Random thoughts on net worth.

[ncbill]

I suppose it depends on the area. In California, many long time owners have low property taxes due to Prop 13, and homes are often expensive more based on land prices / location rather than being 6,000 sq feet or having huge acreage. So home insurance and utilities may not be that high. One could live pretty cheaply in a multimillion dollar home here, unless it was bought more recently and had high property taxes. Even then a paid off $3M home would likely rent for something like $10K a month, more than enough to cover taxes, insurance and still make a tidy profit.

Maybe if they bought in the 1960s or 1970s.

My old college buddy who bought in urban, southern CA ~25 years ago (not LA or SF) is now paying ~$9,500/year in property taxes for a ~1,100 sqft, 3BR/2BA ranch home, despite Prop 13.

AFAIK it's not subject to Mello-Roos or any other tax-raising tricks.

Utilities "not that high?"

You mean PG&E's rates?

RESIDENTIAL RATE PLAN PRICING

And, realistically, who's going to move out of their personal residence just to rent it?

No, your personal residence generates expenses, not income.

 

[daylatedollarshort]

Maybe if they bought in the 1960s or 1970s.

My old college buddy who bought in urban, southern CA ~25 years ago (not LA or SF) is now paying ~$9,500/year in property taxes for a ~1,100 sqft, 3BR/2BA ranch home, despite Prop 13.

AFAIK it's not subject to Mello-Roos or any other tax-raising tricks.

Utilities "not that high?"

You mean PG&E's rates?

RESIDENTIAL RATE PLAN PRICING

And, realistically, who's going to move out of their personal residence just to rent it?

No, your personal residence generates expenses, not income.

We know a lot of people who bought their homes in the sixties or seventies or even earlier, and some do rent out their homes because they make a lot of money doing so. Prop 13 has a lock in effect, so there are many long term home owners here. Some of our older neighbors pay $1K in property tax a year. Our property taxes are .2% of the market value.

PG&E rates per kwh are high, but if you have a low energy usage home in a temperate climate your bills may not be that high simply because you aren't using very many kwhs. Our PG&E bills are often under $100 a month for a good size house. Our neighbors with solar panels say they actually make a little money because they generate more electricity than they use. Close to half of the homes in our neighborhood have solar panels. I doubt a 1100 sq foot home in So Cal would use much in heating or cooling at all, even without solar panels. We paid the energy bills for an 800 sq foot college apartment in So Cal in the past and they were maybe $50 a month.

 

[rwdflynavy]

I track our investments, assets and liabilities (just a mortgage at 2.25% for 30 years) on a monthly updated spreadsheet.

I don't get super excited about the market because we are able to cover expenses with my COLA pension and COLA VA disability.

Our total investments went over $1M for the first time back in January of this year and then dropped below in July. The level of my DW's interest is to ask me every couple months "Are we millionaires again?".

 

[ImThinkin2019]

We don't use our home in our NW calculation because we gave it to our kids via a Life Estate Trust. This allows us to live here and maintain/improve the property while we are alive. We we are gone, the kids own the house.

If we had less $$, we probably would not have done that. We'd want to include the house in our NW since we might consider selling it or taking a reverse mortgage.

 

[DrRoy]

Our house is up maybe 2/3 from when we bought it, but that was 1998 and we have spent the difference remodeling it over the years, so no net gain, and behind after inflation.

 

[W2R]

Personally I don't consider buying a house to be an investment so much as my main motivation for investing for so many years. I will never regret being financially stable enough that I could retire in a paid off home with no mortgage, no rent.

But YMMV! And I understand how those in HCOL areas, who have to spend so much to buy a house, might not feel like I do about it.

 

[Ncc1701]

For those that use Schwab or Fidelity, they both have a "Full View" or account aggregation feature where you can add any outside account and include real estate to give you a almost complete net worth picture. You'll see your NW everytime you log in.. I love it.

 

[Sue J]

We also talked about the granny flat my husband I have and how the tenant turnover is going. (Tenants of the past 8 years just purchased a home and we've been prepping and showing it.) We were charging significantly below market to old tenants because they were great tenants and the market was going up crazy. New tenant we just signed the lease with is at the lower end of market rate - but way higher than previous tenants. We figure it's about a $10k bump in income per year.

