Random thoughts on net worth.

[brett]

delete

 

[Markola]

I haven’t read all 151 posts but I hope someone mentioned how a lot of this investable asset growth, including real estate, in the last three years is an illusion, because 40% of all dollars has been conjured out of thin air. Everyone enjoys watching their numerator inflate without realizing the denominator has quietly exploded, too.

 

[brett]

Paper gains can be deceiving.

You have to realize a gain to have a gain.

Prior to early retirement I realized a very significant gain on the exercise of stock options. Had I waited another 12-18 months that gain would have been minimal.

 

[jkern]

Totally correct on Net Worth.
But this is why NW is not particularly useful for certain things, like deciding if you are able to retire...

That's just it! NW isn't useful for calculating retirement. I don't use NW in any financial planning what so ever. It's about income, investments used for income, and expenses.

I view NW as a number for fun. Yes, I count my house. I even count stuff like cars etc. I just add $100K for the stuff just for fun. Who cares.

 

[jkern]

I don't know anyone who had a house they lived in and then rented it out here in California who has come out behind. One of my friends rented their house after being transferred out of state, and then moved back. Their home price at least doubled in that time while their property taxes only went up 2% a year. If they hadn't kept their house, they wouldn't have been able to afford to move back.

It's actually possible to not come out ahead when renting your home. It's going to come down to timing and sometimes RE goes down. I have actually known someone who lost money doing what you described. In the long term you are correct.

My property taxes have never gone up just by 2%. There are a bunch of add ons and multiple bonds passed by voters. Typical increase for me is 3% to 4% per year.

 

[jkern]

Yep, high-priced houses can't be (positively) cash-flowed easily.

Even Financial Samurai threw in the towel & sold his San Fran investment home after a few years of sub-par rental returns.

Using my buddy's house, & upscaling for his urban area, assuming a $3 million home there would rent for $10k/month (per Zillow, it's more like $8,500/month) but with property tax of $1,500/month...ignoring all other costs that return is less than the 1-year T-bill rate.

For all the hype surrounding it, it seems clear that Prop 13 really has not benefitted those who bought recently...as in the last 25+ years...they're still paying outsized property taxes despite Prop 13.

Sure, for those who bought in the 1960s or 1970s & who are now in their mid-70s to mid-80s it's worked out fine.

Prop 13 isn't necessarily about low property taxes it's about a controlled increase. Yes, everyone benefits from prop 13 even if your property taxes are high. They probably would be higher if assessed at full market value.

 

[jkern]

The gross incomes may be the same, but net income from RE rental would be lower due to costs such as property tax, maintenance from wear and tear, etc., not to mention any property management fees if landlord doesn't want to deal with the stress of managing the property. And God forbids if the tenant is difficult, all bets are off.

Not only that, but the RE rental owner is at the mercy of the government in terms of ever-changing laws and regulations that put the "rights" of tenants above the "rights" of rental owners. It is for this reason that I have an inherited rental unit sitting empty for almost a decade. I'd rather eat the costs of maintenance and tax than be at the mercy of a difficulty tenant that I can't get rid of.

I have three rental condos in California and you couldn't be more correct. The laws are so skewed towards the tenants that the risk and liability doesn't match the compensation. I've gotten lucky so far, but I'm not going to last.

For example, landlords are not allowed to turn down Section 8 tenants and undocumented immigrants. If both these cases, these people are not suable. If they owned $25K you will never see that money.

 

[aja8888]

It's actually possible to not come out ahead when renting your home. It's going to come down to timing and sometimes RE goes down. I have actually known someone who lost money doing what you described. In the long term you are correct.

My property taxes have never gone up just by 2%. There are a bunch of add ons and multiple bonds passed by voters. Typical increase for me is 3% to 4% per year.

I bought a house in Ca in the 1980s, paid $205,000 for it and thought things were good with a tax bill of $2200.00 annually (according to the disclosure sheet when we closed).

