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Personal finance, home value & net worth - your view?

6,596 Views | 54 Replies | Last: 7 yr ago by RK
PFG
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2:37p, 4/24/17
AG
Preparing my financials and my patience to embark on the custome home build process. This is the home that my wife and I want to live in for the next 25 years - a time horizon for raising our family, finishing our careers, etc.

I'm trying to drill down my view on home value as part of net worth. Those of you that are near retirement and have 20/20 vison in the rear view...what are your thoughts on seeing your home and property as part of your greater net worth?

I flip-flop between the feeling that I'm either:

1) Making a great investment in a primo location (Hill Country within 25 mins of the I-35 corridor)

Or

2) Going to wish I built less house, tied up less money over the long term, had less to upkeep/maintian, etc

What say you Ags nearing retirement? If you were in your early 30s, and building this house wouldn't stop you from maxing out retirement savings - would you still do it?
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Spaceship
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2:50p, 4/24/17
AG
Good questions - I'll be watching this one too
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2:57p, 4/24/17
Casey TableTennis
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3:03p, 4/24/17
AG
I've had intimate, in depth knowledge of a few hundred high net worth family's finances over the past 15 years. I can't think of one that made their wealth from prior personal residences. A few had good luck with houses, mostly bought/built at bottom of housing market cycles. Significantly more hurt their wealth by stretching.

Living below your means is the number one marker for future financial success. While you might be able to afford the house now, it likely pushes the nest egg bogey higher.
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MAS444
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4:37p, 4/24/17
AG
More or less house is very subjective. Maybe a better question is what % of your net worth is your home...?
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26.2
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4:39p, 4/24/17
I don't get people who think you should exclude your primary residence from financial calculations/decisions.

The whole point of doing these calculations is to allow you to make good financial decisions. But I'm just supposed to say, "well, its my house, so **** it!" ? I choose to live in Texas because of the low cost of living, among other things. I could easily work in New York City, or Silicon Valley, or Miami if I wanted to. But in doing so, it would cost me more to live and I could invest less than I do now. Likewise, if I live in a really HCOL area like NYC and have a condo/apartment that is fully paid off, why should I not consider my equity in financial decisions? Say I've got a $3,000,000 apartment in NYC. Why should I not consider selling it, moving to a low cost of living area, living off of the difference (that I've invested)?

In my mind, its not about bragging that your house is paid off or not, its about planning and allocating resources in the most effective way possible.
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SquareOne07
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In reply to 26.2 • 5:21p, 4/24/17
AG
I more or less agree, but get hung up as soon as I factor in liquidity.

Could I exercise the equity in my house? Sure. I'd forgo a lot of the things that make my family happy, possibly relocate my kids' schools, dramatically affect commutes, lose contacts with friends, etc, so I think that's why it's a more complex conversation than simply evaluating the ol 401k
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Ed Carter
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5:51p, 4/24/17
AG
Your question is impossible to answer without providing your numbers. Personal-finance is just that, it's personal. Really impossible to give you concrete advice without knowing your numbers

However, generally speaking, you need to live below your means with housing. If I were to put a general number on it I would say aim to have no more than about 10 to 15% of your overall net worth tied up in your home equity. I'm also pretty conservative though.
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libertyag
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6:17p, 4/24/17
AG
Save a lot for retirement. You will still have a lot of money going out even after the mortgage is paid off. Taxes and insurance are forever.
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birdman
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8:40p, 4/24/17
Get the house that your wife wants.
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civil77
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9:15p, 4/24/17
AG
what was the question? Oh yeah....Hell no!

Look into your krystal bawl and build the least you can. Do not cut corners on insulation or finishes that will reduce maintenance. Get a high seer, but not the best, hvac unit. Metal roof. Be sure it will be pleasing to the eye in 30 yrs.

Only ones to profit off extravagance are tax entities, lenders, and insurance companies.

Buy income producing property at good value.

