# Millionaire



## Mortgage u/w (Feb 6, 2014)

Curious to know what the common thought is.....

Would you define a millionaire as someone who has a net worth of 1 million+ or as someone who has net assets of 1 million+?

If the latter, how would you define "net assets"?

If the former, what would you include in "net worth"?


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## nobleea (Oct 11, 2013)

When I think 'Millionaire', I think over 1mil in Investible Assets. Net of any margin on those assets. Technically it should be done after tax, which reduces the value of RRSP and pension amounts. I think commuted values of pensions should be included, perhaps de-rated by some amount if it's a private sector pension which is not fully funded or the parent company isn't doing so hot.

Does it need to be 2Mil for a married couple? Not sure about that one.

Many goals/targets (including my own) specify a 1Mil networth by XX age. But I wouldn't consider that target to be synonymous with being a millionaire.


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## AltaRed (Jun 8, 2009)

My first reaction would be a simply understood 'net* value of investable assets' not including principal residence. 

I could be persuaded in some cases to add on 'equity' in one's principal residence but that only has 'cash' value if someone was to sell and rent or downsize considerably, such as to a cabin in the mountains. I could also be persuaded to include commuted value of a DB pension but that is grasping at straws, i.e. it isn't worth anything until you receive it, and isn't worth anything (survivor's benefit notwithstanding) after one dies.

* net of debt (mortgage, HELOC, margin debt, consumer loans, credit card debt) but Before Tax. Too hard to have a debate about After Tax values which vary tremendously based on one's MTR, unrealized cap gains, and asset type.


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## OnlyMyOpinion (Sep 1, 2013)

Mortgage u/w said:


> ... net worth of 1 million+ or ... net assets of 1 million+?...


_Net worth is the amount by which assets exceed liabilities.
Net assets is defined as total assets minus total liabilities.
_

Ain't they the same?


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## redsgomarching (Mar 6, 2016)

net worth of + 1 mill (assets minus all liabilities).

in this situation net assets and net worth are defined as the same thing as the goal is to determine how much is somebody worth and if they are worth over 1 million dollars then they would constitute as a millionaire.


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## Koogie (Dec 15, 2014)

https://en.oxforddictionaries.com/definition/millionaire


Make of it what you will.

Everyone else does.


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## Mortgage u/w (Feb 6, 2014)

OnlyMyOpinion said:


> _Net worth is the amount by which assets exceed liabilities.
> Net assets is defined as total assets minus total liabilities.
> _
> 
> Ain't they the same?


For me, net worth = total assets minus liabilities whereas net assets = investible assets only. 

If one were to include properties, its very easy to reach the million dollar mark. It can be argued that the equity is an investible asset too, just like it is not. The same argument can be had of holding stocks. Technically, until shares are not sold, there is no tangible value.

I'm not looking for the right answer here....just people's thoughts because the suject is very debatable.


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## Rusty O'Toole (Feb 1, 2012)

Net worth. But, being a millionaire is practically meaningless these days. If you have a million dollars invested in GICs at your local bank @2% that gives you a gross income of $20,000 a year. Would you point to someone who makes $385 a week and say 'there goes someone with a millionaire's income' because that is what it is.

The term millionaire was invented in the late 18th century at the time of the Mississippi Bubble in France. It became popular in the late 19th century. At that time a million pounds really meant something and even a million dollars was a lot of money.

A billion today would be the equivalent of a million 100 years ago.


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## diharv (Apr 19, 2011)

Every year around assessment time , Global News giddily reports about all the new 'millionaires" created in the lower mainland because of out of control escalating property values . In their eyes , even a person with a $1.5M house and a $1.49M mortgage is a millionaire . It's really a big pat on the back actually . I guess net worth is the proper definition of it , but to really feel like one , $1M+ in investible assets is the one I prefer.


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## OnlyMyOpinion (Sep 1, 2013)

Ah, now I think we are introducing investable=financial=liquid assets. A subset of net worth.
I may be wrong, but my 'impression' is that your net worth is comprised of all of your assets (minus liabilities) regardless of whether they are investable or not. I agree that investable assets would normally exclude your house, pension, car, dog, etc., 
Best to simply specify whether you are a net worth millionaire or an investable assets millionaire.

Ha, I love this detail:


> Would you point to someone who makes $385 a week and say 'there goes someone with a millionaire's income' because that is what it is.


But we do need to specify that they are 'GIC' millionaires, as distinct from the more lucrative 'Dividend' millionaires. (Boardwalk notwithstanding  )


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## milhouse (Nov 16, 2016)

For me, Millionaire = Net worth over a mil. 

However, as everyone else has mentioned, it's kind of complex yet also kind of meaningless in some ways. It really depends on the context of the purpose for which you're doing the grouping/labeling.

For example, from a label of wealth perspective, you'd be hard pressed to be able to buy outright, a fairly basic single detached house in Vancouver proper with a million dollars nowadays. Yet, as inferred to above, Vancouver in theory is likely littered with millionaires due to the housing prices. 

If we're labeling in general, I've come across the following:
Mass Affluent: $100k to $1M USD in investable assets
High Net Worth Individual: $1M to $5M USD in investable assets
Midtier Millionaire: $5M to $30M USD in investable assets
Ultra High Net Worth Individual: $30M+ USD in investable assets


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## jargey3000 (Jan 25, 2011)

...whatever...but either way... a million ain't what it used to be!...


