How much of your net worth does your home represent?

[jkern]

Quote:

Originally Posted by eta2020 I really don't understand why people want to live over there. The salaries are at best 10-15% higher then in for example Route 128 but one needs at least 35% more to adjust for cost of living and sky high taxes. Now I do not argue that places like San Luis Obispo are nice in CA....but that is much different from Palo Alto in quality of life and prices.

I worked in Palo Alto for 25 years. The area is very very desirable and very very expensive. If one can afford it, it is a nice place to live. BTW, I moved to the East Bay and commuted to work for a home at one half the price.

My daughter went to Cal Poly in San Luis Obispo. Great area, love it down there.

[daylatedollarshort]

The disparate property tax issue was a complaint at our kids' public schools when the PTA and other teachers/sports/whatever groups and clubs would ask for an extra four figures per kid in totaled up donation requests. Some of the households paying five figures in property taxes wanted the Prop 13 benefiting owners to pay up more, but there was really no mechanism to do that. I found out later most parents simply ignored the requests for extra money anyway - more recent or older home owners. The PTA and other groups would get pretty adamant about getting their extra cash - some even placed flat out "bills" right on the student schedules and labeled it a "levy" instead of making it a request for donations.

[jkern]

Quote:

Originally Posted by nuke_diver That place in Palo Alto sold for that much money because it will be leveled and a McMansion built on it. If I sold my house here the same thing would happen though my house is a bit nicer but small relatively speaking at 1900sf. The lot though is 13000sf and lots this size don't exist in very many places in the Bay so those that want one are willing to pay for it. Since I don't live in PA I won't get 1.8M for it though To the original poll though, my house is not considered in any net worth calculations. It is paid for and the budget considers the PT and other expenses. But you have to live someplace so I would never consider it as part of my net worth. I would only consider it if I knew categorically that I would be selling in short order and what I would likely have after getting something else

Net Worth is simply just your assets minus your liabilities. Why not include your home, after all it is an asset. Your NW number is just for fun. NW has little to do with retirement planning. I would not include home equity in expense and income calculations.

[Meadbh]

Quote:

Originally Posted by jkern Net Worth is simply just your assets minus your liabilities. Why not include your home, after all it is an asset. Your NW number is just for fun. NW has little to do with retirement planning. I would not include home equity in expense and income calculations.

I have pointed this out many times on this forum, but people insist on their own definitions of Net Worth, so I have given up.

[Sea Kayaker]

We own three properties, all VERY different - one in a different country. Curiously enough, they all have roughly the same value - 330k.

So I'll use that value in coming up with 15%.

[photoguy]

Quote:

Originally Posted by jkern Paying 20X more than your neighbor is not particularly accurate. Prop 13, passed around 1978, set a base value on 1976 assessment (I can't remember exactly, somewhere around that time). Then the increase is capped at 2% per year. All other base values are on the purchase price (or renovation). So if someone bought a house 10 years ago for $1M and a new person just bought the house next door for $1.5M, their base values will be $1.22M (10 years at 2% per year increase) vs. $1.5M. Hardly a 20 to 1 difference.

I think 20x is on the high end but I don't think it's that unusual. When I was in San Jose, my next door neighbor had a tax basis of 45k -- that's 1/15 of mine. Her house was a little bigger but basically the same age. Another neighbor down the street had a similarly low tax basis and paid roughly 1k/year (compared to our 8k). These are for similar houses, same age, same size lot.

Another friend owns an Eichler in Palo Alto which she and her husband bought as teachers for 25k (yes they are old). Her property tax is 1k on a house worth ~2M. A new owner at 1.25% property tax would pay 25k.

I know anecdotes are not data...

[TrvlBug]

We live in the SF Bay Area and bought our house about 8 years earlier than neighbors. Their's is worth approx. 10% more than ours and their property taxes are 2x ours.

[jkern]

Quote:

Originally Posted by photoguy I think 20x is on the high end but I don't think it's that unusual. When I was in San Jose, my next door neighbor had a tax basis of 45k -- that's 1/15 of mine. Her house was a little bigger but basically the same age. Another neighbor down the street had a similarly low tax basis and paid roughly 1k/year (compared to our 8k). These are for similar houses, same age, same size lot. Another friend owns an Eichler in Palo Alto which she and her husband bought as teachers for 25k (yes they are old). Her property tax is 1k on a house worth ~2M. A new owner at 1.25% property tax would pay 25k. I know anecdotes are not data...

Yes, there are a few examples out there, but I still think it's on the rare side (when considering the 7-8 million population). Even for a couple that bought their home 50 years ago for $25K, cities and counties add a lot of fixed fees per parcel that frequently adds $1K to $2K to your taxes. I have lived in the Bay Area my whole life and the people with ultra low property taxes tend to be between 75 and 95 years old and have never moved. One reason Prop 13 was implemented so that older people who have retired don't get taxed out of their homes. Although, one of my friends from High School inherited his parents house, which was purchased in the early 60s, and he has an ultra low tax bill.

[Walt34]

Quote:

Originally Posted by daylatedollarshort The PTA and other groups would get pretty adamant about getting their extra cash - some even placed flat out "bills" right on the student schedules and labeled it a "levy" instead of making it a request for donations.