What Casey said. Troof!
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RK
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In reply to Ed Carter • 9:36p, 4/24/17
AG
Call Me The Realist said:
Your question is impossible to answer without providing your numbers. Personal-finance is just that, it's personal. Really impossible to give you concrete advice without knowing your numbers

However, generally speaking, you need to live below your means with housing. If I were to put a general number on it I would say aim to have no more than about 10 to 15% of your overall net worth tied up in your home equity. I'm also pretty conservative though.


Is that 10-15% in retirement or at any point in your life?
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Ed Carter
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In reply to RK • 10:42p, 4/24/17
AG
For me , it's at any point in life. I'm talking about my equity position in the house not the total value of the house. It's very conservative but I think it's a good goal to shoot for.
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Fightin_Aggie
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In reply to Ed Carter • 10:53p, 4/24/17
AG
Call Me The Realist said:
For me , it's at any point in life. I'm talking about my equity position in the house not the total value of the house. It's very conservative but I think it's a good goal to shoot for.
Not sure I follow, as you built equity would you cash it out? If it works fine, just not understanding.

Or do you mean it should be 10-15% of your net worth when retiring, 200k house, 1.5mm-2mm in other assets when retired?

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canagian
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In reply to Casey TableTennis • 10:54p, 4/24/17
AG
Casey TableTennis said:
Living below your means is the number one marker for future financial success.
Totally agree, which is why I'd vote for (2). A good gauge for me is house purchase price as a multiplier of current income (at time of purchase). Never went above a multiplier of 2 and I'm retired at age 54, having lived well below our means for 30ish years while putting 3 kids through college.

Took a 15 yr mortgage on our last house and paid it off in 10, never carried any other debt beyond the mortgage. Bought a retirement condo after paying off the house, paid it off in 5 yrs. Not being a slave to a large house with huge taxes and upkeep costs also allowed us to travel internationally quite extensively, so it's not like we were living off ramen noodles or anything to make this happen. And we weren't living in a cardboard box either -- 3250 sq ft for a family of 5 was plenty of room, and once we became "empty nesters" it was way too big for what we needed.

Lots of friends, neighbors, and family with much bigger houses who made significantly less than I did, they are or will be working well into their 60s with retirement being a "some day" proposition while we are kicking back on the beach.

Life is good...
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Ed Carter
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In reply to Fightin_Aggie • 11:08p, 4/24/17
AG
OP asked for opinions on primary residence as it relates to net worth. I try to shoot for an equity position of 10-15% total net worth.

If I live in a $500,000 house, and have a $300,000 mortgage, my goal is for that $200,000 equity position to be roughly 10-15% of my total net worth. So in this example, total net worth would be anywhere from $1.3-2 million.

It's just one of many metrics that illustrate living below your means with housing.
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62strat
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In reply to Ed Carter • 11:08p, 4/24/17
AG
Call Me The Realist said:
For me , it's at any point in life. I'm talking about my equity position in the house not the total value of the house. It's very conservative but I think it's a good goal to shoot for.

I don't understand this... you can't really control your equity in a house. You chip away at principal as you pay every month, but market swings can have home value (and as a result, equity) go up or down.

For me personally, 4 years ago when I purchased, I put 10% down, and that put my equity at about 20% of my net worth.

Well my home value has shot up 30% since then, so now my equity is almost 1/2 of my net worth. I can't really change that. I can't just dump 150-200k into the market to lower that percentage.
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Ed Carter
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In reply to 62strat • 11:23p, 4/24/17
AG
Yes I know. . that's why I said "I try." I think its' a good goal to shoot for. I know people that went through this same mental exercise the OP is going through and bought their "forever house" and now their primary residence makes up half their net worth.. .. I just think this is a very slippery slope.

