Random thoughts on net worth.

[old medic]

<sigh...> Family dynamics. .

I can relate... We have 2 houses from one piece of property that got split many years ago. My Brother has rented the 1st house many years before we bought it, and "rents" it from us.. It will be his forever home, but left to our Grandson when the rest of us are gone. man alive what an estate mess its looking like.
And yes he can have his moments too....

 

[Chuckanut]

Yeah Prop 13 is getting pretty weird. I guess it keeps the rent down. Even with low property taxes the rent ratios are terrible for investors. It is all about appreciation.

So now in California you folks have Prop 13 and previous low interest mortgages as a disincentive to sell a home.

This will be interesting to watch.

 

[daylatedollarshort]

I don't know anyone who had a house they lived in and then rented it out here in California who has come out behind. One of my friends rented their house after being transferred out of state, and then moved back. Their home price at least doubled in that time while their property taxes only went up 2% a year. If they hadn't kept their house, they wouldn't have been able to afford to move back.

 

[ncbill]

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).

Yep, high-priced houses can't be (positively) cash-flowed easily.

Even Financial Samurai threw in the towel & sold his San Fran investment home after a few years of sub-par rental returns.

Using my buddy's house, & upscaling for his urban area, assuming a $3 million home there would rent for $10k/month (per Zillow, it's more like $8,500/month) but with property tax of $1,500/month...ignoring all other costs that return is less than the 1-year T-bill rate.

For all the hype surrounding it, it seems clear that Prop 13 really has not benefitted those who bought recently...as in the last 25+ years...they're still paying outsized property taxes despite Prop 13.

Sure, for those who bought in the 1960s or 1970s & who are now in their mid-70s to mid-80s it's worked out fine.

 

[brett]

I have never understood the fixation on net worth or indeed the comparison with others net worth.

Seems to me our concern after 12 years of retirement is the same as it was five years prior to retirement. Cash flow, travel money, capital purchases.

Will we have the pension income stream to see us through 30 years or more of potential inflation and afford us the retirement, the lifestyle, and the security that we desire?

If not, will the spin off from investments, sale or investment income, cover any f'casted future gap?

After that it is academic to us. Does not matter what a fixed asset, home(s), jewelry, art, etc may be 'worth' if we have no intention of selling them.

Nor does it matter to us how our net worth may compare to that of others.

 

[daylatedollarshort]

Yep, high-priced houses can't be (positively) cash-flowed easily.

Even Financial Samurai threw in the towel & sold his San Fran investment home after a few years of sub-par rental returns.

Using my buddy's house, & upscaling for his urban area, assuming a $3 million home there would rent for $10k/month (per Zillow, it's more like $8,500/month) but with property tax of $1,500/month...ignoring all other costs that return is less than the 1-year T-bill rate.

For all the hype surrounding it, it seems clear that Prop 13 really has not benefitted those who bought recently...as in the last 25+ years...they're still paying outsized property taxes despite Prop 13.

Sure, for those who bought in the 1960s or 1970s & who are now in their mid-70s to mid-80s it's worked out fine.

Everyone is entitled to their own opinion on Prop 13, but not their own math. The median Bay Area home price in 2012 was $405K, in 2022 it is $1.42M. Property taxes on a $400K home would have been $5K. After ten years the property tax with 2% increases would be $6K. $6K property taxes on a $1.42M home are .42%, about half the national average rate of .99%. Buying a home at $1.42M would mean $17.8K in property taxes. Prop 13 would save our hypothetical median Bay Area home buyer $11.8K a year, after 10 years, plus reinvestment income. And many states have much higher rates - Property Taxes By State: Highest To Lowest | Rocket Mortgage, like NJ is 2.49% and Illinois is 2.27%.

 

[YVRRocketSurgery]

In the years and down to the days leading up to retirement, I was regularly checking the value of my investments nearly on a daily basis. I also log a monthly snapshot to provide a more of an overall view.

Post retirement mid April, I now primarily check the value of my investments at the end of the month in order to continue to log my monthly snapshot.

Instead, my primary focus has now switched to monitoring my monthly cashflow. However, after roughly mapping it out for the year, I don't feel the need to check and update the numbers more than at the end of the month.

So even though the markets have given my portfolio grief, it's been less top of mind. For me, it's really been more about aligning spend with cashflow. And I'm feeling fairly confident with my cashflow over the next couple of years relative to my portfolio.

