Poll: Primary Home as % of Net Worth

[NW-Bound]

Quote:

Originally Posted by flintnational Sometimes I think this forum would struggle to construct a simple "yes" or "no" Poll to determine if the sun is going to rise in the morning. I can hear the comments now. "If its cloudy in my area, how do I know if the sun rose." "What do you mean by "morning?' 7 AM or 8 AM?" "I live in a different time zone. How do I adjust for "morning". " "Is sunrise calculated when the sun first breaks the horizon or does it have to be fully up?" "I am never up at sunrise so I want an answer choice of "still sleeping and don't know". " "The survey is not valid because it does not allow for daylight savings time." And my favorite, "I am not retired. Can I still participate in the Poll?"

It depends on what the meaning of "to rise" is.

As is universally accepted by now, the sun does not move around the earth. So, the sun appears to rise, but it really does not.

[Sunset]

Quote:

Originally Posted by Midpack We’re relocation home shopping (again) and everywhere we want to live is too expensive and everywhere I think homes are reasonable doesn’t fit our wants and needs. So I’m faced with ponying up quite a bit more for our retirement dream house. This has come up in/directly in several threads lately, but I can’t find the last poll on the subject. Yes I know it all comes down to supporting spending based on our new net worth after a $200K hit, but just wondering what’s typical. I’m probably being a cheapskate (coupled with fear of buying in a somewhat appreciated market), and DW is being reasonable, but whatever you do - don’t tell her. For the poll, please use Numerator: $ Value of your 1 primary residence (2 homes if you’re a snowbird), but don’t include income properties. Denominator: Your $ net worth without primary residence, but please include income/investment properties. If you’re still working, paying a mortgage - use full value of your home and projected net worth both at retirement. If that’s too far off to project (if you’re younger), please don’t vote?

Does everyone else know what the 200K hit is ??

[NW-Bound]

I suspect it corresponds to the market drop from Jan 26, when the Dow was at 26617, till now.

The OP started the thread early in the day, and might not have included today's loss. It's big, for me anyway. I lost one year of living expenses. The Dow is now 23644.

[Midpack]

Quote:

Originally Posted by Sunset Does everyone else know what the 200K hit is ??

The home we’re considering would cost about $200K more than our current home, and that would come from our investments, reducing net worth as defined for this poll.

Thankfully the poll seems to be yielding the range of results I was expecting.

I’ve seen the debate on this forum many times, and it seems the consensus guidance here has been to not include their primary residence in net worth, at least when figuring out what you can spend in retirement - e.g. SWR. Even aside from homes, what makes up net worth for each of us can vary considerably. Those who have generous pensions and retirement health care could have a relatively lower net worth. That would have a PV/FV but I wasn’t sure everyone includes that in net worth. In any event, I was just trying to establish some basis for the poll, there are several legitimate approaches, none I know of that will work for every situation.

And I know polls here always have outliers, I don’t think I can remember one that floated through without some concerns expressed. I’ve come to expect that.

[flintnational]

Quote:

Originally Posted by NW-Bound It depends on what the meaning of "to rise" is. As is universally accepted by now, the sun does not move around the earth. So, the sun appears to rise, but it really does not.

NWB, with your additions we have covered the concerns of the engineers in the the group. I am beginning to think that maybe, just maybe a committee might be the way to construct a poll. And, we could schedule meetings! Wait, that's why I retired. Count me out.

[donheff]

I'm with your spouse on this one Midpack. If you want to keep home equity lower move to a low cost area. I could live in a McMansion elsewhere for what my modest Capitol Hill DC townhouse is worth. But I like where I live and have no mortgage. I am content to let the kids sort out the house when we die. Besides, I wouldn't want to live in a McMansion - except for the bathrooms and closets.

[pb4uski]

Quote:

Originally Posted by Midpack The home we’re considering would cost about $200K more than our current home, and that would come from our investments, reducing net worth as defined for this poll. Thankfully the poll seems to be yielding the range of results I was expecting. I’ve seen the debate on this forum many times, and it seems the consensus guidance here has been to not include their primary residence in net worth, at least when figuring out what you can spend in retirement - e.g. SWR. Even aside from homes, what makes up net worth for each of us can vary considerably. Those who have generous pensions and retirement health care could have a relatively lower net worth. That would have a PV/FV but I wasn’t sure everyone includes that in net worth. In any event, I was just trying to establish some basis for the poll, there are several legitimate approaches, none I know of that will work for every situation. And I know polls here always have outliers, I don’t think I can remember one that floated through without some concerns expressed. I’ve come to expect that.