My first tax bill was near $5,000! What is going on I thought. Then I looked closely at the bill.......$2,200 for taxes and $2,800 for BOND REPAYMENTS!

Bond repayments covered the funds the city borrowed to build many parks, an amphitheater, a library, etc. And this will go on for 30 years!

So much for low taxes. Apparently, it's a way to hide the tax increases when Prop 13 won't allow the adding for these taxes.

 

[NW-Bound]

Paper gains can be deceiving.

You have to realize a gain to have a gain.

Your implication was that the gain of asset values must be realized by selling for it to be counted as real.

Alas, the dollar also loses value by the high inflation.

And gold is losing value with respect to the dollar!

So, where does a guy store his wealth? Many commodities are losing value too, meaning they are worse than the dollar. The ones that gain values are hard to stockpile, such as beef as mentioned in another thread.

 

[brett]

Your implication was that the gain of asset values must be realized by selling for it to be counted as real.

Alas, the dollar also loses value by the high inflation.

And gold is losing value with respect to the dollar!

So, where does a guy store his wealth? Many commodities are losing value too, meaning they are worse than the dollar. The ones that gain values are hard to stockpile, such as beef as mentioned in another thread.

I am not in any way suggesting that one should realize a gain and then leave it as a depreciating or non performing asset.

What I am suggesting is that some 'gains' be be very large. It, or they could be a large asset that is time sensitive such as a stock option, could be large indivisible, a significant portion of net worth and take time to sell, etc.

It is more about reducing/managing overall risk.... looking at different opportunities than it is leaving money in a bank account as one approaches retirement or ages.

I came very close to falling into this trap. Fortunately I decided to heed the advice of a wealth manger to realize a gain, redistribute the risk, and protect our early retirement plans.

Heeding that advice made a seven figure difference to our retirment savings that might not have been there otherwise.

 

[NW-Bound]

^^^ Of course, exercising a richly-valued option is the right thing to do, the same as selling bitcoin or dot-com stocks at their mania peak.

But for just "mildly overvalued assets" such as the S&P or real estate, the timing is a bit harder.

 

[brett]

We lucked out on real estate. When we retired early we also made the decision to downsize, place our possessions in storage, and travel for a year.

We lucked out because we realized a gain on our home and sold at or near the top of the market. No skill, just dumb luck. Timing.

A year later we are back. Real estate in the area is down, down, down. So we we decided to rent instead of buy.

We placed our home equity in the market and did well. Far better than if we had kept our home.

 

[NW-Bound]

Ah, speaking about RE reminds me of this story told by my brother.

He and his wife are more socially active than we are, and have many friends. He recently told me of a couple they knew who sold their big house last year for a nice gain, with the intention of buying back cheaper when the market drops. And they hosted a big party to celebrate the house selling event.

After that, the couple was quiet when seeing the RE market kept rising and rising. Of course, people talked behind their back about their mistake.

I don't know if the RE market has dropped to below where they sold. I will ask my brother next time I see him, if I remember.

 

[MarieIG]

Ah, speaking about RE reminds me of this story told by my brother.

He and his wife are more socially active than we are, and have many friends. He recently told me of a couple they knew who sold their big house last year for a nice gain, with the intention of buying back cheaper when the market drops. And they hosted a big party to celebrate the house selling event.

After that, the couple was quiet when seeing the RE market kept rising and rising. Of course, people talked behind their back about their mistake.

I don't know if the RE market has dropped to below where they sold. I will ask my brother next time I see him, if I remember.

Probably no one would have thought much about if they didn't make a big fuss about their timing. Like stock, it is difficult to time the precise top and the precise bottom. (At least for me, I can't.) We sold our house last year too. I doubt I squeezed every last penny out of it but selling it was part of our long term plan for retirement. No, we did not throw a party - I found the whole endeavor stressful and was glad when it was done.

 

[NW-Bound]

And I remember now this story about my Californian cousin. She and her husband sold their home in Southern CA in 2006 or so, right at the peak of the housing bubble then.