I never had to deal with something like that but I know what my response would be. They wouldn't get a penny.

[jkern]

Quote:

Originally Posted by TrvlBug We live in the SF Bay Area and bought our house about 8 years earlier than neighbors. Their's is worth approx. 10% more than ours and their property taxes are 2x ours.

That sounds a little suspect. That would mean that your house appreciated a factor of 2.3 from 2006 to 2014. The vast majority of the Bat Area has just got back to the highs of 06 and 07. Maybe there are a few homes (located next to Google) that have done that, but that is not common. My house is no more than 5 to 10% more than it's 06 value.

[M Paquette]

You have to live in one of the most bubblicious locales to see that sort of disparity.

The property tax cap was driven by a couple of interesting factors. In the early 1960s there was a huge scandal involving assessors. There were a couple of Oakland tax consultants, who, for a fee, could get one's property reassessed to a much smaller tax. Once these folks were exposed, the rest of the worms fell out of the can.

AB80 was passed in 1966, which required property assessments to be at a certain percentage of market value, reducing the free enterprise opportunity for the local assessors. This kicked up property taxes by quite a bit for those who had been receiving informal undervaluations, while giving a substantial break to commercial properties which typically had inflated assessments. The tax rate disparity prior to AB80 was actually worse than the current mismatch.

The combination of the 'mark to market' tax rate, the lack of an informal back channel for adjustments ("bribe the assessor"), and a high inflation rate in the 1970s caused property taxes to skyrocket. Some long term homeowners were priced out of their homes by the high taxes[1,2]

There was also some objection to the higher growth of the state government (in terms of employees and total spending) than the broader state economy. That's always good for annoying some taxpayers.

Proposition 13, "People's Initiative to Limit Property Taxation," came out of this environment. It caps the tax rate at 1% of assessed value, and allows assessed value to rise not more than 2% annually. Assessed value is reset on change of property ownership. (Commercial properties are often held by shell corporations, with 'sale' of the property done by transferring shares of interest in the shell, to avoid a change in named property owner. These have to be done carefully to avoid triggering a reassessment.)

1. Martin, Isaac. 2006. “Does School Finance Litigation Cause Taxpayer Revolt? Serrano and Proposition 13.” Law Society Review 40(3):525–58.
2. https://archive.org/details/csth_000016

[NW-Bound]

I do not have hard statistics, but one quick look on Zillow after 2 or 3 minutes gave me the two following contrasting examples of homes currently on the market in Palo Alto, CA.

Home at 1266 Hamilton, asking price of $6.985M, 2013 tax of $3,509.

Home at 1051 Parkinson, asking price of $4.980M, 2013 tax of $47,676.

In the 1st case, the current owner is paying 0.05%/yr of market value. In the 2nd case, the owner is paying 0.96%, or almost 20x the other rate.

[Major Tom]

0% here, as I'm a renter. If I ever do buy a house again, it will most likely be on wheels. In that case, I'm planning on spending around 2.5% of current NW. That doesn't really count though, as houses on wheels don't quite have the same investment value as RE

[NW-Bound]

And if you buy used, home on wheels are inexpensive enough to be disposable. Just push old one off the cliff and buy another one every 5 to 7 years.

[PandaBear]

I can provide an example comparing my parents house and mine. Parents bought in 1968. They paid 28K. House is now worth about 1.3 million. They pay just over $1000 in taxes. If their house sold today a new owner would pay 1st in taxes.
We bought our house many years later for 300K. House is now worth about 8 5th (yes, we live in the low rent district!). We pay 6K per year in taxes.

In terms of us, our house equity is about 35% of our net worth. But meaningless for retirement planning because we don't plan to sell. And given I have no idea how to quantify the value of our pensions the number is even more meaningless.

Sent from my SCH-I545 using Early Retirement Forum mobile app

[PandaBear]

Sorry can't edit on my cell phone. A new owner for my parents house would pay 13k in taxes.

Sent from my SCH-I545 using Early Retirement Forum mobile app

[Major Tom]

Quote:

Originally Posted by NW-Bound And if you buy used, home on wheels are inexpensive enough to be disposable. Just push old one off the cliff and buy another one every 5 to 7 years.

Yes indeed. My thinking too. In fact, a quality Class B or Class C that is, say 15-20 years old, will still fetch a thousand or three after you've had your 5-10 years use out of it.

[NW-Bound]

See ya on the road.

[jkern]

Quote:

Originally Posted by NW-Bound I do not have hard statistics, but one quick look on Zillow after 2 or 3 minutes gave me the two following contrasting examples of homes currently on the market in Palo Alto, CA. Home at 1266 Hamilton, asking price of $6.985M, 2013 tax of $3,509. Home at 1051 Parkinson, asking price of $4.980M, 2013 tax of $47,676. In the 1st case, the current owner is paying 0.05%/yr of market value. In the 2nd case, the owner is paying 0.96%, or almost 20x the other rate.

You are correct, you have found an example of a 20 to 1 difference in property tax rates for similar homes. I see that the Hamilton homes has an assessed value of $245K. Not a lot of people have a $7M home that is assessed at $245K.

[Major Tom]

Quote:

Originally Posted by NW-Bound See ya on the road.

You sure will. I'm planning on being there in 4 years tops - maybe a bit less