Random thoughts on net worth.
- Thread starter rodi
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+1 again
NW-Bound
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+1
However, net worth is nice to know, but your ability to maintain a certain lifestyle is based on cash flow.
About real estate values, a guy like Calmloki can generate beaucoup cash flow from his rentals. For a home owner like me, my 2 homes just show up as expenses on Quicken. Yes, the imputed rents are worth something too, but they are not as good as income from other more liquid investments.
Wouldn't imputed rent be already accounted for by the fact that you don't have rent as part of your expense? So the imputed rent is cancelled out.
NW-Bound
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But of course.
I was suggesting that if you sell the home and invest the money, perhaps the investment income will be higher than the imputed rent.
But then, as daylatedollarshort said, if a $3M home in Northern CA rents for $10K/month, then the $120K/year rent is 4% WR on a $3M 60/40 portfolio.
So, perhaps RE and liquid assets generate roughly the same magnitude of income. What's better varies with the individual cases.
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.
In the San Francisco Bay Area rent is approx 0.35% of cost per month.
$1,000,000 house (shack)
$3,500 rent
Property tax, insurance and maintenance would more or less equal the rent. Meaning approx rental income of your home is zero.
The net worth value of the home is still valid but only appreciation will be the investment return ... which has been quite good recently.
Sell quick and rent.
$1,000,000 house (shack)
$3,500 rent
Property tax, insurance and maintenance would more or less equal the rent. Meaning approx rental income of your home is zero.
The net worth value of the home is still valid but only appreciation will be the investment return ... which has been quite good recently.
Sell quick and rent.
daylatedollarshort
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LOL, hardly anybody here with multimillion dollar homes and $1K property tax bills are in a rush to sell their homes. That Prop 13 is worth more and more every year. Some people on our block put in a tiny ADU and were asking $2K a month rent for it. It is legal now statewide to have a converted garage and ADU to help with the housing shortage.
In other cases, I don't know the owners, just the renters, but a couple of friends of our kids have moved into homes with something like five bedrooms and a converted garage. The owners charge around $1K a month per room, like a boarding house.
There is even a name for homeowners not selling, the "lock-in effect" - https://www.nber.org/digest/apr05/lock-effect-californias-proposition-13: "As a result of Proposition 13, there are obvious distortions in the real estate marketplace. For example, in 2003 financier Warren Buffett announced that he pays property taxes of $14,410, or 2.9 percent, on his $500,000 home in Omaha, Nebraska, but pays only $2,264, or 0.056 percent, on his $4 million home in California. Although Buffet is known as an astute investor, the low property taxes on his California home are not attributable to his investment prowess, but rather to Proposition 13."
ETA: There is a new law that makes the property tax more portable, but I don't know anyone who has used that yet. Most of our friends are still in the same homes they've had for years.
In other cases, I don't know the owners, just the renters, but a couple of friends of our kids have moved into homes with something like five bedrooms and a converted garage. The owners charge around $1K a month per room, like a boarding house.
There is even a name for homeowners not selling, the "lock-in effect" - https://www.nber.org/digest/apr05/lock-effect-californias-proposition-13: "As a result of Proposition 13, there are obvious distortions in the real estate marketplace. For example, in 2003 financier Warren Buffett announced that he pays property taxes of $14,410, or 2.9 percent, on his $500,000 home in Omaha, Nebraska, but pays only $2,264, or 0.056 percent, on his $4 million home in California. Although Buffet is known as an astute investor, the low property taxes on his California home are not attributable to his investment prowess, but rather to Proposition 13."
ETA: There is a new law that makes the property tax more portable, but I don't know anyone who has used that yet. Most of our friends are still in the same homes they've had for years.
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Car-Guy
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OK, I'll ask.... Why not sell it?
street
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Yes, to the OP it is a good feeling to know that ranch and home equity has went up during these down-market times. The ranch has gone up about 6 times what I paid for it. My home in fly over country doesn't change much like others that live in high demand areas. Regardless of housing markets.
I don't use NW (property/home) for any financial data either like most have posted.
A comment from a post from NW-Bound on declining health vs money. Declining health is more of a concern also than money. I don't worry about decline in markets they will come back. Without health money is nothing. He made a comment that in the last 12 months his investment income was 370K. I just looked and mine was over 650K in last 12 months.
