What percent of net worth is ideal for home?

[retire48in2018]

I understand it’s YMMV

Our particulars - we’re both 52, no pensions, and SS is too long away to consider. It’s just investable assets as we’re selling our existing home to move closer to family.

There’s a variety of threads on where people are, etc

My question - is what is ideal? Or at least good?

We can easily do 10%-30% of net worth - both in price of home and budget expectations. We’re fine if FireCalc - living on investable assets that remain.

Larger home (30%) would have more amenities and be a multigenerational home (kids and the grandkids). Their participation is worked out - such that our ongoing expenses (property tax, utilities and home maintenance) are about the same - if we bought something for ourselves (10-15%). We’ve also worked out long term considerations for both parties.

So, obviously subject is complex - we’re looking, initially at peeling this onion - step by step, as well as big picture.

So - in your esteemed opinions - what is a good target/ideal, etc. - for a primary home as a percent of net worth?

 

[ShokWaveRider]

I guess it depends on what your net worth is. Assuming home is FULLY paid for. Here is an example:

Say total Net worth is ..... ~$3.5m Then 30% would be ~$1.16m That would be OK leaving ~$2.3 for investable assets.

 

[retire48in2018]

Yes, fully paid for homes

 

[LateToFIRE]

You've probably seen my comments on other threads, so won't repeat here. Upon retiring and after selling off investment r.e., my target for r.e. as a % of NW is around 10% (the equity in our home divided by total NW). I will carry a very low cost mortgage as long as the mortgage interest deduction survives (always a question), so that's why I'm speaking in terms of home equity, not gross value.

Might consider another second home purchase, with cash, and depending on the location, would be comfortable up to 20% of NW. But, on that second home purchase would definitely be a condo, not a single-family house, and feeling more inclined to rent not own at the moment.

 

[RetiredAt49]

Honestly it doesn’t matter as long as your investment portfolio and its WR (assuming 4%) covers your expenses. If all else fails, you would need to plan to sell that big home down the road when your portfolio can no longer cover your expenses.

 

[SecondCor521]

I think it's a matter of what your priorities are. People who enjoy staying at home, having family around, maybe BBQing or swimming or cooking or playing games might spend on the higher side. People who a home is just a place to keep the rain off and who travel for longer periods of time either for work or pleasure might spend on the lower side.

Note that the ratio will also change over time - I bought my house 17 years ago for $X when I was worth $Y. But I kept working and investing so while my house is now about $2X, my net worth is more like $10Y. So 17 years ago, my house was 2/3 (66%) of my net worth, but now it's around 2/15 (13%).

If you didn't spend the larger amount, what would you do with the money instead?

Can you see yourself being happy in both places, or is one more of a compromise?

Are you concerned that it's too expensive?

Are you sure the kids and grandkids would visit? Do they already visit now, or is the larger multigenerational home a projection of what you wish would happen but might not?

 

[retire48in2018]

We are moving to same city. 1000 miles away. We’ve spent more than 1/2 of retirement time here, under their roof. Longest stretch was 6-months.

If separate homes - it would be same subdivision(ish). Certainly minutes away

That’s everyone’s desire. Grand kids are 2 and 1

 

[retire48in2018]

We’ve looked at a few homes that work for all of us - including whatever house projects would be needed to make the adjustments - together.

It’s not without risks. But living under one roof has its advantages as well.

 

[TheWizard]

Seems like a semi useless question.
I bought my home in 1976 and its value now is lots higher but has very little bearing on my investible assets.
They are almost totally separate issues...

 

[retire48in2018]

Seems like a semi useless question.
I bought my home in 1976 and its value now is lots higher but has very little bearing on my investible assets.
They are almost totally separate issues...

If you were selling and moving - as we are - it is directly related.

 

[MichaelB]

We’ve looked at a few homes that work for all of us - including whatever house projects would be needed to make the adjustments - together.

It’s not without risks. But living under one roof has its advantages as well.

It’s your money, and you should enjoy it. As others have already stated, what matters is not the % of total net worth invested in primary residence. What does matter is that your remaining portfolio should support the spending level you wish, including the expense of home ownership.

 

[Sojourner]

Larger home (30%) would have more amenities and be a multigenerational home (kids and the grandkids). Their participation is worked out - such that our ongoing expenses (property tax, utilities and home maintenance) are about the same - if we bought something for ourselves (10-15%). We’ve also worked out long term considerations for both parties.

I am not sure what you mean by this. Does "multigenerational" mean that all three generations would be living together under the same roof? If so, are you sure you've thought through all the potential downsides, complications, and family dynamics of that?

How have you "worked out long term considerations for both parties"? Are you talking strictly financial considerations here, or more broadly?

 

[statsman]

When we sold our house and moved in the Fall of 2018, the house proceeds (after paid off mortgage, closing costs, capital gains taxes) approached roughly 40% of our total net worth. Now, with a new home (paid off) in a lower COL area than we moved from, the house is around 15% of our net worth.

I have to admit, being closer to 15% feels a lot better than at 40%. Funny thing, despite the wonky market on house prices in our area the last four years, the estimated value of our house has gone up more (annualized) than our investible assets.

All that said, once the new home was purchased four years ago, I've mainly concentrated on the assets we can invest and spend. I suppose if our net worth was double or triple what it is (like so many here, it seems), we might be okay with a house that took up a higher percentage of our net worth. But it would still mean we would have way more assets to invest and spend than we do now.

 

[Midpack]

I understand it’s YMMV

My question - is what is ideal? Or at least good?