The $200k for that different home doesn't need to come from investments... you could keep the investments and take a $200k mortgage for the better home and then just make the mortgage payments. On that much of a mortgage, payments would probably be less than $1k/month. If you took a mortgage, the better home would not reduce your net worth.

I would describe what you wrote a little differently. I think consense is that a home is included in net worth, but unless one plans to sell the home and not replace it or sell the home and downsize, then the home is not include in retirement assets that provide cash flow in assessing retirement income and withdrawal rates. Also, I think the consensus is to treat pensions as a offset to spending rather than as an asset included in net worth.

[Midpack]

Quote:

Originally Posted by pb4uski The $200k for that different home doesn't need to come from investments... you could keep the investments and take a $200k mortgage for the better home and then just make the mortgage payments. On that much of a mortgage, payments would probably be less than $1k/month. If you took a mortgage, the better home would not reduce your net worth. I would describe what you wrote a little differently. I think consense is that a home is included in net worth, but unless one plans to sell the home and not replace it or sell the home and downsize, then the home is not include in retirement assets that provide cash flow in assessing retirement income and withdrawal rates. Also, I think the consensus is to treat pensions as a offset to spending rather than as an asset included in net worth.

Yes. My first instinct was to avoid taking out a mortgage, but I’m coming around to a 3-5 year mortgage just to spread out capital gains. I’m expecting it will take a while to sell the current old house, hopefully we’ll be pleasantly surprised there.

And the pension net worth question is real. Yes it’s an offset to spending, but it’s definitely a real asset, and people may value it differently.

[Amethyst]

I don't quite get the idea of an "appropriate" amount to spend on a residence. Doesn't it go: Find a place you want to live; decide how much money you can spend; look for a house (or build one) that fits your budget and your needs? Addendum: Why would it matter what other people spend on their houses? I am just not sure how this equates to advice or wisdom.

[pb4uski]

The problem with valuing the pension as an asset is that you receive the cash flows only if you are living.... and while mortality is very predictably for groups it is very dicey for individual lives.... that is why standard setters decided to exclude life annuities from assets (a period certain annuity would be an asset since benefits are not dependent on a life).

Also, if you included pensions as an asset it could be volatile... if your pension is a large part of your net worth and you are diagnosed with cancer, then your net worth drops like a rock... I'm don't think that makes a lot of sense.

[rodi]

Quote:

Originally Posted by rec7 Have you heard what they call a millionaire in California? A home owner Their is a lot of truth to the joke.

Friends of mine had a primary home and two rental properties here in San Diego - the wife laughed and said they were "nega-millionaires".... Owed more than $1M in real estate.

[Midpack]

Quote:

Originally Posted by Amethyst I don't quite get the idea of an "appropriate" amount to spend on a residence. Doesn't it go: Find a place you want to live; decide how much money you can spend; look for a house (or build one) that fits your budget and your needs? Addendum: Why would it matter what other people spend on their houses? I am just not sure how this equates to advice or wisdom.

I get that, I was going for order of magnitude. And I’m not asking or judging anyones choices, it’s an anonymous poll. There have been threads if not polls on this very subject here in the past, but it’s been a while and I just couldn’t find one.

To me it’s not unlike people asking how much house they can afford - their income vs mortgage, a very common question. In this case, I’m asking how much house a retiree or anywhere without need of a mortgage should afford. Like some/many here, we’ve never spent what lenders told us we could afford (our current house was less than half what a lender would say we could afford on paper), and I guess I haven’t shaken that mindset in retirement. This would be the largest purchase we’ve ever made by a wide margin. As I expected, DW is probably right, I’m being a cheapskate (she hasn’t actually said that BTW).

[Alan]

Quote:

Originally Posted by pb4uski The problem with valuing the pension as an asset is that you receive the cash flows only if you are living.... and while mortality is very predictably for groups it is very dicey for individual lives.... that is why standard setters decided to exclude life annuities from assets (a period certain annuity would be an asset since benefits are not dependent on a life). Also, if you included pensions as an asset it could be volatile... if your pension is a large part of your net worth and you are diagnosed with cancer, then your net worth drops like a rock... I'm don't think that makes a lot of sense.

I agree. My wife and I have 4 lifetime private pensions plus 4 more pensions to come with US and UK SS to come. (We maintained our UK SS record with voluntary contributions so have 30 years of credits). However, when we die there is nothing to pass onto the heirs.

I do include the value of our primary house in the net worth calculation as it will be added to the value of our estate when we die and the UK has a much lower threshold for Estate taxes than the USA.

[Moemg]

I actually have the opposite problem right now . I am looking to downsize . Our current home is too large and requiring too much maintenance as we age . What galls me is that I will be paying the same or slightly more for a smaller home as I paid for this home years ago . I will make a nice profit on this home but it still upsets me.