OP didn't ask for how much house he can afford relative to income. . .didn't ask for house much house he could afford relative to expenses. . he asked for it as a function of his net worth. When I hear people start going down that path I lean towards offering conservative advice.
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Saltwater Assassin
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In reply to birdman • 5:10a, 4/25/17
AG
birdman said:
Get the house that your wife wants.


As a Homebuilder I can say that this is very good advice. It is amazing how some of the most trivial things turn into huge marital rumbles during the build process.

On a side note: If you ever have questions about the build Process feel free to message me. I'd be happy to help you; it can be a stressful process but it doesn't have to be. Good luck!
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62strat
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In reply to Ed Carter • 8:45a, 4/25/17
AG
Call Me The Realist said:
Yes I know. . that's why I said "I try." I think its' a good goal to shoot for. I know people that went through this same mental exercise the OP is going through and bought their "forever house" and now their primary residence makes up half their net worth.. .. I just think this is a very slippery slope.

OP didn't ask for how much house he can afford relative to income. . .didn't ask for house much house he could afford relative to expenses. . he asked for it as a function of his net worth. When I hear people start going down that path I lean towards offering conservative advice.
But when do you shoot for this; you mean just when you buy the home? After that, it's almost totally out of your control, so I don't even see how it could be a rule of thumb.

Especially those that have gotten really lucky, and home has tripled in say 10-15 years. I don't see why that is a bad thing, that their equity is a large chunk of net worth. If it was their forever home, they will eventually sell when kids are grown, and they can cash out that huge equity stake.
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PFG
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8:50a, 4/25/17
AG
Quote:
A good gauge for me is house purchase price as a multiplier of current income (at time of purchase). Never went above a multiplier of 2 and I'm retired at age 54, having lived well below our means for 30ish years while putting 3 kids through college.

Thanks for sharing your experience. This number - 2x current income - is where the mortgage would hit after 20% cash down + extra down with equity in the land.
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DadAG10
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10:19a, 4/25/17
Whatever you build/choose in 2017, is not going to be popular or useful in 2045. It's going to be old.

The bigger you start with, the bigger your remodel in 15-20 years will be.

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CapCity12thMan
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12:03p, 4/25/17
AG
Things change - your work situation, kid situation, health situation, etc. The 1900 sq ft house I bought when I was single was awesome...wife and 2 kids later it was too crowded. We moved to a 3300 sq ft house and now with everything the kids are into, other expenses, and changes in work location, we want to downsize and live a little simpler.

Start simple, add as you need and don't over do it.
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Saltwater Assassin
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In reply to [removed post] • 12:06p, 4/25/17
AG
jake2011 said:
Saltwater Assassin said:
birdman said:
Get the house that your wife wants.


As a Homebuilder I can say that this is very good advice. It is amazing how some of the most trivial things turn into huge marital rumbles during the build process.

On a side note: If you ever have questions about the build Process feel free to message me. I'd be happy to help you; it can be a stressful process but it doesn't have to be. Good luck!


Big surprise that a home builder wants you to always defer to the wife and spend more.


Assuming the wife will spend more, how very enlightened...

Seriously it has nothing to do with money; I've seen people get back in "we need counseling " level fights over paint colors.

Pick your battles would be the takeaway here.

Believe it or not all contractors aren't crooks, some of us are pretty nice actually.
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62strat
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In reply to Saltwater Assassin • 1:30p, 4/25/17
AG
Saltwater Assassin said:

Seriously it has nothing to do with money; I've seen people get back in "we need counseling " level fights over paint colors.
Jesus.. it didn't take long in our home building process to both be sick and tired of picking colors/textures, etc..
wanting the other one to do it.

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PFG
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1:36p, 4/25/17
AG
This is why we hired an interior designer. She picks it. We cut the check.
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The Silverback
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1:40p, 4/25/17
AG
I think the bigger factor is your income....are you a company man and relatively capped on what you will make? Are you an aggressive commission based guy? Are you a business owner with aspirations of making more money?