For total networth, I add the value of the house (according to an annual government assessment that's used to calculate property taxes proportionally) to my portfolio value at the end of the year. The housing market in Vancouver has been softening with the rise in interest rates so I suspect it won't blunt the drop in my portfolio when I do my year end tally. That said, I'm using the house for longer term retirement planning as a retirement income source/stream of last resort so hopefully a couple of decades before we need to assess whether we need to put it in play.

 

[NW-Bound]

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.

My parents had a rental home that they let sit vacant for many years. Their last tenant used it to grow MJ.

My mother finally sold it to my brother, who renovated it to rent out again.

Nope, being a landlord is not for me. I would rather take my chances with equities, even if some went bankrupt on me. By diversification, the few that went bankrupt did not hurt me too bad. I would not have enough rental units to have "tenant diversification".

 

[Letj]

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.

I am afraid everything you say about landlording here is true. It’s not for the faint of heart and while it has been worthwhile for me, I do live in a state that’s not necessarily landlord friendly but they do get their day in court. I will be the first to admit that the only reason why I was reasonably successful is because we did nearly all the maintenance ourselves. Tenants are hard on rentals.

 

[rodi]

OP here. I figured I'd address some of comments here.

Yes - I agree that networth is a silly number because homes aren't spendable. It was a passing thought - hence the title of this thread. It does not count at all in my retirement plans other than when/if we downsize we'll add more money to the portfolio.

As far as expensive house relative to portfolio... I didn't pay the current value... I would never be able to. But it's a good house that we were able to afford at the time, and pay off. As a bonus we have very low property taxes - inherited prop 13 tax rate because I bought from my dad - but they tripled in 2008 when we built the granny flat. The new construction was billed at market rate of the time... but increases are still limited by prop 13.

Also - folks seem to have missed the fact, in the OP, that our granny flat will be generating more than $10k/year MORE than previously because old tenants moved out and we've upped the rent to market rate. So my primary home real estate with a granny flat is reducing how much I need from my portfolio. Not typical, I agree... but income is income...

And for those that suggest if you have a house that is worth a lot should sell, and move somewhere else to cash out.... Why? We can afford to live here, like the area, like being relatively close to a beach that doesn't get hurricanes (not since 1958)... Sure we'd have a fatter portfolio... but we wouldn't have the same quality of life and amazing weather.

 

[daylatedollarshort]

And for those that suggest if you have a house that is worth a lot should sell, and move somewhere else to cash out.... Why? We can afford to live here, like the area, like being relatively close to a beach that doesn't get hurricanes (not since 1958)... Sure we'd have a fatter portfolio... but we wouldn't have the same quality of life and amazing weather.

If someone here sold their house for $1M last year and invested the money in the stock market, this year they'd likely be paying $40K to $50K in rent and would have lost $250K YTD in their stock investments.

 

[NW-Bound]

And for those that suggest if you have a house that is worth a lot should sell, and move somewhere else to cash out.... Why? We can afford to live here, like the area, like being relatively close to a beach that doesn't get hurricanes (not since 1958)... Sure we'd have a fatter portfolio... but we wouldn't have the same quality of life and amazing weather.

If I did not buy my 2nd home in the high country and had invested my money instead, I would have added another 7 figure to my stash. Homes here have not appreciated as much as the stock market. But I don't need more money to spend. My 2nd home is my way of BTD.

If you can afford to stay where you are and like to be there, there's no reason to cash out. But if a person runs into a financial problem, then perhaps selling and reinvesting the money may generate a better cash flow than renting it out. It's something to consider.

 

[Exchme]

OP here. I figured I'd address some of comments here.

Yes - I agree that networth is a silly number because homes aren't spendable. It was a passing thought - hence the title of this thread. It does not count at all in my retirement plans other than when/if we downsize we'll add more money to the portfolio.

As far as expensive house relative to portfolio... I didn't pay the current value... I would never be able to. But it's a good house that we were able to afford at the time, and pay off. As a bonus we have very low property taxes - inherited prop 13 tax rate because I bought from my dad - but they tripled in 2008 when we built the granny flat. The new construction was billed at market rate of the time... but increases are still limited by prop 13.

Also - folks seem to have missed the fact, in the OP, that our granny flat will be generating more than $10k/year MORE than previously because old tenants moved out and we've upped the rent to market rate. So my primary home real estate with a granny flat is reducing how much I need from my portfolio. Not typical, I agree... but income is income...

