Poll: Primary Home as % of Net Worth

[W2R]

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.


That calculation seems weird just to me. E.g., if your primary residence is worth 1m and your other assets like stocks/bonds are worth 1m then your calculation would yield 100%. Seems like it should be 50% according to your subject title?

This totally confused me, too. Maybe by "Your $ net worth without primary residence" he meant how much you would have if you sold your primary residence and added that money to the rest of your stash? (sigh) Now I'm not sure.

 

[Ready]

That calculation seems weird just to me. E.g., if your primary residence is worth 1m and your other assets like stocks/bonds are worth 1m then your calculation would yield 100%. Seems like it should be 50% according to your subject title?

In this example, your residence would be equal to 100% of your investable net worth, or 50% of your total net worth.

But on this forum we usually ignore "total net worth" since you can't spend the money associated with your home's value unless you plan to sell your home.

 

[FANOFJESUS]

65% here in Southern California. Seems kind of crazy when I have to actually calculate it but it is what it is.

Have you heard what they call a millionaire in California? A home owner

Their is a lot of truth to the joke.

 

[RunningBum]

Does it really matter whether the denominator includes the house value or not, as long as people follow the instructions and are consistent? It's just one set of numbers or the other.

 

[Silver]

We live in central Florida and our home (paid for) is 5% of our net worth not including it. We are also looking for another house that is larger and has a water view, but we are not interesting in paying more than 7-8% of our net worth for it. We have looked at several that meet our criteria, but haven't "fallen in love with" anything yet.

We are in no hurry....I would just like more of an enjoyable outdoor area than we currently have. And the 8% target price is somewhat arbitrary, but would be obtainable in the current market, and easily comfortable financially. By the looks of the survey we may be pretty cautious, but that's where we want to stay.

 

[LARS]

As others have pointed out percents, while interesting, are only really somewhat of interest without knowing the $ amounts involved.

If someone is worth $100 million and has 10% of their net worth in a house is a much different story than if a person is worth $1 million and has the same 10% of net worth in a house.

And, yeah, the OP formula is goofy.

 

[flintnational]

New Poll "Will the sun rise tomorrow?"

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?"

 

[Car-Guy]

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.

"Sometimes"? example response to that poll: Does the sun rise or is it the earth's rotation that just makes it appear that way to us?

Anyway, my answer is the same as it was the last time a similar questions was asked. <5%

 

[NW-Bound]

We have a high ratio (California real estate) but is this the real figure of merit you want Midpack?

For example, suppose the ratios and income cash flows are the same but:
1) Couple A has a $1M/$2M = 50% home/networth
2) Couple B has a $200k/$400k = 50% home/networth

Seems to me these situations are hugely different and do not take account of retirement spending needs.

And then, if Buffett ran across this poll, he would say "What the heck is this <5% choice? Mine is < 0.1%. It should be on a logarithmic scale".

My own number is reasonably low even with two decent homes. But then, I am not in California.

My close friend bought a small home in San Clemente. He said the RE was awfully expensive compared to where his main home was. And that was in the DC area, which of course was not cheap. "House = Bank" indeed for some areas.

 

[Hermit]

I think I won't vote... The motor home I have been living in for I guess going on 4 years was given to me. Then again, if I use the house I am building, the answer would be somewhere around 18%. But that does not include the value of my pension and SS which will more than pay for all my living expenses once DS gets off the payroll and the house is done.

Can I vote that the sun don't shine??

 

[HawkeyeNFO]

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?

Am I supposed to vote?

I am currently retired, I know my home's value and my net worth, so I don't need to make projections. But I still have almost $400k of mortgage debt.

 

[Koogie]

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.

It's why I stopped posting poll based questions... life is hard enough as it is without inviting this kind of inanity into it...

 

[bobandsherry]

Am I supposed to vote?

I am currently retired, I know my home's value and my net worth, so I don't need to make projections. But I still have almost $400k of mortgage debt.

Just make something up 8 out of 10 statistics are made up anyway....

And we always have this:

Three statisticians went out hunting, and came across a large deer. The first statistician fired, but missed, by a meter to the left. The second statistician fired, but also missed, by a meter to the right. The third statistician didn't fire, but shouted in triumph, "On the average we got it!"

 

[Meadbh]

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?"

 

[davebarnes]

30+%
But, I never count it in our net worth.
I only count what is at Fido.

 

[NW-Bound]

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]

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]

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]

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]

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]

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.