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## lightcycle (Mar 24, 2012)

milhouse said:


> Mass Affluent: $100k to $1M USD in investable assets
> High Net Worth Individual: $1M to $5M USD in investable assets
> Midtier Millionaire: $5M to $30M USD in investable assets
> Ultra High Net Worth Individual: $30M+ USD in investable assets


The USD is an important distinction. Canada is such a small sample size. To accurate gauge wealth in absolute terms, use USD as a common metric. Otherwise we'd be comparing millionaires in Yen, which is meaningless.

If you're in financial services, investable assets is more meaningful than dealing with "net worth millionaires" with 800K tied up in a principal residence that is inaccessible to the FI.


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## nobleea (Oct 11, 2013)

lightcycle said:


> The USD is an important distinction. Canada is such a small sample size. To accurate gauge wealth in absolute terms, use USD as a common metric. Otherwise we'd be comparing millionaires in Yen, which is meaningless.
> 
> If you're in financial services, investable assets is more meaningful than dealing with "net worth millionaires" with 800K tied up in a principal residence that is inaccessible to the FI.


Depends on relative costs. If a loaf of bread costs $1US in the states and $1CAD in Canada, then it is meaningful. That's not the case, of course.
A retiree in Canada doesn't have to pay for the base health care coverage that they might have to in the states.


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## lightcycle (Mar 24, 2012)

nobleea said:


> Depends on relative costs. If a loaf of bread costs $1US in the states and $1CAD in Canada, then it is meaningful.


But that could apply to regional difference too. A loaf of bread (or cost of housing/rent) in Manhattan is much different than in Fort Wayne, Indiana.

It depends on what the term, "millionaire" is to be used for. Is it a bar to qualify as a client for financial services? Or is it to compare piles of money with the Jones'?


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## My Own Advisor (Sep 24, 2012)

I gravitate to $1 million in net worth, assets over liabilities.


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## GreatLaker (Mar 23, 2014)

To me, millionaire is defined by Net Worth (assets - liabilities) > $1M
Assets = financial / investable assets plus real estate / home.

Personally I exclude cars and other possessions because their value is not significant compared to my other assets. Although I can see making a case to include them if someone has a significant collection of cars, art, jewelry etc that have marketable value.

I also exclude commuted value of pensions because they are not mine, they are the pension's assets offset by a long-term liability to me. I account for commuted value in my financial plan in term of future income it will provide, not current value.

For retirement calculations I exclude my house because it is not easily monetized and won't contribute to retirement income except possibly some distant time in the future.

And yeah, a million ain't what it used to be. This is the scene in Silicon Valley when Russ Hanneman loses his third comma.
https://www.youtube.com/watch?v=xzMUrB-Um1Y
I love Silicon Valley
(Caution: some NSFW language around the 1:00 mark)


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## gardner (Feb 13, 2014)

GreatLaker said:


> Personally I exclude cars and other possessions because their value is not significant compared to my other assets


I exclude these things on the reasoning that they are not investments and are not liquid. For my part, I would also exclude the residence I live in, unless it also generates income -- eg: rent out the basement. Belongings that don't generate any income and are not freely convertible to money are not, in my books, wealth.


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## Mortgage u/w (Feb 6, 2014)

For a married couple, would you consider them both (and their family) to be millionaires if their family's net worth is 1 million or would it have to be an individual thing?


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## agent99 (Sep 11, 2013)

These days, there are many who earn 1/4 million/yr. Maybe in today's terms, someone who earns a Million a year, one way or another, could be considered a Millionaire? 

Certainly a cut above the average working stiff


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## Just a Guy (Mar 27, 2012)

While technically I'd consider a millionaire to be based on net worth (since going to a bank to borrow a million still means you need to pay it back with interest so technically you're worth less than nothing), I'd technically go one step further and say they need a liquid net worth of a million.

The reason for this this is, for illiquid assets (say a house), it technically has an unknown value until it is sold and someone hands you actual cash. Let's say you own a "million dollar" home and nothing else, you suddenly need money but, at the exact same moment the world goes into a real estate meltdown...no one is buying places (think the Great Depression), your house value is whatever you can sell it for, but no one wants to pay anything their interest is in finding food not luxury houses...so your actual net worth is far from being a millionaire.

Now, if your money is in short term liquid investments, theoretically it could still disappear overnight, but is far less likely to and it's much easier to cash out along the way.


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## sags (May 15, 2010)

I compare net worth to golf scores..........everyone puts down whatever they want and nobody cares.


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## My Own Advisor (Sep 24, 2012)

LOL.


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## tygrus (Mar 13, 2012)

The liquid investable assets definition is bogus because 99% of the population would never put $1MM into the stock market. When you get that kind of money you want it illiquid - tied up in business or land or other RE or cash.


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## hboy54 (Sep 16, 2016)

tygrus said:


> The liquid investable assets definition is bogus because 99% of the population would never put $1MM into the stock market. When you get that kind of money you want it illiquid - tied up in business or land or other RE or cash.


I am a member of this 1% group. Tell me please why I should want to convert it all to your proposed categories.

Hboy54


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## AltaRed (Jun 8, 2009)

hboy54 said:


> I am a member of this 1% group. Tell me please why I should want to convert it all to your proposed categories.


