth. If you wished to sell your house, you would have to find potential buyers and negotiate a selling price. The one ultimate buyer tells you what your house is worth. When I was looking to purchase a 2nd home, the elderly couple who owned it had put it on the market for $420k 15 months earlier. They dropped the prices some, took it off the market for a month, put it back on the market, dropped the price again - no buyers. I bought it for $330k.

Compared to RE, the liquidity of stocks/bonds is unbeatable.

I helped my daughter buy her first home in March 2011. She got it for 38% of what the previous owner paid in April 2008, which was already past the bubble burst point.

She sold it last year for 2.3x what she paid, but that was still only 88% the price the previous owner paid.

At that time in 2011, I thought about buying a couple of these town homes, which are in a very nice resort area, for myself as investment properties and I had cash to pay for them. The homes were going for less than what it cost for the land and material to build them. Crazy! My wife was scared, and said that the maintenance costs like taxes and HOA would cost us more money while waiting for the market to turn around (I would leave the homes empty as I do not care to be renting them out).

So, I did not buy. It's OK, as my stocks have been up just as much and buying/selling them is just as easy with a 7-figure amount as it is a 3-figure one. Buying RE on dips is just not as simple as a mouse click.

[Clone]

Quote:

Originally Posted by tb001 That's true, but why work for the money if you don't enjoy it? If having a large, nice property brings you enjoyment, the dollars are well spent. It's all a matter of priorities. Money for the sake of money's sake isn't what it's about for me. It's about the experiences we have with it.

As DLDS said, nothing against living in expensive houses, or enjoying your money. The context of owning a large house and entertaining instead of accumulating money for retirement is where the discussion comes from. There are many examples of folks who spent their money having experiences, and are unable to retire or are in a pickle when the job disappears or their body gives up.

[NW-Bound]

Quote:

Originally Posted by Clone As DLDS said, nothing against living in expensive houses, or enjoying your money. The context of owning a large house and entertaining instead of accumulating money for retirement is where the discussion comes from. There are many examples of folks who spent their money having experiences, and are unable to retire or are in a pickle when the job disappears or their body gives up.

+1

The home I like is one of those in a specific location. If I sold my 2 homes and put up more cash, maybe I can buy it, but then the remaining investable assets would not be enough to pay for the home upkeep and also to give me the lifestyle I want, at the WR low enough to let me stay calm during a market downturn.

Yes, the joy of owning such a home must be balanced against the sleepness nights I might have. It boiled down to my dream home being out of my class.

[brucethebroker]

Quote:

Originally Posted by street I don't use net worth as a number or tool for my retirement worth. I use only money assets for a number of worth. My home and ranch would be a number that would be only a guess what the real value would be at any given time. There has been a lot of good input and thoughts on this thread of how people look at their own worth.

But your mutual funds/stocks are also only a guess what the real value would be, right? Based upon yesterday's close in many cases? The market can go up or down between when you want to sell and when the sale is competed. So you take your best guess on valuation.

Net worth is really a guess determined at a particular point in time, and that is all it is.

Ideally, folks adding up the net worth of qualified retirement type investments (IRA, etc.) would take the net value of funds after paying taxes on withdrawals. My guess is that most people do not do that-they look at the numbers on their current statement. And even if they do figure in the taxes, they are projecting that they would liquidate over a certain period of time, to gain the best tax advantages. Again, more guessing.