They moved to Texas, somewhere in the Dallas-Fort Worth area. With the money, they bought a bigger home, and as homes in Texas were not as expensive, had plenty of money left over to splurge on all new furniture and what not.

Within 2 or 3 years, they sold and moved back to Orange County, because they missed it. The RE market had crashed, and they bought back cheaper. I was told the whole thing was a net gain process for them, despite also losing some money on the Texas house.

 

[MarieIG]

^^^^^

Always good to hear that someone made out well.

 

[Freedom56]

I have three rental condos in California and you couldn't be more correct. The laws are so skewed towards the tenants that the risk and liability doesn't match the compensation. I've gotten lucky so far, but I'm not going to last.

For example, landlords are not allowed to turn down Section 8 tenants and undocumented immigrants. If both these cases, these people are not suable. If they owned $25K you will never see that money.

This why we sold our rental home in 2003. It was great from 1995 through 2001 during the dotcom boom. We had mostly corporate relocation people working in the technology sector as tenants. They paid the rent and their companies provided 3-6 months compensation if they broke the lease which was typically 2 years. Then the dotcom bust happened and my pool of tenants became people with no income other than alimony or unemployment insurance. We refused to rent to anyone with no means to pay rent on their own and real estate agents warned us that we could face discrimination suits. We decided to sell the home. Many people we know in Southern California with rental homes had issues with people refusing to pay rent during the pandemic. They were clearly abusing the system. One even had an expired lease and refused to move and payed no rent for six months. I advised them to remove the front door and take it away for repairs. They finally did that and the squatters were gone in a few days.

 

[daylatedollarshort]

And I remember now this story about my Californian cousin. She and her husband sold their home in Southern CA in 2006 or so, right at the peak of the housing bubble then.

They moved to Texas, somewhere in the Dallas-Fort Worth area. With the money, they bought a bigger home, and as homes in Texas were not as expensive, had plenty of money left over to splurge on all new furniture and what not.

Within 2 or 3 years, they sold and moved back to Orange County, because they missed it. The RE market had crashed, and they bought back cheaper. I was told the whole thing was a net gain process for them, despite also losing some money on the Texas house.

It is roll of the dice in our area for those that plan to buy or sell short term. Prices in our zip have dropped $400K in the last few months now, although they are the same now as about a year ago. Easy come, easy go!

Despite the recent bubble popping, the neighbors who were original owners in our development still have had their home values go up 42 times what they paid, with property taxes of only around $1K, so long term the appreciation has been pretty good.

 

[rodi]

The story about extended family real estate ownership brings back traumatic memories. When my husband's grandmother died - the 5 kids inherited a jersey shore house. The will call for it to be sold and split - but they decided to keep it. Never bothered to change the title. There seemed to be a willingness of some of the inheritors to try and out survive and get it all - even though that had no legal basis. My husband forced the issue when his dad (one of the inheritors) died - and insisted the property be sold. That required re-opening the probate from the 1980's of the grandmother, re-opening probate of 2 deceased siblings so that their heirs could get proceeds. Fortunately, the next in line for executor of grandmother was able to reopen the probate of grandmother to allow the sale. He died a year later.

I will never own real estate with a group of family.

 

[RobbieB]

Yeah real estate.

There are good tenants and bad tenants. Eventually the good tenants become homeowners and...

 

[luckydude]

I have three rental condos in California and you couldn't be more correct. The laws are so skewed towards the tenants that the risk and liability doesn't match the compensation. I've gotten lucky so far, but I'm not going to last.

For example, landlords are not allowed to turn down Section 8 tenants and undocumented immigrants. If both these cases, these people are not suable. If they owned $25K you will never see that money.

IMO the worst part is how landlords are demonized by local governments, renters and the media. Most of us rental owners are usually accidental landlords or mom/pop shops with a few units trying to build up some sweat equity. But we are portrayed as some evil, greedy bast**rds out to take advantage of the downtrodden, the disadvantaged and the working folks. I just find the whole prevailing anti-landlord sentiment infuriating.