Ditto. I'd like Tygrus to explain that to me as well.


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## Mortgage u/w (Feb 6, 2014)

tygrus said:


> The liquid investable assets definition is bogus because 99% of the population would never put $1MM into the stock market. When you get that kind of money you want it illiquid - tied up in business or land or other RE or cash.


why would I want $1MM sitting in cash?


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## Ihatetaxes (May 5, 2010)

tygrus said:


> The liquid investable assets definition is bogus because 99% of the population would never put $1MM into the stock market. When you get that kind of money you want it illiquid - tied up in business or land or other RE or cash.


I've got seven figures in each of your categories. I must be insane.


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## tygrus (Mar 13, 2012)

Simple...diversity of asset base and income stream.


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## OnlyMyOpinion (Sep 1, 2013)

Couldn't stock market share ownership in diverse companies meet your criteria of 'tied up in business' and 'land' and 'other RE'?


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## Mortgage u/w (Feb 6, 2014)

tygrus said:


> Simple...diversity of asset base and income stream.


Sure. But why can't you have $1MM in the stock market?


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## AltaRed (Jun 8, 2009)

As OMO said, what is more diverse than partial ownership in potentially dozens of publicly traded companies? It is by far the less risky of ANY investment except for CDIC insured GICs, Canadian gov't bonds and cash.


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## tygrus (Mar 13, 2012)

Mortgage u/w said:


> Sure. But why can't you have $1MM in the stock market?


Sure you can, just its more likely the guy that has $3 or 4 million net worth will have a million solely in the stock market. The guy that only has a million net worth is very unlikely to have it all in the market. That leaves a lot of people who are technically millionaires out of the definition if you use net worth which I lean more toward.


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## Just a Guy (Mar 27, 2012)

Personally I’ve found to be truly diversified you should have money in stocks and bonds, real estate, and your own business. 

However, real estate should be leveraged, so 1M invested there may control say $10M in assets. 

A business can be liquid or illiquid depending on the type of business. 

As for stocks and bonds being “diversified”, I’d disagree since the market tends to react as a single unit in general. When it crashes, everything usually crashes, not just the bad companies. 

As for “technically there wouldn’t be a lot of millionaires” by my definition, what’s wrong with that?

By my definition people called millionaires will probably remain millionaires unlike paper millionaires that can’t access the money. What’s the point then bragging rights? A participation ribbon?

It’s like the people who throw everything they own into a net worth calculation (cars, pet dog, toothbrushes, etc.). 

Heck, I heavily discount my real estate holdings when I calculate my net worth because I think he current market is overvalued and due for a correction. Since I don’t plan to sell any time soon, there’s no point in dreaming about “profits” I won’t be using or maybe ever able to access.


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## tygrus (Mar 13, 2012)

JAG, any bank that I know would have a coronary of your debt to equity was 10%. They want 40-60% for this and I agree. Anything more than that is extreme leverage and likely to wipe you out one day.


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## AltaRed (Jun 8, 2009)

I see nothing peculiar about someone with $1 million investable assets having $1 million in the market, nor someone with $5 million investable assets having $5 million in the market. That is not the same as 'net worth' which would include a primary residence, cash or cash equlvalents.

FWIW, I have about 80% of my investable assets in the equity capital markets and the remainder in fixed income of one form or the other. My only other major asset is my principal residence.


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## tdiddy (Jan 7, 2015)

AltaRed said:


> I see nothing peculiar about someone with $1 million investable assets having $1 million in the market, nor someone with $5 million investable assets having $5 million in the market. That is not the same as 'net worth' which would include a primary residence, cash or cash equlvalents.
> 
> FWIW, I have about 80% of my investable assets in the equity capital markets and the remainder in fixed income of one form or the other. My only other major asset is my principal residence.


Agree. I'd be in the "1%" tygrus was quoting as well. I rent so 100% of my net worth is in the market (stocks, bonds, a small portion REIT ETFs). I think you are way off on this claim.

As for the initial question, I'd say it should be net worth not including primary residence as a standard. And "millionaire" cut off of any true meaning is probably 5 million or thereabouts.


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## sags (May 15, 2010)

Aggressive investing can turn more millionaires into peasants than peasants into millionaires.


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## AltaRed (Jun 8, 2009)

sags said:


> Aggressive investing can turn more millionaires into peasants than peasants into millionaires.


How do you define aggressive investing? Stock investors are not necessarily into highly volatile momentum stocks. Many (most?) limit themselves to investment grade blue chips what will continue to pay dividends through thick and thin.


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## Just a Guy (Mar 27, 2012)

tygrus said:


> JAG, any bank that I know would have a coronary of your debt to equity was 10%. They want 40-60% for this and I agree. Anything more than that is extreme leverage and likely to wipe you out one day.


Well, I could take your word for it, or my experience. I've always bought my real estate with 100% financing, though I usually easily get an 80% LTV mortgage without any problems. Personally I set up a fairly "aggressive" paydown (say 20 year biweekly payments), but I may have have an "official" 35 year amortization.

Of course, I'm basing my financing on my costs (purchase price and "upgrade" costs), not the appraised value. The appraised value gives me he 80% LTV.

As for being wiped out, with aggressive paydowns, and a low initial cost, my equity builds up quickly. No bank, nor me personally, has ever lost sleep over my holdings...hey are probably way more conservative than most people.