If you know you are relatively capped on your future earnings that should be the biggest factor in your home decision making and keep you down a conservative path. If you are a go getter and have control over your income then you can afford to take some chances on "over buying" real estate. If you can make 30-40% more income in the next several years than who gives a ****, buy the damn thing. My $.02.

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BombayAg
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3:33p, 4/25/17
Today for the very first time, my net worth crossed 1 MILLION DOLLARS.
It's a personal milestone that I thought I would never see or maybe would be far off. It's been a long road of saving, sacrifice and investing. Back in 2011, I remember using mint.com and finding out that my net worth was about $350k.

Interestingly, it is on a day when Nasdaq crossed 6000 for the first time ever.


Note: By net worth, I mean Assets - Liabilities, not just Assets. I am not counting "assets" like furniture, electronic goods, clothes, etc.

Note -2: I want to thank this board in particular for providing me with 2 stock tips that made me a good amount of money. LVS (Las Vegas Sands) and GMCR (Green Mountain Coffee Roasters).
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26.2
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3:42p, 4/25/17
Congrats man. That's awesome.
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Scott95
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In reply to BombayAg • 4:48p, 4/25/17
AG
Congratulations!

Someone smarter than me should bump the millionaires thread.
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62strat
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In reply to BombayAg • 4:59p, 4/25/17
AG
BombayAg said:
Today for the very first time, my net worth crossed 1 MILLION DOLLARS.
It's a personal milestone that I thought I would never see or maybe would be far off. It's been a long road of saving, sacrifice and investing. Back in 2011, I remember using mint.com and finding out that my net worth was about $350k.
Nice, I've tracked my net worth since 2010.. it is currently 5X what it was in 2011.

But not $1m yet
One more double, and I'm there.
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In reply to BombayAg • 5:09p, 4/25/17
YouBet
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8:01a, 4/26/17
AG
Sort of faced the same dilemma in 2015. We had 8 years of equity in our former house with only about 11 years left on the mortgage at age 42. The bottom line best financial decision was to stay there and finish it out.

But, our commute had become onerous due to massive growth in Dallas and we really wanted a pool and a 1 story. So, we bought a larger, more expensive 1 story home closer to work with a pool. Said screw it and did a 30 yr because of rates and will just pay it off early via extra payments.

The deciding factor for us to make this decision to not stay where we were:
1. Cut commute to 15-18 min from 35-40 min.
2. Got a pool plus an oasis of a backyard. We spend tons of time outside now so quality of life at home has vastly improved.
3. We have no kids so taking on a new mortgage does not impact as much as others from an early retirent standpoint. Thus, it did not derail that plan although we could have retired even earlier if we had stayed, obviously. Correction...I could have retired even earlier if we had stayed. My wife has no intentions of ever retiring.
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BombayAg
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8:18a, 4/26/17
Thanks everybody!
I think it is important for everyone to estimate their net worth as soon as possible so that they have a good realistic picture of where they are. It might come as a shock. It did for me in 2011 when I found out I had about $350k and I thought it was more than that. Use mint.com or even Excel.

jake, I invest in Nasdaq a lot. I think it is about 60%. It's been good and has played a big part in my portfolio growing. As it is an ETF that I have, and since Nasdaq is a combination of many companies (yes, tech heavy), I get a higher degree of diversification and gains that I would not get from buying individual stocks like I used to do. Earlier, a good investing year would mean gains of about $20k. This year I am close to $200k (in 3.5 months!) and maybe I'll hit 400k in gains by the end of the year. Trump's tax cuts will come and that will boost the market even more. I know, making money YTD has been a no-brainer but might as well take advantage of the market.

I have saved and sacrificed vacations and home upgrades over the years and I am now in a situation where I can spend a bit.

My wife started a new job with a 60% salary boost (!) 2 weeks ago. I lost my job a few weeks ago and I am starting a new one with a higher title and 12% salary hike, so life is good.
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