Just numbers they are here today done tomorrow. All I need is to really be able to buy some food have a roof over my head and enjoy each day doing things that generally cost nothing and I'm a very happy person.
I don't use NW (property/home) for any financial data either like most have posted.
A comment from a post from NW-Bound on declining health vs money. Declining health is more of a concern also than money. I don't worry about decline in markets they will come back. Without health money is nothing. He made a comment that in the last 12 months his investment income was 370K. I just looked and mine was over 650K in last 12 months.
Just numbers they are here today done tomorrow. All I need is to really be able to buy some food have a roof over my head and enjoy each day doing things that generally cost nothing and I'm a very happy person.
<sigh...> Family dynamics.
The condo development was on a parcel owned by DF's family, and when the development was completed, units were distributed to extended family members as gifts. DF received one and rented it out until he passed. I got rid of the a**hole tenant (did I mention the tenant was an a**hole---yes he was an a**hole) but I can't really sell it because many of my cousins and relatives still own their units (most of them rent their units out as well) and they don't want ownership to be passed to outsiders (I know... It's a dumb reason). I don't want to p*ss them off because I still own some shares in the family RE business and I need to work with them.
A young cousin actually wanted to rent the unit from me a couple of years back, but I politely turned him down because I know he is an (you guess it) a**hole. The only thing worse than than a**hole tenant is an a**hole tenant who is a close relative.
So I am stuck with it for now. I would sell it in a heartbeat if family dynamics aren't a consideration.
RobbieB
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That's cool, if it was a gift you're not out much eh?
Hehe, yeah, your share of the expenses eh? Thanks for nothing!
We have been asked to help with a tenant eviction at a trailer park (if the sheriff doesn't show) by a rich friend of my wife (just sold house for 3 million)
So...a friggen trailer park? Should I pack a gat? Whass uupppp?
Nah, don need no stinkin' real estate drama eh?
Hehe, yeah, your share of the expenses eh? Thanks for nothing!
We have been asked to help with a tenant eviction at a trailer park (if the sheriff doesn't show) by a rich friend of my wife (just sold house for 3 million)
So...a friggen trailer park? Should I pack a gat? Whass uupppp?
Nah, don need no stinkin' real estate drama eh?
Sounds like the makings for a soap opera.
Yep, wealth and family dynamics are a toxic combo. I could write a book the size of War and Peace on all the sh*t that happens
So the rich friend owns the trailer park but he can't be bothered to evict his own tenant and asked you guys to do it? Wow! No offense against trailer parks, but I wouldn't go in there to evict someone without a full tactical SWAT team to back me up
Yep, Prop 13 definitely has a distorting effect on the RE market in CA. DW and I have had our SoCal house for 20+ years now, and our property tax valuation based on Prop 13 is roughly 33% of the actual market value. Our neighbor bought his house (same model as ours) a few years ago and pays double the property tax that we do.
I do feel for the younger generation who have to shoulder the much larger property tax burden required to support local services and infrastructures, while the older generation pay relatively little in property tax because their Prop 13 tax base is so low.
In CA, it really only makes sense to rent out a property if the owner has had the property for a long time and can take advantage of the lower property tax afforded by Prop 13. Otherwise, anyone who buys a property in CA in today's prices and wants to rent it out will pretty much guaranteed to be cashflow negative just from the burden of property tax alone (not to mention the current inflated market price).
I keep track of my NW monthly. It makes for an interesting graph over a few years.
For my house, which I own outright and don't plan on leaving in the next 10 years, I just leave an estimated number in there. I like the idea of using the appraised value from my taxes each year - maybe I'll start to do that.
For my house, which I own outright and don't plan on leaving in the next 10 years, I just leave an estimated number in there. I like the idea of using the appraised value from my taxes each year - maybe I'll start to do that.
audreyh1
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My net worth and my retirement assets are two different things. It’s not controversial, so I don’t understand why people are even discussing this aspect.
I do track both, but only use the later for investment/withdrawal decisions.
I do track both, but only use the later for investment/withdrawal decisions.
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Exactly!
The poll would be interesting... I have figured ours several different ways and get a range of close to $2M.
My Pension/ NW thread only lasted 1 day but created an interesting read. Nice to see I'm getting $2K more than 1st figured.
https://www.early-retirement.org/forums/f28/is-a-pension-really-fi-109974.html
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