And for those that suggest if you have a house that is worth a lot should sell, and move somewhere else to cash out.... Why? We can afford to live here, like the area, like being relatively close to a beach that doesn't get hurricanes (not since 1958)... Sure we'd have a fatter portfolio... but we wouldn't have the same quality of life and amazing weather.

It sounds like you have found a great balance between quality of life and portfolio size.

I wouldn't go so far as to say it is silly to look at Net Worth that includes the primary home, there are uses to the number.

Many folks end up selling their home at some point -
-Some move by choice so may have a big cash draw or windfall.
-Some can't take care of the place.
-Some need help taking care of themselves.
-Some run through their money and are forced to sell (hopefully does not apply on this forum!)

Even if never sold, obviously homes are counted for state and federal estate tax calculations. I'll bet this gets discussed more often on the forum when the federal estate tax exemption gets cut in half in 2026.

 

[ncbill]

Everyone is entitled to their own opinion on Prop 13, but not their own math. The median Bay Area home price in 2012 was $405K, in 2022 it is $1.42M. Property taxes on a $400K home would have been $5K. After ten years the property tax with 2% increases would be $6K. $6K property taxes on a $1.42M home are .42%, about half the national average rate of .99%. Buying a home at $1.42M would mean $17.8K in property taxes. Prop 13 would save our hypothetical median Bay Area home buyer $11.8K a year, after 10 years, plus reinvestment income. And many states have much higher rates - Property Taxes By State: Highest To Lowest | Rocket Mortgage, like NJ is 2.49% and Illinois is 2.27%.

Your basis seems a little low...maybe 2002 instead?

https://www.cnbc.com/2019/07/01/how...e-bought-10-years-ago-could-be-worth-now.html

Which is why it doesn't surprise me that my buddy's ~$1.5 million (Zillow) house now runs ~$10k/year in property tax, even though it's not in SF or LA.

And ADUs must be nice...with our local university just a few miles away I wish we had a state law that overrode local zoning codes so I could drop a mobile home in my backyard to rent.

 

[daylatedollarshort]

Your basis seems a little low...maybe 2002 instead?

https://www.cnbc.com/2019/07/01/how...e-bought-10-years-ago-could-be-worth-now.html

Which is why it doesn't surprise me that my buddy's ~$1.5 million (Zillow) house now runs ~$10k/year in property tax, even though it's not in SF or LA.

I looked up median home prices in the Bay Area in 2012 and 2022 in my calculations.

2012 - https://www.sfgate.com/realestate/article/Bay-Area-home-prices-up-24-6-over-2012-4356658.php - $405K

2022 - https://www.sfchronicle.com/projects/real-estate/bay-area-home-prices/ - $1.42M

$405K X .0125 = $5,062. After ten years, at 2% increase that is $6,050, property tax after 10 years under Prop13.

$1.42 X .0125% = $17,750, market rate property tax. Difference is $17,750 - $6,052 = $11,700, benefit from having Prop 13 in place.

The article you posted had average not median prices, which are skewed upward by very expensive homes, like including Bill Gates in average net worth calculations. But even then they were in the five hundred thousands for 2012 in the Bay Area.

Using $550K, that comes out to $8,216 in current property taxes, a benefit of ($17,750 - $8,216) = $9,340K from Prop 13. So even using average, not median home price, a home owner would pay less than half of market rate taxes under Prop 13 after 10 years.

Home prices in the U.S in 2002 were actually not much different in 2012, according to a news article from 2012, https://www.nbcbayarea.com/news/local/real-estate-time-machine-home-prices-at-2002-levels/2070516/ - "Home prices in the United States are eerily similar to where they were about 10 years ago, according to a report published by CoreLogic Inc." So the 2002 calculations would be the same.

TLDR: So short answer, no the median home price numbers I used are correct. You used average instead of median, and even using average prices, there is still a $9,340K annual benefit from Prop 13 for homes bought from 20 to 10 years ago.

 

[11522914]

Come on guys. Net worth is as simple as when to take Social Security.

 

[SecondCor521]

So as I said in post #11 of this thread. How folks calculate their NW is all over the map. (See below from the small handful of related responses in this thread) Some include their house(s), some don't, some include their future SS payments, some may not, some include rental income, etc.... Surprised no one mentioned their pensions "yet", among other things. One of these days I'll start a thread and poll (maybe) specifically to get folks opinions as to what should be included in a NW calculation. Not that there is any right or wrong answer, (IMO) but it should be interesting. But not today, it's Sunday, and I'm not "working" today.

What one includes or excludes depends nearly entirely on why one is calculating their "net worth". People are probably including different things because they're answering different questions.

