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Explorer ○

Re: Percentage of Net Worth in Home

@archer  Right, another good way of gauging the affordability of a home is to consider the adequacy of the income it would leave for other things. And that, of course, depends how much one wants or needs to spend on other things.

@VA-Tech  Good points. It would have avoided these complications to address my question to retired homeowners without a mortgage. That would have been fine, given the question I'm pondering, since I don't have a mortgage and won't even if I decide to go for a more expensive home.

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Re: Percentage of Net Worth in Home

11% been mortgage free ten years. 

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Re: Percentage of Net Worth in Home

0 net worth in home.  Ive done my share of home repairs, painting, all kinds of tenants, complaints, taxes.  I would never own another house.  I will be the one doing all the complaining; not the tenants.     You can have your house, and if you claim that you own it, then theres no need to pay property taxes,  you are simply renting from the state and local government.  They own your home, not you.  Try not paying your taxes for a couple of years and see where you end up.  In the street.  If you own it, then there is no need to pay any payments disguised as taxes.

Retiree loses home over $8 tax bill

Uri Rafaeli, 83, bought the three-bedroom house in 2011 for $60,000. He converted into a rental propertyA couple years later, Oakland County seized the property after mistake in taxes left him delinquent by $8.41. Notices were sent to the house, which the tenants did not forward. The house was sold for $24,500, of which Rafaeli got nothing.

Rafaeli continued to pay taxes on the property even after it was seized. He didn't realize anything was wrong until the tenants stopped paying rent.

Now the Michigan Supreme Court is hearing his case, which Fox News says is one of 100,000 examples of homeowners falling victim to an aggressive property tax law.

Raefeli's lawyer said that even if Oakland County gave him the $24,500 made on the sale, it wouldn't be equal to the $60,000 he paid for the home, or the money he would have made renting it, or the money he might have made as property values in the Southfield area increased.

 

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Re: Percentage of Net Worth in Home

@myob Seems all those problems point to landlording rather than home ownership. 

My current home cost about $580/month in HOA fees, property taxes and maintenance. If I had to pay rent for a similar home it would cost about $2000/month. And the big bonus, I have nothing to complain about, nor anyone I am depending on for repairs. Hopefully I will be able to leave it to my kids one day. They can split the value upon selling or one can buy the other out and enjoy the savings as I do now.

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Re: Percentage of Net Worth in Home

A common error in calculating the cost of home ownership is failure to calculate the opportunity costs.  If I buy a home in my current neighborhood, the cost would be 350,000.  If i take the 350,000 and invest it at say a reasonable ror, or rate of return, the opportunity costs of the transaction would be 2000. per month.   Not including, taxes, homeowner association fees, maintenance, repairs, landscaping, etcetera.  If i can rent the same property in the same neighborhood for say 1200. , i am saving more than 800 dollars per month.  An easy decision.

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Re: Percentage of Net Worth in Home

I don't think the percentage of a house to total assets is relevant, and I have never looked at a house as an investment. I mentally put it on the liability side of my balance sheet. For me, the only thing that is relevant is the adequacy of cash flow. 

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Re: Percentage of Net Worth in Home

@Tibbles 

I'll assume you mean the equity value rather than market value of assets held. Here's an example

table equity worth.jpg

With the accompanying pie chart to show proportionality

pie chart equity worth.jpg

Calculated PV in Excel with him beginning SS early and she waiting to age 67. Notice the increase PV of SS annuity due to CPI adjustments.

Of course, the present value of the annuity streams depends heavily on the discount rate used. I used the current composite corporate bond rate, which is what pension funds use....or some close variant of it.

BruceM

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Re: Percentage of Net Worth in Home


@myob wrote:

A common error in calculating the cost of home ownership is failure to calculate the opportunity costs.  If I buy a home in my current neighborhood, the cost would be 350,000.  If i take the 350,000 and invest it at say a reasonable ror, or rate of return, the opportunity costs of the transaction would be 2000. per month.   Not including, taxes, homeowner association fees, maintenance, repairs, landscaping, etcetera.  If i can rent the same property in the same neighborhood for say 1200. , i am saving more than 800 dollars per month.  An easy decision.


Looking at it solely as an investment, you are quite right. On average long term homes appreciate about 5% a year not adjusting for inflation. Stocks average around 10% sans inflation. On top of that, at the end of a 30 year mortgage, my home merely doubled in value. On the other hand had I been renting, I estimate with rent increases I would have paid 2X what I paid on my mortgage, and have nothing to show for it, and would not have been able to save for retirement. It gets complex!

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Re: Percentage of Net Worth in Home

@Saltydog @BruceM  I agree with the point that all that ultimately matters is whether what you pay for housing leaves you enough for other things. Some respondents seem to prefer less house, leaving more for other things. Others are more home-centric. My sense is that among the respondents to my post, the median (current home market value) / (current net worth) is somewhere between 15% and 20%. Which is what I wanted to know. It reassures me that I won't be an outlier if sell my (mortgage-free) house and buy another house (also mortgage-free) that pushes me from my present 12% up to 16%. Thanks very much to all who have responded.