[Amethyst]

Just background data, I get it.

I just arbitrarily decided how much we can afford to spend, and now we are looking at what it will buy in a place where we might like to live, that has lower taxes than where we now live. Our problem is that while we can buy a very "nice" house, none of the many-fake-gabled production houses appeals to us and we are scared of buying a lot and building from a distancce. And the real estate agents want to sell us older houses and we want newer...it's a puzzlement. There is no retirement-house Nirvana...except when Other People brag about theirs, of course

Quote:

Originally Posted by Midpack I get that, I was going for order of magnitude. And I’m not asking or judging anyones choices, it’s an anonymous poll. There have been threads if not polls on this very subject here in the past, but it’s been a while and I just couldn’t find one. To me it’s not unlike people asking how much house they can afford - their income vs mortgage, a very common question. In this case, I’m asking how much house a retiree or anywhere without need of a mortgage should afford. Like some/many here, we’ve never spent what lenders told us we could afford (our current house was less than half what a lender would say we could afford on paper), and I guess I haven’t shaken that mindset in retirement. This would be the largest purchase we’ve ever made by a wide margin. As I expected, DW is probably right, I’m being a cheapskate (she hasn’t actually said that BTW).

[NW-Bound]

Quote:

Originally Posted by Moemg I actually have the opposite problem right now . I am looking to downsize . Our current home is too large and requiring too much maintenance as we age . What galls me is that I will be paying the same or slightly more for a smaller home as I paid for this home years ago . I will make a nice profit on this home but it still upsets me.

Our main home is not so large that we need to downsize, although I have 5 free rooms upstairs, of which I really use only 1 for my electronic lab. Downsizing costs a lot of money, and moving creates stress. I'll just stay here until I die. I would sell the 2nd home first, but even that is not on the plate now.

About how much of one's net worth to spend on a home, it really depends on what one has. If I had only $1M, I would not spend $300K on a house. But if it were $10M, I would have no hesitation buying a $3M house on the waterfront on Bainbridge Island. And could you imagine Buffett spending 30% of his net worth on a home? There's no house that costs $27B!

[Alan]

Quote:

Originally Posted by Moemg I actually have the opposite problem right now . I am looking to downsize . Our current home is too large and requiring too much maintenance as we age . What galls me is that I will be paying the same or slightly more for a smaller home as I paid for this home years ago . I will make a nice profit on this home but it still upsets me.

I know how you feel, we went through the same process in 2003. However, we rationalized it by accepting that the smaller place would take much less hassle and money to run.

[mokan]

Thanks to the OP for starting the thread. Take it all with a grain of salt, of course, but its quick & cheap external benchmarking.

We're in the middle of selling one house and upgrading. We also need to decide whether to keep the vacation place. If we keep the vacation place, then we edge toward 22%. Include discounted pension value & that becomes 17%. Dump the vacation house and down to 13%. All fuzzy numbers but the main point is that it isn't 10% and it isn't 30%.

For our part, we're just going to do it in cash. I'm expecting the market to tumble anyway so I have more cash than normal. I looked at a mortgage and didn't like the short term cost.

As to those questioning the metric, the ratio of housing value to potentially income generating net worth made sense to me. Of course magnitude matters but there are limits to what you should ask for.

[hesperus]

Quote:

Originally Posted by NW-Bound But if it were $10M, I would have no hesitation buying a $3M house on the waterfront on Bainbridge Island. And could you imagine Buffett spending 30% of his net worth on a home? There's no house that costs $27B!

We're in the former, and only live in a 1240 sq ft 1950's home - plenty for DW and I. I often think we need to put more NW into our primary, but it's hard to even think about putting 30% of our NW into a home. I suppose it's just that ol LBYM habit, and the fact that that sized house would also include much more in the way of expenses. I'd rather have it in the portfolio.

[Aiming_4_55]

I'm not retired, but in the planning phase (RE in 1 - 5 years is my best estimate). We relocated for a new job several years ago, and due to the COL, we downsized from a two story 3,000 sq ft SFR home to a single story 1,500 sq ft condo. The condo was about $150k more, but better weather and close to the beach. First floor was a nice long term factor. While I have a longer timeframe (age 50 to 95) to fund and kids to raise, the extra $$ is well spent in my mind. It did take some time to embrace, but I'm coming around to spending more.

The job and new city were both for the experience as I was looking for something new and exciting to some degree.

Perhaps, sell your place and rent for the first year or two as many normally recommend before buying. Within that time, you can decide if it's worth the extra $$ or not. Or, relocate to another area for new experiences again.