The numbers you are picking are virtually useless as a measuring stick anyway. Give someone like me a million dollars and I'll quickly grow it into something more most likely, give it to someone else and it'll be gone tomorrow. Same with debt. A million dollars of debt sounds very scary to some, but if it's backed by $1M of assets why would you worry? Your net worth of $0 is probably higher than a lot of people below 40.


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## james4beach (Nov 15, 2012)

AltaRed said:


> How do you define aggressive investing? Stock investors are not necessarily into highly volatile momentum stocks. Many (most?) limit themselves to investment grade blue chips what will continue to pay dividends through thick and thin.


I'd argue that all stock investing is risky... all it takes is a poorly formed portfolio, improper diversification, or even panic (selling during a steep selloff) to destroy huge amounts of capital.

As the years go by, I'm starting to appreciate mutual funds more. I doubt that few stock "investors" actually do any better than some of the better mutual funds out there, with all the pitfalls along the way.


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> My first reaction would be a simply understood 'net* value of investable assets' not including principal residence.
> 
> I could be persuaded in some cases to add on 'equity' in one's principal residence but that only has 'cash' value if someone was to sell and rent or downsize considerably, such as to a cabin in the mountains ...


YMMV ... some have used the equity of the principal residence to have cash paid throughout the year with unrealised capital gains and a write off against other income. Then there's those who rent out a room or two to drive down their interest cost/accelerate the growth of equity.


Cheers


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## Beaver101 (Nov 14, 2011)

sags said:


> Aggressive investing can turn more millionaires into peasants than peasants into millionaires.


 ... might seem to be the case here. 

https://www.thestar.com/business/2017/11/17/why-being-rich-makes-people-anxious.html



> ... Gallagher, who is retired from his position as vice chairman of Canadian Imperial Bank of Commerce World Markets, is a member of Tiger 21, a network of over 570 members who collectively manage more than $50 billion worth of personal investable assets.
> 
> At age 72, he is a multimillionaire. Even so, “I still feel, to some extent, that I don’t have enough money,” he said. “Emotionally, I don’t come from money; I got very lucky on Wall Street. *I’ve been dealing with a myriad of psychological issues since I retired. I have more money than I had ever imagined, but I still worry — do I have enough, if I live longer than I thought?” ... *


 ... wow, talk about having to "worry", money problems. Absolutely frivolously sick.


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## tygrus (Mar 13, 2012)

Beaver101 said:


> . ... wow, talk about having to "worry", money problems. Absolutely frivolously sick.


Some people who became technically rich dont want to part with the assets that made them rich so cashflow is a huge issue to even rich people. There are tons of asset rich/cash flow poor millionaires out there. Soon as you turn an asset to cash, its gone forever and you are just likely to blow the revenue.


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## kcowan (Jul 1, 2010)

tygrus said:


> Soon as you turn an asset to cash, its gone forever and you are just likely to blow the revenue.


I hope that newcomers to this site do not think that this kind of thinking is shared widely among members! I think there is a tendency for those of us experienced investors to just ignore such rants.


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## AltaRed (Jun 8, 2009)

james4beach said:


> I'd argue that all stock investing is risky... all it takes is a poorly formed portfolio, improper diversification, or even panic (selling during a steep selloff) to destroy huge amounts of capital.


But like RE, there is disciplined and undisciplined stock investing. I'd call JAG a disciplined investment RE investor while those speculating on land banks and swamp land in Florida exactly that...speculators. Include GTA and GVA condo investors in that same category. 

One can be just as reckless in capital market investing with speculative stocks and high yield junk bonds....or be a disciplined investor with a principles based IPS with goals and objectives. Spread the risk amongst asset classes, geographic regions and sectors. Be methodical in bond and stock picking, or stay with a passive index CCP approach. It is very hard to pick out the winning fund managers in advance. Some can have a winning track record for years, then flame out. Think Peter Lynch or Bill Gross.


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## Mortgage u/w (Feb 6, 2014)

Heard over the radio that the new income level to be considered in the top 1% is $285,000.
That should put lots of things into perspective - especially those starting out in the work field and expecting to make 'millions'.


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## tygrus (Mar 13, 2012)

kcowan said:


> I hope that newcomers to this site do not think that this kind of thinking is shared widely among members! I think there is a tendency for those of us experienced investors to just ignore such rants.


Why sell something that keeps going up? Would you sell the index? I have land with unlimited upside. Its gone up 10 times value in less than a decade and it has no reason to stop. Why on earth would I sell that? This isnt facebook stock we are talking about here.


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## amitdi (May 31, 2012)

Networth. not net assets.


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## agent99 (Sep 11, 2013)

Holy smokes - This thread is still alive? Must not be much else to talk about


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## kcowan (Jul 1, 2010)

tygrus said:


> Why sell something that keeps going up? Would you sell the index? I have land with unlimited upside. Its gone up 10 times value in less than a decade and it has no reason to stop. Why on earth would I sell that? This isnt facebook stock we are talking about here.


I see you are using the WhatAbout technique adopted by Trumpsters. No need for me to legitimize your contributions here.
How hucksters use Whatabout to deflect attention from real issues See also John Oliver's latest show.


