Percentage of net worth tied up in house

[kevink]

This is the tragedy of the current US housing market. No lavish nest egg to cash in.

House becomes just another living expense item.

And that was what made me start this thread, seven pages ago. Americans are unique in generally believing that a house is their best investment, that renting just means throwing your money down a rat hole, etc.

It sounds like most people on this board have been very prudent, which is wonderful. OTOH I keep meeting people for whom their house is their only "investment" who were counting on downsizing and relocating in order to retire. In many cases, not gonna happen, and with the new scandal over foreclosures more unraveling of the RE market may be on the horizon.

In my case, the right answer for now to "how much of net worth to tie up in a house" is none. Happily renting here in Mexico, would only buy here (or in the U.S.) if a perfect place representing less than 10% of net worth dropped into my lap.

 

[GregLee]

In my case, the right answer for now to "how much of net worth to tie up in a house" is none.

I am an opposite case. Essentially all my net worth is in my house, not counting my pensions. I had some modest investments back in 1994, when I was renting, and when I saw my rent going up, my investing stopped (no more money), I cashed in my investments to make the down payment on a house. I paid off the mortgage in 2004, and then, without those mortgage payments, managed to pay down my credit card debt. So, starting retirement, I have the house, no rent, no debt, and pensions sufficient for living expenses. No investments, except a little for emergencies.

 

[Richard8655]

32% of NW. Home ownership free and clear over renting without doubt. No rent, obviously, with real estate taxes / utilities / maintenance still considerably less. Pride of owning and controlling your own place is huge. And it's the emergency fund of last resort that you get to enjoy while you don't need it.

 

[Nords]

I am an opposite case. Essentially all my net worth is in my house, not counting my pensions.

"E komo mai Hawaii"...

 

[chinaco]

This could be characterized many ways.

If I exclude pension and SS due to us...

and calculate House + Tax advantaged (without income tax paid) + Taxable (and exclude taxes owed on securities with unrealized gains). Then House + Tax advantaged + Taxable = 100% then the house (which is paid off) is about 13% of our holdings... but there is a tax obligation for unrealized gains.

If I setup a projection of our yearly income tax bracket and subtract it from tax deferred assets as income tax owed and cap gains due on taxable... the house would be about 15 to 16% of our net worth.

 

[Emeritus]

I am an opposite case. Essentially all my net worth is in my house, not counting my pensions. I had some modest investments back in 1994, when I was renting, and when I saw my rent going up, my investing stopped (no more money), I cashed in my investments to make the down payment on a house. I paid off the mortgage in 2004, and then, without those mortgage payments, managed to pay down my credit card debt. So, starting retirement, I have the house, no rent, no debt, and pensions sufficient for living expenses. No investments, except a little for emergencies.

Take the rental value of your house and compare it to the pensions. That tells you your cost of housing as a percent of income, which is essentially the same figure

 

[FUEGO]

OTOH I keep meeting people for whom their house is their only "investment" who were counting on downsizing and relocating in order to retire. In many cases, not gonna happen, and with the new scandal over foreclosures more unraveling of the RE market may be on the horizon.

I recently found one of these types. Two blue collar workers, no education beyond high school. They bought a $400k house (in a non-bubble area) at the peak of the bubble, of course financing 100% (verified from public recording of deed of trust and tax records) with what was probably a no-doc liar loan (not verified, just speculating based on what I know).

Fast forward a few years and his home has declined $80-100k based on comparable sales. And it is a new neighborhood with deep inventories of unsold spec homes, and recent buyers looking to get out, and foreclosures. I estimate the mortgage+taxes+insurance+HOA consume around 60-70% of their after tax income. And that is with an inflated pre-bubble income that will probably be slashed in half eventually.

But the interesting part is his perspective on housing as an investment. He is holding on to it, hoping housing will stage a comeback (it is worth $400k after all ). His sole investment, he was hoping it would go up a lot, and in 10 years, sell it and use the proceeds to either fund the downpayment for a much bigger place, or buy a smaller place with cash. Needless to say, it isn't turning out quite how he expected, but he's hanging tight. I can't imagine what kind of deferred maintenance is(n't) happening.