You've mentioned your granny flat before. Just curious....is this something you built after you owned the property? Is it attached to your house or part of your home like a rental unit on a lower floor? Or is this a separate building on your property? It sounds like its full living quarters, not a tiny house.

 

[FiveDriver]

We do a Net Worth summary on December 31st, using a form my Credit Union was handing out 30 years ago. It's a great way to capture all assets and liabilities. In those early years, the line item for 'Market Value of Home' was a mere pittance, while the Line for 'Mortgage Balance on Home' was a huge number.

Eventually that huge number came all the way down while the Market Value was steadily increasing. I'm not about to ignore the value of a fully paid-off Home.

I keep accurate track of Home Sales in our subdivision, thanks to a Realtor friend of mine who sends me Listings and Sales on a regular basis. I factor in the typical Closing Costs to come up with the 'walk-away check' that we could deposit if we ever choose to move.

That walk-away number is too big to leave off of any Net Worth statement.

 

[ShokWaveRider]

The only way to measure NW is Assets - Liabilities. VERY VERY Simple and does not need to be complicated.

We do NOT include Cars, watches, paintings, Computers, Cameras, can openers or anything except for our home's BASIS price. We do not include "Potential" gain on our home, only what we paid for it assuming it is not upside down, fortunately that has not occurred and would require a down grading.

 

[RobbieB]

I'm sure glad I have a paid off house.

Here's some info on the new apartment complex in town. For $2,300 / mo. you get one bedroom and a whole 700 sq-ft. And no, this is not silicon valley, this is the central valley.

So yeah, owning a house is an expense, but not twenty five grand a year.

 

[finnski1]

The only way to measure NW is Assets - Liabilities. VERY VERY Simple and does not need to be complicated.

We do NOT include Cars, watches, paintings, Computers, Cameras, can openers or anything except for our home's BASIS price. We do not include "Potential" gain on our home, only what we paid for it assuming it is not upside down, fortunately that has not occurred and would require a down grading.

Yes it would appear very simple but...
You just defined your own criteria that works for you. Many people also define their own criteria and yet you aren't really okay with that?
Let's say you bought your house for $200k and now it is worth $500k. Let's also suppose you have a 2 million dollar investment portfolio.
By you criteria your NW would be 2.2 million. Someone else may say it is $2.5 million.
Does it really matter then in either case ?

What if they have a $5 million dollar art collection. Would you really not count any of that?

 

[Car-Guy]

^^^^^
Or the value of future payments in pensions and/or SS, deferred compensation plans, etc? Or maybe those are assets to be counted?

 

[Montecfo]

I do not count the house for my retirement nut since it is not something that generates income for spending-which is what you need to retire.

Now within the most common definition of net worth, I certainly would include home, net realizable value of personal property etc. For instance if I was doing some sort of exercise or personal financial statements.

I would also include pensions and SS in some fashion, since the income stream has value and can take the place of income from invested assets.

But for most purposes I look solely at invested funds, which is pretty easy to do on real time at my broker website. I also tally those figures monthly to see the trend.

I ignore SS since I am not drawing it and my retirement plan assumed zero SS.

 

[swakyaby]

For those that use Schwab or Fidelity, they both have a "Full View" or account aggregation feature where you can add any outside account and include real estate to give you a almost complete net worth picture. You'll see your NW everytime you log in.. I love it.

I also have that feature on my American Century account. At first, I was reluctant to include outside accounts because it asked for login information. But I caved, and now I can easily view all investable assets and online savings accounts in one place, at their current values.

 

[USGrant1962]

^^^^^
Or the value of future payments in pensions and/or SS, deferred compensation plans, etc? Or maybe those are assets to be counted?

Nah. Net worth is current assets - liabilities. Basically liquidation value (AKA your estate) if you keel over today. Future income streams are income, not assets (you can't sell them), and are out. Houses are always in.

If you are excluding material assets (like home equity) you are not calculating net worth, you are calculating your investments or your portfolio or something else.

 

[Car-Guy]

Nah. Net worth is current assets - liabilities. Basically liquidation value (AKA your estate) if you keel over today. Future income streams are income, not assets (you can't sell them), and are out. Houses are always in.