So - in your esteemed opinions - what is a good target/ideal, etc. - for a primary home as a percent of net worth?

Whatever you decide you can afford as part of your total spending. Depends on your priorities, COL, etc. if you skimp on other expenses you can afford more house, or vice versa…

 

[Koolau]

I've always tended to think that your home in retirement is important - you'll spend a lot of free time there. SO splurging on a house isn't always a bad thing. Of course, others here, prefer to travel. Home is just a place to keep the clothes for the next adventure. You gotta make your own decisions on what's best for you and what you enjoy most. You're right. YMMV

 

[aja8888]

I've always tended to think that your home in retirement is important - you'll spend a lot of free time there. SO splurging on a house isn't always a bad thing. Of course, others here, prefer to travel. Home is just a place to keep the clothes for the next adventure.:cool smiley: You gotta make your own decisions on what's best for you and what you enjoy most. You're right. YMMV

My new home that I am building should be my last, and I am not cutting anything that will be an extra. Heck, who knows...since I am widowed I may run into a new flame and then things could change. And I am not looking at this time.

But you are right, a home is a "safe" place and should be what you want at the later stage of one's life.

 

[DrRoy]

I don't have a target. It happens to be about 7%.

 

[Andre1969]

Honestly it doesn’t matter as long as your investment portfolio and its WR (assuming 4%) covers your expenses. If all else fails, you would need to plan to sell that big home down the road when your portfolio can no longer cover your expenses.

I think this is about the best way to put it. As long as your investments can cover your expenses, the percent of your net worth that's tied up in your home's value is irrelevant.

And, I think your range of 10-30% is low enough overall, that any number in there shouldn't put too much of a strain on things. Just keep in mind that things like property taxes and insurance always seem to go up, and could be a lot worse with a larger/more luxurious home. And utilities can often be a wild card.

Also, only you know your family situation and how it would play out, but doing the multi-generational thing in one household might work on tv, but in real life it can be a whole different story. So just watch out. You might be looking for "The Waltons", but end up with "Mama's Family!"

 

[LateToFIRE]

You've probably seen my comments on other threads, so won't repeat here. Upon retiring and after selling off investment r.e., my target for r.e. as a % of NW is around 10% (the equity in our home divided by total NW). I will carry a very low cost mortgage as long as the mortgage interest deduction survives (always a question), so that's why I'm speaking in terms of home equity, not gross value.

Might consider another second home purchase, with cash, and depending on the location, would be comfortable up to 20% of NW. But, on that second home purchase would definitely be a condo, not a single-family house, and feeling more inclined to rent not own at the moment.

Adding to my earlier comment, a few add'l thoughts:

1) Cash flow is king - I think the decision is less about the % of your NW and more about whether you feel comfortable that your remaining nest-egg can comfortably fund your lifestyle, including the cost of maintaining your home.

2) You mentioned multi-generational household as a possibility. That has some obvious benefits as you age and need assistance, but could also create more complexity. If you've got others under your roof, then selling the house down the road if one of you needs an alternative living situation might not be possible. There's also the complexity of who the house passes on to when you and spouse pass on.

3) A larger house equates to larger fixed costs, which guarantied will increase over time (prop taxes, insurance, maintenance, etc.). Are these other boarders going to be in position to help support those expenses if need be?

4) Extended family under one roof can both a blessing and a stressor. How certain are you that it will work out in terms of getting along, being on the same page, etc. And what if the other folks need to relocate for work, etc. If it doesn't work out, costly to unwind.

Good luck on your decision!

 

[pjigar]

Honestly it doesn’t matter as long as your investment portfolio and its WR (assuming 4%) covers your expenses. If all else fails, you would need to plan to sell that big home down the road when your portfolio can no longer cover your expenses.

That is the way I have looked at our home and so I removed home value from our ER net worth tracking spreadsheet a few years ago. I did a quick math and we stand at about home at 23% of the total net worth. We would be at about 17% when we FIRE. I would be comfortable with home value less than 20% of the total net worth.

On a side note, I never worried about home cost too much but rather the recurring expenses (taxes, insurance, repair, etc.) for the home ownership. Because those expenses have a direct impact on how big our nest egg needs to be. This was one of the reason for us to move to an acreage away from the city where the property taxes are low (for now!). We also tried to build a house that is relatively low maintenance (vertical seams metal roof, brick/Hardie board siding, mini-split HVAC, MC cable wiring, PEX plumbing, treated wood trims, old-age friendly home, etc.)

 

[Aerides]

I don't see how it matters at all, the only thing that might count would be the expenses on the home: Upkeep, taxes, utilities, etc., which will all be bigger with a bigger/pricier house, cutting more out of your SWR every year.

 

[COcheesehead]

It’s a math equation. Investment assets - house cost = money left to live on. You just need to determine what you need to live on and the rest can go towards a house.

 

[RetiredHappy]

Our lovely home is about 20% of our net worth but it is all about whether you have enough income to support your expenses. The 2 are not tied together. For instance, if we have a nice pension and SS, say $250K to $300K per year and not much savings, most of my net worth could be tied to the home and we will do fine.

 

[Osprey]

I am pondering the same question. We have pension income covering our expenses so not withdrawing any money currently from our investments and can afford to upgrade to a much more expensive house. My current thoughts as we house hunt is ideally I’d like our house value to be 20% of net worth but may go up towards 30% if find ideal house.

 

[USGrant1962]

I recall a thread a while back where folks answered "what percent of your NW is your home?" and IIRC around 15% was the most common answer. But, as expected, the answers varied widely.