 

[kcowan]

Yes if you own your home mortgage-free, and have a COLAd DB pension that covers your living expenses, then investing, if any, becomes a hobby to earn enough for "luxuries".

 

[kcowan]

...But the interesting part is his perspective on housing as an investment. He is holding on to it, hoping housing will stage a comeback (it is worth $400k after all ). ..

Many investors are guilty of this thinking known as anchoring, which is that every investment must be sold at a profit even if it means holding on for many years rather than consider the new reality and divesting of losers in order to fund the purchase of potential winners.

 

[FUEGO]

Many investors are guilty of this thinking known as anchoring, which is that every investment must be sold at a profit even if it means holding on for many years rather than consider the new reality and divesting of losers in order to fund the purchase of potential winners.

And I think for this guy, he knows he doesn't have the $60-80k to make up any deficiency judgment, but he has the few thousand a month in income to pay the monthly mortgage bill. And he needs a place to sleep at night too. But yes, I'm sure the psychological reason is he has anchored himself into his investment and is certain that one day he will be able to sell for a profit (even if it means sinking tens or hundreds of thousands more into taxes, insurance, interest, maintenance, etc).

 

[Danmar]

Total real estate represents about 12%of net worth if I capitalize pension receivable and about 18% of after tax expenses. Feel pretty comfortable with this. Could put another 3- 4% of NW and maybe 5-7% of expenses into a new place in Arizona but not likely at this point.

 

[BTravlin]

Currently about 1/3 of NW including paid off retirement home and current home mortgaged to 80% of the new deflated value. Did a cash out refi to buy the retirement home at very deflated price. Seven more years until we sell this one and move to the goal.

 

[jerryo]

I purchased my home about a year ago (and sold my old home shortly after for about 90%of its peak value).

My equity in the house represents about 10% of my networth. My equity plus the mortgage represents about 28% of my net worth. Market value represents about 30%.

 

[HpRyder]

Mines about 6%

 

[kbst]

Our combined main house and beach house are ~ 20% of our net worth.

 

[kbst]

I recently found one of these types. Two blue collar workers, no education beyond high school. They bought a $400k house (in a non-bubble area) at the peak of the bubble, of course financing 100% (verified from public recording of deed of trust and tax records) with what was probably a no-doc liar loan (not verified, just speculating based on what I know).

Fast forward a few years and his home has declined $80-100k based on comparable sales. And it is a new neighborhood with deep inventories of unsold spec homes, and recent buyers looking to get out, and foreclosures. I estimate the mortgage+taxes+insurance+HOA consume around 60-70% of their after tax income. And that is with an inflated pre-bubble income that will probably be slashed in half eventually.

But the interesting part is his perspective on housing as an investment. He is holding on to it, hoping housing will stage a comeback (it is worth $400k after all ). His sole investment, he was hoping it would go up a lot, and in 10 years, sell it and use the proceeds to either fund the downpayment for a much bigger place, or buy a smaller place with cash. Needless to say, it isn't turning out quite how he expected, but he's hanging tight. I can't imagine what kind of deferred maintenance is(n't) happening.

That's so class biased. What color is your collar? There are plenty of people with various educations that have lost money and/or made money on real estate acording to when and/or where they bought.

 

[Walt34]

Our house is ~35% of nw, but we bought in 2001. Valuations went way up, then way down, we would probably break even if we had to sell now. I knew there was a bubble when two years after we moved to WV the old house doubled in price. That was clearly not sustainable.

I was thinking "I should have held out for another two years, then sold and rented where we are now". But that's attempting market timing. I should have bought Microsoft in 1985 too.

But at least we're not underwater like so many others.

 

[Automatika]

Mine is about 15% of NW and paid off, I would consider it an investment in that I could always do a reverse mortgage if all else failed.