For myself and my Dad, I calculate seven different things that could reasonably be called net worth, because there are seven different reasons I'm doing so / questions I'm trying to answer:

How much do I have?
Can I stay FIREd?
Should I disclaim?
How does SS later impact what I should spend now?
How and when do we need to address estate tax related issues?
etc.

As long as people are answering different questions, the question of what to include or exclude is going to vary. On top of that, people have different personalities, plans, and viewpoints on things that will affect whether to include things - some people, for example, exclude assets because they want to treat them as an additional safety net, or they don't want to try to convert an income stream into an NPV or vice versa.

 

[RobbieB]

The value of a paid off home is easy. You don't have to pay rent. Yeah taxes and upkeep, but check out rents around your area.

It would cost me 30 grand a year to rent something that is not as good as what I have. Not to mention I couldn't make it into what I want either. Add to that the owner can sell at any time and send me down the road. Moving expenses.

I count my home as net worth because it reduces expenses. Positive effect on cash flow vs rent.

 

[audreyh1]

And for those that suggest if you have a house that is worth a lot should sell, and move somewhere else to cash out.... Why? We can afford to live here, like the area, like being relatively close to a beach that doesn't get hurricanes (not since 1958)... Sure we'd have a fatter portfolio... but we wouldn't have the same quality of life and amazing weather.

Incredibly important point!

The point of being retired is not to maximize your assets/net worth. It’s to enjoy life! Enjoying where you live is a big part of it. The only caveat is living within your means.

Selling out and moving somewhere less enjoyable/desirable is not a great move unless you simply can’t afford to do otherwise.

 

[brett]

^+1

That is why we believe that cash flow and quality of life, and enjoying our retirement is far more important that keeping tabs on our net worth.

We have good pensions. They have no value in terms of our net worth. No intention of selling our home. Why on earth would we cash out? When we cash out it will be to the crematorium.

We spend far more time thinking about and making plans for our next one or two extended travel trips than we do worrying about our investment account. That gets a once a quarter half hour review and at most a semi annual meeting with our fee for service investment manager.

Shortly after retiring, downsizing, and retiring we quickly came to the conclusion that at our stage in life experiences, family, good health, and enjoying our preferred lifestyle trump everything. It is the 80/20 rule for us

 

[old medic]

^+1
That is why we believe that cash flow and quality of life, and enjoying our retirement is far more important that keeping tabs on our net worth.
When we cash out it will be to the crematorium.

My Dad always said...."If ive done the math right, the last check out of my account to the undertaker will bounce... Don't expect any inheritance"

 

[NW-Bound]

We spend far more time thinking about and making plans for our next one or two extended travel trips than we do worrying about our investment account...

I wish we could be spending more time traveling, but I feel we are getting worn out. And we are not 70 yet. My wife never worries about money. She trusts that I will always manage so we have more than enough.

As for me, I spend quite a bit of time looking at my investments, because it is a pastime for me. I used to worry about money, but not anymore. While traveling, I don't do much other than look at my account balances at the end of the day. Hence, not much option selling this month.

Today, we got rained in, plus I was suffering from a mild kidney stone. So we stayed in at this agriturismo outside of Verona all day, and despite the lousy market, I managed to sell a few options for $485 cash. Not as nice as what I did in the recent past bull market, but I told my wife that's still more than we spend each day.

Yes, making a bit of money is fun. I do it for the fun, perhaps more than for the money. Most hobbies cost money. The ones that make money should be even more fun.

 

[brett]

edit

 

[brett]

My Dad always said...."If ive done the math right, the last check out of my account to the undertaker will bounce... Don't expect any inheritance"

Our two children have absolutely no idea.

When we fall off our respective perches they, and our grandchildren, are in for a pleasant surprise. I would like to be a fly on the wall when that goes down.

 

[daylatedollarshort]

Yes, making a bit of money is fun. I do it for the fun, perhaps more than for the money. Most hobbies cost money. The ones that make money should be even more fun.

I'm really interested in sustainable living and urban homesteading, so for me those are fun hobbies as well as big money savers. We didn't think we could afford to stay in in the Bay Area, at least in our current house, when we first retired. We retired more for DH's health than hitting a number.

But with more time to analyze our spending, we found so many ways to live better for less that we have been able to stay in our current house and live on about half of what we could. We've been retired ten years now and we still have quite a long list of projects, like solar panel and xeriscaping, so we should be able to get that ratio even better over the next few years.