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Re: Percentage of Net Worth in Home


@myob wrote:

A common error in calculating the cost of home ownership is failure to calculate the opportunity costs.  If I buy a home in my current neighborhood, the cost would be 350,000.  If i take the 350,000 and invest it at say a reasonable ror, or rate of return, the opportunity costs of the transaction would be 2000. per month.   Not including, taxes, homeowner association fees, maintenance, repairs, landscaping, etcetera.  If i can rent the same property in the same neighborhood for say 1200. , i am saving more than 800 dollars per month.  An easy decision.


At the going rate my home would rent for about $1200 more per month than my mortgage payments (PITI)

26% of net worth. Plan to downsize in retirement and invest the difference between buy and sell. Too early to know what the difference will be.

Capital
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Re: Percentage of Net Worth in Home

My house probably is 20-25% of total assets.  But I do not consider it an investment asset.  You buy the house you need and not more.  It is not a good investment unless you have it highly leveraged; then it could be a great investment. 

Very few people count taxes when talking about their net worth.  One should really consider capital gains tax upon liquidation of their assets.  If you earmark some of the assets to go to heirs and hence would not consider taxes, then those assets should not be assumed to be part of your net worth.

I consider my disposable net worth to be net of my house and net of taxes @ 30% of (IRA balance plus capital gains in taxable accounts).  Which comes to about 50% of total assets.

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Re: Percentage of Net Worth in Home

Hi MYOB

Opportunity costs are a huge issue in "home ownership". The way I see it is; if you are going to live there less than 5 years, rent. The costs of selling etc. will  be more than any appreciation etc. If you are single and live modestly, may want to rent. If you are going to live there less than 6 months per year, rent. A very common mistake when owning a "winter" condo, or "summer" home. Forgte renting these "off" season" or when you will not be there, tenents will destroy them free of chatge. A small apartment may well be less than ownershp. This works if you invest the difference wisely, and not consume the savings by eating out. In a sense, a mortgage is a forced "savings plan" which you recieve when the property is sold. We live in our two homes (ME, SC) about 6 months each. Do not rent either. So, another way to look at all this is life style. I do not drink, gamble, smoke (anything), have a "second gtrlfriend" etc. so, we enjoy our lifestyle financed by pensions. This "lifestyle" is a great blood pressure medication when you are in your 80's. 

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Re: Percentage of Net Worth in Home

House value, no mortgage, is 40% of financial assets not counting pension value. Upsized on retirement from small house to larger condo, so we could 'lock & leave' travel. Did get a good bit of trevel in before COVID hit, hope to do so again.

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Re: Percentage of Net Worth in Home

The percentage of net worth in a home can be misleading.  If two people had about the same amount in investments, other the home, and a home in Calif. cost 500k, the same home in another state could cost half or less that amount. The person in Calif. would have a much larger percentage of his/her net worth in the home.  I, like another poster has stated, do not count my home as an investment. It is a place to live that I enjoy.

Just another point of view.

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Re: Percentage of Net Worth in Home

25% -- two houses widely separated geographically.  Other commercial real estate and equities.

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Re: Percentage of Net Worth in Home

The recommendation used to be that you have one-third of your net worth in your home. I don't think that is so relevant today, because home prices are much higher, especially in certain states and urban areas. I suspect the average for the US is much higher and ranges from 50-90%. Only 50% of Americans invest in the stock market, whereas home ownership is around 60%. The other point to make is the ratio of home equity to net worth will decline the wealthier you are.

I know most posters here aren't inclined towards intellectual discussion, but this subject opens up a wider debate about whether home equity is a good way to build wealth. Should homeowners be depending on their homes for retirement? There are many arguments for and against. The economist makes some valid points in this video. Interesting to note the narrator is a millennial.

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Re: Percentage of Net Worth in Home

Antiya: "Very few people count taxes when talking about their net worth."

Tibbles: Perhaps because it's too depressing to do so! And likely to be getting more depressing before long.

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Re: Percentage of Net Worth in Home


@Anitya wrote:

 

Very few people count taxes when talking about their net worth.


 

 

 That is because taxes have nothing to do with net worth.

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Re: Percentage of Net Worth in Home

Percentage of Net Worth in Home is irrelevant.  A much better criterion is how many times your investments + SS, pension and others cover your expenses.

I know a couple who retired from IBM and their total pensions + SS is about $27-28K monthly.  They live in a house that's worth about 2 million and their monthly expense is $10-12K.  It doesn't matter if their house is 20% or 80% of their net worth.

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Re: Percentage of Net Worth in Home

My house is about 7% of total port. bght in 1965 paid off since 1986, grandsons will get it.

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