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## tygrus (Mar 13, 2012)

kcowan said:


> I see you are using the WhatAbout technique adopted by Trumpsters. No need for me to legitimize your contributions here.
> How hucksters use Whatabout to deflect attention from real issues See also John Oliver's latest show.


KC, I think your brain has cooked out there on the coast. What on earth does trump have to do with the intrinsic value of an asset and the argument for holding it for long periods? 

People in Europe have held quality land for hundreds of years and its value has increased every year.


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## AltaRed (Jun 8, 2009)

Land rarely goes up consistently. I grew up in a ranching community and I've been a landowner up through 2013 myself. Value comes and goes. It's ridiculous to say land values increase every year. GVA and GTA may be exceptions. 

I know of land developers in the fringes of Calgary that have had their heads handed to them buying parcels for the purpose of sub-division. Land once going for circa $1 million/acre suddenly being worth half that within a few short years. Same with the land banking outfits that accumulate recreational land, sub-divide it and then try to pawn it off on gullible buyers. Most times, only the principals make money.


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## tygrus (Mar 13, 2012)

Alta, if you research it, quality farmland in a good location will out return the equities market by quite a margin. 

I have a half section against a major city boundary. Half acre lots sell for $150k just a few miles away. People building acreages around me. I wont sell that piece for a long time if ever. Its just started its run.


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## AltaRed (Jun 8, 2009)

Of course it is about location, your example for instance. But you didn't qualify that specific instance on the borders of a major city. It is not the same in most places. People lost their shirts in a land banking deal in Leduc county not many years ago. Same thing happened (I think) around some of the lakes in the Edmonton-Calgary corridor. It is not any different than a quality stock going northeast vs a value trap going southeast.

P.S. Even land within city limits goes down in value sometimes. Former Springbank 5 acre acreages, now within Calgary western city limits, were selling for $5 million at one point. That dropped more than 50% in the post -2008 period.


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## Retiredguy (Jul 24, 2013)

sags said:


> I compare net worth to golf scores..........everyone puts down whatever they want and nobody cares.



**** Read the upcoming Forbes article on Wilbur Ross. LOL


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## bgc_fan (Apr 5, 2009)

Retiredguy said:


> **** Read the upcoming Forbes article on Wilbur Ross. LOL


Pretty much the same as the Trump Organization. Trump said that it generated $9.5B of revenue in 2016, but when he actually filed the paperwork, it seems it was only $600-700M. 
Newsweek article

Interesting that for privately held corporations we're supposed to take people's word for it with no proof so they can inflate their net worth. Shouldn't be surprised, during the election he did say that his net worth was whatever he felt it was that day.


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## RussT (Jul 11, 2016)

I include my principal residence. It doesn't generate income but it saves me money by avoiding rent and it appreciates over the long term. Someone mentioned that a residence should be excluded because the future value is uncertain, but this applies equally to XIU or ENB.


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## kcowan (Jul 1, 2010)

Just a Guy said:


> The reason for this this is, for illiquid assets (say a house), it technically has an unknown value until it is sold and someone hands you actual cash. Let's say you own a "million dollar" home and nothing else, you suddenly need money but, at the exact same moment the world goes into a real estate meltdown...no one is buying places (think the Great Depression), your house value is whatever you can sell it for, but no one wants to pay anything their interest is in finding food not luxury houses...so your actual net worth is far from being a millionaire.


My long term buddy (since 1962) has held a property on W49 street in Vancouver since 1977. It is on a double lot. He considers it worth more than market value. By my reckoning, it is worth $3.8 million now. He wants $4.7 million for it. He claims that it can be developed into row housing worth much more than that. I have told him that the purchaser would get that appreciation, not him.

He is in denial and has blown the opportunity to capture a windfall PR capital gain (he lives downtown in a townhouse). Plus he is being audited by CRA for the time they ran a B&B there. At night, because he cannot sleep, he drives down there to hopefully avoid the empty home tax that Vancouver has implemented. He is a millionaire on paper but I do not envy him.


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## kcowan (Jul 1, 2010)

tygrus said:


> People in Europe have held quality land for hundreds of years and its value has increased every year.


WhatAbout People in Europe? So sad...


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## Just a Guy (Mar 27, 2012)

RussT said:


> I include my principal residence. It doesn't generate income but it saves me money by avoiding rent and it appreciates over the long term. Someone mentioned that a residence should be excluded because the future value is uncertain, but this applies equally to XIU or ENB.


Not true, you can sell both those tomorrow if you wanted to, so they have a defined value that's pretty close. Try selling your house in a day and see what value you get. Next thing to consider is where you'd live is you sold it. Chances are you'd have to buy someplace new so your net worth would only increase or decrease by the difference in price. So, if you sold your house for 1M, but had to buy a place for $500k, you'd have $500k to spend (can't spend the other half, it's locked up "saving you money"). On he flip side, if you sold for 1M to buy a 1.5M place, you're in debt 500k more. You could, of course, rent and have access to all the money (higher net worth in my opinion), but also have higher expenses...that, I find, usually comes with a higher net worth however.

I'm not saying my method should be the defined version, this is just my personal way of looking at the world. When I got injured and couldn't work, having a house didn't help when I needed cash to put food on the table (not to say I didn't appreciate the house). Since I couldn't physically work, the bank wouldn't lend me money on the house either, basically saying it had no value to them as well. My life experience was different than most, so I tend to look at life a little differently. Not suggesting anyone else should follow my rules, they are all arbitrary anyway.