So, hypothetically, two guys are working for the same company. Over the years they have often compared their NW's and were happy to see they were equal. They both retired on the same day and both have/had the same NW on their last day of work. Each has a NW of $500,000 based on (Net worth is current assets - liabilities. Basically liquidation value (AKA your estate) if you keel over today, including their houses.)

So, they both get retirement benefits/pensions of either a lump sum worth 1 million dollars or a monthly annuity equivalent over their retirement. The first guy takes the lump sum and gets a check and is now worth $1,500,000... (not counting taxes ) The second guy takes the annuity but is still only worth $500,000.

Correct?

 

[Chuckanut]

Pensions are phantom assets.

Give this a shot.

https://actuaryonfire.com/valuing-a-pension-actuary-style/

 

[daylatedollarshort]

It is easy enough to calculate NW with and without pensions, Social Security, house, whatever you want, in spreadsheets. I have a spreadsheet with all sorts of totals. It is not like it takes a lot of time or energy to look up our home price in Redfin or account balances at the brokerages.

My favorite numbers to track are annual expenses compared to annual income. Every year we have projects to try to lower the recurring expenses, while raising, or at least maintaining quality of life, and increasing the annual income. My next big project is getting us off grid as much as possible for water and energy, so that will be a real money saver. Last year the big money saver was refinancing when mortgage rates bottomed out and we also made a bunch of smaller changes, like dropping the local cable channels and I learned to cut my own hair with Crea Clip type guides.

 

[Car-Guy]

It is easy enough to calculate NW with and without pensions, Social Security, house, whatever you want, in spreadsheets. I have a spreadsheet with all sorts of totals.

Agree, and that's what I did in the past when I calculated my NW. For things like pensions and SS, since I don't know how long I'll live to collect it, I used the SS life expectancy calculator to figure that value (with or without inflation)... Got me close enough.

 

[luckydude]

Nah. Net worth is current assets - liabilities. Basically liquidation value (AKA your estate) if you keel over today. Future income streams are income, not assets (you can't sell them), and are out. Houses are always in.

If you are excluding material assets (like home equity) you are not calculating net worth, you are calculating your investments or your portfolio or something else.

+1

I calculate my NW the way Uncle Sam would calculate it for the purpose of estate tax return if I were to get run over by a truck today: the current market value of all assets in my possession minus any liabilities; these assets include RE, securities, cash, arts, gold, collectibles, etc., basically anything tangible that can be sold for cash or is cash and can be transferred to another individual.

SS and pensions are income streams but they are not assets because they can't be sold/transferred to another person. They are great for retirement planning in terms of guaranteed income streams but unless there is an option to convert them into a lump sum payment based on NPV or some other methods, they don't count as assets. Uncle Sam agrees and that's why these income streams are not included in one's estate for the purpose of estate tax return filing.

I realize that SS and pensions have survivor benefits and can be transferred to one's spouse/kids, but that's an exception and these benefits still cannot be realized for cash and transferred to another individual outside one's family.

 

[TheWizard]

Nah. Net worth is current assets - liabilities. Basically liquidation value (AKA your estate) if you keel over today. Future income streams are income, not assets (you can't sell them), and are out. Houses are always in.

If you are excluding material assets (like home equity) you are not calculating net worth, you are calculating your investments or your portfolio or something else.

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...

 

[TheWizard]

...So, they both get retirement benefits/pensions of either a lump sum worth 1 million dollars or a monthly annuity equivalent over their retirement. The first guy takes the lump sum and gets a check and is now worth $1,500,000... (not counting taxes ) The second guy takes the annuity but is still only worth $500,000.

Correct?

Correct, depending on whether the annuity has a guaranteed period. Mine had a ten year guarantee, so that would be added to the $500k...

 

[rwdflynavy]

I don't count my pensions as an asset. If I did, my net worth would more than triple.

 

[DrRoy]

My targets have all been based on non-home net worth.

Me either. Until I sell the house and get the proceeds in cash, the value of our house is very subjective and moot in the grand scope of things. Yes home equity is part of net worth, but shouldn’t be considered an investable asset IMO.

I track only investments, monthly. That's what we can spend from. I don't expect to ever sell the house and do not need to follow full on NW.