At times like this when we have a housing shortage, the government should be doing all it can to support the rental industry and to ensure that there is enough supply to house folks who can't afford to buy a home. Instead, they are doing all they can to make landlords' lives difficult, so people like me get fed up and just exit the game.

I think I mentioned this story in another thread a while back. Beside the inherited rental condo that I've left empty for almost a decade, DW and I bought a piece of land a few years ago with an old farmhouse on it. Our agent advised us that we could fix it up and rent it out. But my landlording experience has been so unpleasant that I paid a crew to come on the lot and tear the whole darn house down instead. I saved on property tax and also saved me the headache of dealing with tenants. It's a win win

Housing shortage? Ain't my problem.

 

[captain3d]

That’s one way to avoid tenants trashing your house.

 

[luckydude]

That’s one way to avoid tenants trashing your house.

Yep, if anyone is going to trash my house, it's gonna be me

 

[Andre1969]

My Mom and stepdad had a second home built in central Florida about 20 years ago. Their goal was to ultimately move down there around 2011, when they both retired, and use it as a rental property until then. That lasted about a year.

Their first, and only tenant, was decent enough, and didn't trash the place, but with just "normal wear and tear", I think they had to recarpet and repaint, and they decided it just wasn't worth it to rent it. So they let it sit vacant after that, and just used it as a getaway/vacation home whenever the desire arose.

2011 came and went, and they both retired. But they never did move to Florida. They still have the house, and still use it as a getaway. But, never had the desire to try renting it out again after that.

In a similar vein, I have a house that's sat vacant for four years. I have antique cars, and the old house has a 4 car garage to house them. At the time, the new house didn't have a garage, so I decided to wait until I got one built. Well, first I delayed that because of the stock market contracting at the end of 2018. In 2019 I got to about where I wanted to be financially, but had trouble finding a contractor. Then COVID hit. I finally got someone to build it in late 2020, but the process was slow. It wasn't finished enough to store cars in it until late 2021, and didn't get the final inspection sign off until April of 2022.

There have been people who have expressed an interest in renting the house, but I just wasn't interested. As a rental property, the house would have to be inspected, once a year I believe, and as-is, the house is probably a tear-down. While it's still salvageable at this point, it's just too old, too small, and too close to the road. Most buyers would want it just for the land. The roof has a few leaks in it, the windows date back to at least 1934. It only has one bathroom. I don't think insulation had been invented when that house was built, so what little it has, was added after the fact. It would cost a ton just to get that house up to par to rent it out. And then, being such a liberal county, they tend to favor the tenant over the landlord, and it's a pain to evict someone. My attitude is, don't pay your rent, I still have expenses, so get the hell out, and if the county wants to make that difficult for me, then let the county pay the rent. But, of course, the county doesn't see it that way. So, to echo what June once said to the Beaver, "Chump don't want da help, chump don't get no help"

 

[shafer9]

As the old joke goes, I bet you're fun at a party.

Dude, you have $$ and your health for now?

Relax. I had a head and neck sarcoma 16 years ago that was supposed to be fatal. 6 major surgeries and 72 radiation treatments later...I'm still here. I don't recommend it, but I survived and it changed my attitude forever. I'm living in the bonus roundnow and I am so friggin' grateful to see each morning, I worry about.....NOTHING.
A truck can run me over this afternoon, so why worry? It's a waste of time, energy and fun.

Though I am traveling and do not have time to make trades as I do at home, I still look at my portfolio each day. Hence, I know the pain y'all talk about.

But the truth is, as the days go by I am concerned more and more about my physical decline than my financial condition. It is not likely I will run out of money, despite currently having no illness, no life-threatening condition. If anything, I will spend less and less as my physical condition declines further.

Not to sound too gloomy, but we have seen plenty of fellow posters departing, including people who seemed to be in good health, or at least I did not see them talk about it.

So, unless you are cutting it too close financially, you should not worry too much about money. All that money may not do you much good. Sad.