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## TomB16 (Jun 8, 2014)

Just a Guy said:


> Try selling your house in a day and see what value you get.


What does selling in a day have to do with anything? I have a stock that is worth less than I paid for it, which I'd prefer not to sell on the short term. I don't consider it worthless. I'm confident it will be back so I have no interest in selling in the short term.

I'd say my commercial real estate isn't going to sell quickly, either. Nor will my business.

Back in my 30s, I had a plan to sell my fully paid off $250K house and buy a $500K house. The plan involved paying down the $500K house at best speed for a few years and then selling it to buy a $1M house. The $1M house was to be lived in for a few years and then sold for a condo (either buy or rent).

We got to the middle house quite a few years ago and decided to not go any further. We have no children. We don't need a house nearly as big as we have and certainly don't need a mansion. We picked up a little house by the park we want to move to. We renovated it and put it up for rent. My wife has been talking about moving there, ever since. As soon as the renters move out, we will move in. Unfortunately, that could be quite a few years as they are nested in there quite well. It now seems a strong possibility we will need to find a home to rent for ourselves while we still own considerable income property.

Someone's view of wealth may be insufficiently flexible as to allow inclusion of our primary residence but, clearly, part of our home value is investment. I was just looking for a place to bury money that would keep up with inflation.

The plan now is to move somewhere warm for a few years and rent a tiny apartment by the ocean. My goal is to own zero real estate, despite doing extremely well with it. Will it increase my net worth when I don't own real estate?

What about our lake house? It doesn't produce anything. It has a pretty high value and no mortgage. It is appreciating. Is it part of our net assets?

It may not be quite as cut and dried as is being presented. Having a high net worth is a source of power, even if it would take considerable time to liquidate portions of it. In my opinion, all that matters is being able to create enough liquid resource to maintain our lifestyle while the bigger guns can be brought to bear on the retirement problem.


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## Just a Guy (Mar 27, 2012)

A net worth calculation is an "at this moment" calculation, not an "in the future" calculation. If your stocks are down, so is your net worth at the moment. If it grows in the future, so will your net worth. It's a "snapshot" to some degree. 

I'm not sure why people care so much about it though, it's just a fairly meaningless number.


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## AltaRed (Jun 8, 2009)

Spot values of net worth are not meaningfull, but the trend is an indicator of the progression towards achieving, for example, goals and objectives of a retirement nest egg. One needs to monitor the direction and trend of their investing goals as part of the plan to get to some reference point by retirement date. That said, the number cannot be taken literally. One could have a net worth of $1 million on date of retirement, but could be worth $700k a month later in a major market downturn.


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## kcowan (Jul 1, 2010)

AltaRed said:


> One could have a net worth of $1 million on date of retirement, but could be worth $700k a month later in a major market downturn.


We had a PR worth $1.05 million in 1991. I wanted to move out and get a $500k place on a lake 10 minutes further north. DW refused. In 1997, we unloaded it for $535k. I consider RE for PR to be a lifestyle expense.


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## Numbersman61 (Jan 26, 2015)

I’m 76 with no pension so I focus on investments for my income. My wife and I own a principal residence worth about 1.1 and a US condo worth about .4 US. This is a lifestyle choice and if the time comes for us to move, we have sufficient resources to take our time selling either property. We have investments paying dividends in US$ which covers our US fixed costs. While I don’t rely on real estate for my retirement needs, I can understand that a lot of folks will have to sell their principal residence and move into a less expensive home to create investments which will generate income.


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## OnlyMyOpinion (Sep 1, 2013)

Numbersman61 said:


> ... While I don’t rely on real estate for my retirement needs, I can understand that a lot of folks will have to sell their principal residence and move into a less expensive home to create investments which will generate income.


It's something that does not get enough consideration and planning. I suspect many retirees limit their spending and stay in their house rather than face the decision to downsize and free up money they could use. They wait until maybe their early-mid 80's, when they need to move due to mobility of care concerns. By then, the chances that they will need all of that money are less. It's fine if their choice was to stay in 'the big' house at the expense of having money early in retirement, and if they intend to leave that money to their estate. But it is sad if they have made real sacrifices in enjoying their early retirement years because of an unawareness or an unwillingness to unlock that value. The PR is often the bulk of a couple's net asset/wealth when they reach retirement.


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## AltaRed (Jun 8, 2009)

There are a lot of house rich and cash flow seniors around. I know enough of them personally. I don't get it personally but then I've never been dogged about what a house/home is. A lot of them might end up in the CHIP program (reverse mortgage) rather than downsizing into something simpler and more cost effective.


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## gardner (Feb 13, 2014)

FWIW, the "Accredited Investor" wealth test for non-SEC-registered investments excludes the principle residence also.


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## Thal81 (Sep 5, 2017)

RussT said:


> I include my principal residence. It doesn't generate income but it saves me money by avoiding rent and it appreciates over the long term.


I had that delusion for a long time. Then I put on paper what owning my home costs me, which is city/school taxes, condo fees (or maintenance) and the opportunity cost of investing the house capital in liquid assets instead. What I found is that I would be getting richer by renting. In my case, my home barely appreciated over the last 10 years, so it wasn't a good investment. But even if it had gained in value, I would have had to buy something else if I sold it, so there would be no profit unless I downsized.

