Poll: Compare value of your residence to investment portfolio

[RobbieB]

If you have it w/o having to buy it even better. Always an asset if times get tough.

 

[rodi]

I was thinking about this today. If I had cash equal to my total assets to allocate today, would I really choose to invest 24% of it in residential real estate? Probably not. But there you have it.

I see this point. But people choose where they live for a variety of reasons... family, employment, etc. I moved back to San Diego 15 years ago... and was in total sticker shock on the price of homes compared to the Philly burbs where we were coming from. But my family was here, and I had a job that allowed us to afford a house here.

Once we paid off the house (12 years after we purchased), it became a non-issue.

I think the market value of my house is obscene... it's a 50 year old tract home worth a HUGE amount of money. But it was cheaper when we bought... and it's a comfortable, paid for, house to live in.

 

[laurence]

20% of our NW is equity in our primary home, I hope I understood the question correctly. San Diego is expensive.

 

[laurence]

I see this point. But people choose where they live for a variety of reasons... family, employment, etc. I moved back to San Diego 15 years ago... and was in total sticker shock on the price of homes compared to the Philly burbs where we were coming from. But my family was here, and I had a job that allowed us to afford a house here.

Once we paid off the house (12 years after we purchased), it became a non-issue.

I think the market value of my house is obscene... it's a 50 year old tract home worth a HUGE amount of money. But it was cheaper when we bought... and it's a comfortable, paid for, house to live in.

It's not just about numbers, I love my San Diego home! We back up on a championship golf course and have horse trails running along side all our sidewalks. Every morning I go for a 20 minute walk past the vineyard and the co-op farm. It's amazing. It's a little more money tied up in real estate than we had to do, but it's worth it today. It can't always be about the math, eh?

 

[Lucantes]

I can only speak for myself.... But my retirement plan did not include "spending" my house or using my house for anything but shelter. Since it's paid off - the expense is just the normal expenses of owning a home - maintenance, upgrades, taxes, insurance.... Those are the same among similar size houses whether the house is in a high COLA or low COLA.
All that said - owning an expensive house outright gives me a robust "Plan B" option if the market tanks, one or both of us ends up in extended long term care, or some other catastrophic event. It gives me confidence to forgo the LTC insurance.

+1

 

[Alan]

I was thinking about this today. If I had cash equal to my total assets to allocate today, would I really choose to invest 24% of it in residential real estate? Probably not. But there you have it.

We sold our house in readiness for a retirement full of travel and since doing so, moving into an apartment in the same city we then moved moved cities 3 more times before retiring and then for the past 7 years have spent 5-7 months away and the lock and leave ability has been great.

We have now decided to settle in one place, in Yorkshire, and within the next 12 months we'll be buying a house for cash using some of our investable assets and that will set our ratio in this poll at ~15%. (We'll also vacate our apartment in Texas).

 

[eytonxav]

See the table in this article that shows median net worth by age, with and without home equity included. Data is from US Census Bureau and it makes me wonder how so many can survive a long life or retirement with these numbers:
Americans' Average Net Worth by Age -- How Do You Compare? -- The Motley Fool

It would be interesting to see the numbers of people that make up each data age group. I can only assume that many people are planning to rely on SS and/or a pension to survive.

 

[Danmar]

I was thinking about this today. If I had cash equal to my total assets to allocate today, would I really choose to invest 24% of it in residential real estate? Probably not. But there you have it.

This is a good question and one that I faced twice when we decided to buy our vacation properties. The second one (Arizona) was the most expensive and took our ratio up to about 20%. I thought long and hard about this before proceeding. So, I can conclude that 20% is the upper bound for me. Personal decision for sure but you really have to love your real estate for a ratio over 30% in my view.

 

[2017ish]

See the table in this article that shows median net worth by age, with and without home equity included. Data is from US Census Bureau and it makes me wonder how so many can survive a long life or retirement with these numbers:
Americans' Average Net Worth by Age -- How Do You Compare? -- The Motley Fool

....

Wow. Those numbers are the polar opposite of the poll results. Once again, this forum is shown to be far from representative.

 

[Marita40]

Are these results fodder for those who say you shouldn't pay off your mortgage?
Or is that a can of worms

 

[Danmar]

Are these results fodder for those who say you shouldn't pay off your mortgage?
Or is that a can of worms

I would think that having a mortgage on your personal use real estate should guide you towards a lower ratio since your overall leverage to real estate is higher with a mortgage. To keep your risk equal you would probably reduce your RE ratio. Much like margin borrowing.

 

[pb4uski]

Wow. Those numbers are the polar opposite of the poll results. Once again, this forum is shown to be far [-]from representative[/-] superior.

FIFY.

Just kidding of course.

 

[Live And Learn]

This poll got me thinking.

Currently my house is 5% of investment portfolio. Prior to downsizing it was 9%. When I bought my first house it was probably 80% --- scary !

I love my little house. I finally live in a house where every room is used

 

[unclemick]

Ok not counting other RE over my ER years(duplex, timberland, Farm) and with the great benefit of hindsight (23rd year of ER) I do not believe my home ever exceeded 10% marked to market.

The big dog on the porch has always been index funds.

heh heh heh - I remember before the last housing kerfuffle we had more forum posters in RE. Am I thinking opportunity here or just wish full thinking?

 

[samclem]

All that said - owning an expensive house outright gives me a robust "Plan B" option if the market tanks, one or both of us ends up in extended long term care, or some other catastrophic event. It gives me confidence to forgo the LTC insurance.

Selling an expensive home might work out well if the sudden need for resources is caused by a big increase in expenses (LTC, etc). But if it's due to a market downturn, it might not work out as well. It looks like a lot of oldsters have a lot of their net worth in their homes. If everybody decides at once to sell and move in with the kids, be a renter or to downsize, it might be tough on some RE market segments.