For me a home value appreciation is just a form of inflation. But you do need a roof over your head, and it feels better to own the roof for some reason


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## Mortgage u/w (Feb 6, 2014)

In general, a home does appreciate with time. There are exceptions of course.

I wouldn't ignore equity in one's net worth. Sure, the equity is only on paper and as some say, a home is part of a cost of living, however, its there and it can eventually be utilized - just like an unrealized gain from an investment portfolio. They carry different weights, etc., but one cannot ignore it's potential - unlike renting which builds no equity at all.


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## olivaw (Nov 21, 2010)

We didn't include any non liquid assets when we calculated how much we we needed for retirement. All we cared about was the cash value of our investment accounts. 

I suppose those who live in expensive Vancouver or Toronto neighbourhoods might consider selling to free up investment cash. The math is less compelling for those of us in more modest markets. We'll live in our home for a while yet and may sell it and move to a care facility when we are no longer able to take care of the place. The proceeds from the home may allow us to afford a better facility.


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## Mechanic (Oct 29, 2013)

I definitely consider our residence as part of our net worth. We actually upgraded a year ago, after retiring. We sold our residence and a rental property and relocated. At some point we will downsize but, in the meantime we enjoy a beautiful home and garden. It's not just about having every dime invested to the max, you have to be able to enjoy what you have worked for as well.


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## kcowan (Jul 1, 2010)

We consider our residences to be a lifestyle expense. Any appreciation will accrue to our heirs.


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## RussT (Jul 11, 2016)

There have been lots of good points on both sides of the issue of including/excluding the principal residence in net worth.

In our case, both our house and our lake property will not be needed for our retirement lifestyle. So they will be part of our estate. It seems silly to consider them as having no value when calculating net worth. I use a very conservative value and include them.

Perhaps the decision to include a principal residence in net worth depends on whether or nor it will be required to fund retirement.


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## nobleea (Oct 11, 2013)

I think everyone should consider themselves a business. Make decisions on what provides the best value for your family/business. The difference being that there are various types of 'value' for a family, while there is only financial value for a company. Value in security, happiness, financial, etc.

Your net worth is the same as shareholder equity.
Just as shareholder equity doesn't mean a whole lot for long term viability, it can point the way. Obviously, there's no line item for 'goodwill' on your balance sheet, but just like a company there will be depreciating assets, investments, buildings, debt (both short term and long term), receivables and payables. When you think of it that way, it's plainly obvious what should be included in your net worth.

Net worth has nothing to do with your retirement planning, that should be a different metric.


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## TomB16 (Jun 8, 2014)

Mechanic said:


> I definitely consider our residence as part of our net worth. We actually upgraded a year ago, after retiring. We sold our residence and a rental property and relocated. At some point we will downsize but, in the meantime we enjoy a beautiful home and garden. It's not just about having every dime invested to the max, you have to be able to enjoy what you have worked for as well.


... and when you're done enjoying it, you can sell it for what you paid plus, likely, a nice appreciation.


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## kcowan (Jul 1, 2010)

RussT said:


> Perhaps the decision to include a principal residence in net worth depends on whether or nor it will be required to fund retirement.


That would be good but I think the majority of people try to hold onto the homestead because it reminds of their happy lifetime. That is why investable assets is a better measure. Then those that want to hang onto their memories do not include it. I know a rich person who hangs on to his lake house, his condo in Toronto, his PR is Canmore and his snowbird place in Phoenix. Why? Because he can!

Each asset is composed of two components: What it costs to rent the place for one's enjoyment, and a lifestyle expense on top that is truly fungible. Particularly a lake house only make sense if there is capital appreciation.


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## Just a Guy (Mar 27, 2012)

I always liked kiyosaki's definition (yes it's oversimplified, but then it doesn't really matter anyway) of assets (things that put money in your pocket) and liabilities (things that take money out of your pocket). Thus, things can be a liability sometimes (like your home while you're living in it) and then turn into an asset (when you sell it). 

Of course it also helps to understand that your home is an assets to the bank (they collect your mortgage) while being your liability. 

I know some people hate this definition because it gives them a lower score on their net worth card but, this being real life, I think it's a healthier way to view "holdings".


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## AltaRed (Jun 8, 2009)

FWIW, I consider houses/homes/recreation property to be boat anchors. They are an energy (financial) drag until you pull the anchor out of the water.


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## Koogie (Dec 15, 2014)

kcowan said:


> That would be good but I think the majority of people try to hold onto the homestead because it reminds of their happy lifetime. That is why investable assets is a better measure. Then those that want to hang onto their memories do not include it. I know a rich person who hangs on to his lake house, his condo in Toronto, his PR is Canmore and his snowbird place in Phoenix. Why? Because he can!
> Each asset is composed of two components: What it costs to rent the place for one's enjoyment, and a lifestyle expense on top that is truly fungible. Particularly a lake house only make sense if there is capital appreciation.


Well, to be fair, we both know that his properties amount to maybe what, 10 - 15% of his net worth ? Same percentage as most people have in their PR.




AltaRed said:


> FWIW, I consider houses/homes/recreation property to be boat anchors. They are an energy (financial) drag until you pull the anchor out of the water.


Amen.