From DFW_M5's link:

 

[NW-Reader]

That's how ridiculous the housing market has been in Vancouver over the last two decades.

We're in Seattle. Bought our little 1940's house in 1998, and the mortgage is paid off. The insane RE market here has put us in the >50% category on the poll. We are surrounded by $500k tear-downs; every day it seems there's a new hole in the ground somewhere in the neighborhood. I don't see it changing any time soon, especially with the new tax on foreign buyers in B.C. Seattle becomes No. 1 U.S. market for Chinese homebuyers | The Seattle Times

We have already purchased (in 2011) our retirement condo in Anacortes, WA and are renting it out for current income. Seattle is starting to drive us crazy with the traffic and prices, but we can't seem to leave our wonderful little house, which we love. First we thought we would move when we FIRE'd. Then when the kid went off to college. Now we're staying as long as the dog is still around (no fenced yard at the condo).

If we sold we would have the freedom and $$ to travel more, and we want to do that before we are tied down with parents to care for, or too decrepit ourselves to enjoy travel. First world problems.

 

[Persn]

We're in Seattle. Bought our little 1940's house in 1998, and the mortgage is paid off. The insane RE market here has put us in the >50% category on the poll. We are surrounded by $500k tear-downs; every day it seems there's a new hole in the ground somewhere in the neighborhood. I don't see it changing any time soon, especially with the new tax on foreign buyers in B.C. Seattle becomes No. 1 U.S. market for Chinese homebuyers | The Seattle Times

We have already purchased (in 2011) our retirement condo in Anacortes, WA and are renting it out for current income. Seattle is starting to drive us crazy with the traffic and prices, but we can't seem to leave our wonderful little house, which we love. First we thought we would move when we FIRE'd. Then when the kid went off to college. Now we're staying as long as the dog is still around (no fenced yard at the condo).

If we sold we would have the freedom and $$ to travel more, and we want to do that before we are tied down with parents to care for, or too decrepit ourselves to enjoy travel. First world problems.

I could totally do retirement in Anacortes, as I understand it is sunny there, unlike Seattle. I would like a place with lots of sunshine and nice water views, not too hot. Anacortes seems to meet those requirements.

 

[Nemo2]

I could totally do retirement in Anacortes, as I understand it is sunny there, unlike Seattle. I would like a place with lots of sunshine and nice water views, not too hot. Anacortes seems to meet those requirements.

Watch out for the earthquakes though.

(Good enough for Burl Ives who died there.)

 

[eta2020]

I can only speak for myself.... But my retirement plan did not include "spending" my house or using my house for anything but shelter. Since it's paid off - the expense is just the normal expenses of owning a home - maintenance, upgrades, taxes, insurance.... Those are the same among similar size houses whether the house is in a high COLA or low COLA.

I doubt that Rodi.

Taxes, insurance and maintenance cost will vastly differ between high COLA Boston Suburb and average COLA Colorado Springs.

You are looking at easily 5 times higher expense for a same house.

 

[sengsational]

Once we paid off the house (12 years after we purchased), it became a non-issue.

That's kind of the way I treat the decision, but the fact that it's paid-off isn't an air-tight reason never to get leveraged again...there might be a reason some day. But as mentioned, this is getting dangerously close to the pay-off / don't pay-off can of worms. But back to my original comment, I'd say if I found I was in the top % in this poll, I'd seriously consider reducing equity and become more involved with other asset classes.

 

[foxfirev5]

A little over 10 % here. However I give no consideration regarding my investments and the income they will generate in retirement. Our lake house could be added to investments but that's just a plan D or E if needed down the road. In any event our annual costs are above average for our part of the country. It is a lifestyle choice.

 

[gauss]

.. But back to my original comment, I'd say if I found I was in the top % in this poll, I'd seriously consider reducing equity and become more involved with other asset classes.

I don't think that the % from this poll matters so much in individual cases. What matters for retirement readiness in individual cases is the ratio of the individuals investable assets to their expenses.

As long as this ratio is sufficiently okay, then the equity in the primary residence should be irrelevant. Any holding costs of the residence are already captured in the expenses number.

What I find interesting is the absolute numbers provided by the Census data and the very low absolute amount of investable assets there combined with the implied %'s

-gauss

 

[socca]

Presumably this poll is intended to distinguish the house-rich from the house-poor. The problem is that the poll as constructed fails to distinguish two people in very different financial situations:
(1) a person with a paid-off house and an investment portfolio much larger than the market value of the house;
(2) a person with a huge mortgage and relatively low equity, where the investment portfolio could be used to pay off the mortgage, but then nothing would be left.
Both of these people will report a low percentage, but in my mind this is mixing apples and oranges. Since I'm debt-averse, I am likely to view person #1 as being in better overall financial condition than person #2. Other folks will disagree. That's OK.

 

[RobbieB]

This poll is "just for fun" as stated. Why do you presume anything?

 

[rodi]

Selling an expensive home might work out well if the sudden need for resources is caused by a big increase in expenses (LTC, etc). But if it's due to a market downturn, it might not work out as well. It looks like a lot of oldsters have a lot of their net worth in their homes. If everybody decides at once to sell and move in with the kids, be a renter or to downsize, it might be tough on some RE market segments.

From DFW_M5's link:

I agree - there is a decent chance that when we go to sell (assuming Plan B scenario) we will sell for less than current market value. It would still be a number well above zero.... so it will work for plan B to provide some funds for LTC.

Fortunately, our NW w/out equity (red bar) is bigger than our equity.... That graph from DFW_M5's link shows many are in a different scenario than we are.... Home equity is their biggest chunk of net worth. Firecalc says we're good when we run it excluding the home value but including the home expenses.