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## RussT (Jul 11, 2016)

Just a Guy said:


> I always liked kiyosaki's definition (yes it's oversimplified, but then it doesn't really matter anyway) of assets (things that put money in your pocket) and liabilities (things that take money out of your pocket). Thus, things can be a liability sometimes (like your home while you're living in it) and then turn into an asset (when you sell it).


According to this definition one should not just exclude your home, one should actually deduct it to arrive at net worth (=assets - liabilities).


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## Just a Guy (Mar 27, 2012)

Yep, but just the amount it costs you every month, unless it also has a mortgage, then you'd deduct the mortgage from the "equity". Personally I don't count any equity in my home, or even my rentals as part of my net worth. I do calculate the rent and the expenses and use that number. Since I never plan on selling my places, and their value could change dramatically, their equity portion is basically zero unless someone gives me money for it (say a loan). My liquid assets however, say cash, stocks and bonds, I know pretty much what I can get for them during the day, I've got no attachment to them, and they are easy to liquidate. They could put money in my pocket immediately more or less.

I suppose, in the back of my mind, I prefer knowing my real estate is worth more than their mortgages, I don't really care about much more than the cash flow remaining positive. 

It's a very conservative calculation. Not sure why people get upset about it though, it's just a number.


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## TomB16 (Jun 8, 2014)

For my part, I prefer to own real estate than cash or most equities. R-E is far less volatile than equities so is easier to track value.

The biggest mistake people make when valuing R-E is they think their stuff is worth more than it is. MLS listing asks are not what properties sell for and it's tough to be objective when comparing condition of your house to that of an anonymous listing.

Still, the idea of not associating value with R-E, including a person's home, seems crazy to me. I have a couple of properties that will bear up far better than cash or stocks when the next market crash hits.


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## Just a Guy (Mar 27, 2012)

Don’t see he harm personally. If I’m wrong, then I’m far better off financially, if something happens and it goes down, im still better off than I think. If it goes to zero, worst case scenario, then I may be where I put myself on paper. 

It’s not a game where the highest score wins. I’ve been in he situation where I’ve nearly lost everything once before (when I didn’t think it was possible). If I choose to downplay my net worth in my own view, where’s the harm? It’s not like it’s driving me to get more.


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## AltaRed (Jun 8, 2009)

When I owned a quarter section of raw land, I knew it had a ball park value of x<--->y and that I would monetize it some day. But because RE is illiquid and a transparent price is not known at any given time, I did not specifically put it into a net worth calculation for over 25 years. It just did not matter. That said, I knew it would top up my investable capital assets someday, and that is what I did when I sold the land in 2013. 

I know the paper value of my financial assets on an ongoing basis but it is not the absolute number that matters. It is the 'ballpark' that matters and how it looks on a rolling average over time. When I look at the Net Worth graph in Quicken, and look back 3 years, I can say, yeah, the number was in the neighbourhood of X and today it is Y. Three years from now, I will look back at today and say the same thing. And yes, the 2008-2009 debacle is a big V (ditch) in the graph.


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## olivaw (Nov 21, 2010)

AltaRed said:


> FWIW, I consider houses/homes/recreation property to be boat anchors. They are an energy (financial) drag until you pull the anchor out of the water.


Interesting point. I have never thought of our primary residence as a boat anchor but I can see how you would arrive at that conclusion.

My wife and I considered purchasing a vacation home but the more we discussed it, the less comfortable we became. We concluded that the burden of maintenance and repair would probably exceed any pleasure we could derive from it. We’re happy to rent a vacation home and leave maintenance and repair to someone else.


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## AltaRed (Jun 8, 2009)

olivaw said:


> My wife and I considered purchasing a vacation home but the more we discussed it, the less comfortable we became. We concluded that the burden of maintenance and repair would probably exceed any pleasure we could derive from it. We’re happy to rent a vacation home and leave maintenance and repair to someone else.


We rent our vacation homes/condos too. Same thing with $100k pleasure boats. We rent with bliss.


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## Retiredguy (Jul 24, 2013)

I agree vacation property is an anchor but my principal residence is a asset that pays me a dividend each month equal to what it would cost me to rent similar accommodation. The near identical house next to mine rents for 3700 per month. Taxes are 400 per month and I allow 300 for maintenance so the net monthly rent I would have to pay for similar accommodation would be 3000. A sub 1000 sq ft 2 bedroom apt also happens to rent in my area for 3000 per month.
I pay 20% tax on any new -additional dividend income (39% on interest) so 3000 per month rent requires 45000 per year in additional div income. Like any good blue chip stock my house has a capital appreciation component (with a bonus of no CG tax) and a income producing component - dividend. Provide what ever definition works for you but I know that without my PR I would be paying out 3000 p/m from my after tax income. Liquid? yep I could sell Monday and have the money by Friday. Its just a matter of hitting the bid rather than my ask.


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## Just a Guy (Mar 27, 2012)

How much dead money is tied up in producing your windfall? What's the ROI?


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## Retiredguy (Jul 24, 2013)

Just a Guy said:


> How much dead money is tied up in producing your windfall? What's the ROI?


Not sure why you would consider a stock purchase dead money and the dividend a windfall l!

House 1984 - 167k, a Monday sale 1500k. ROI 6.88% compounded (33 yrs) tax free plus dividend each and every month. 36k yr (after tax dividends on 1500 2.4%). ROI 9.28% (after tax).


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## AltaRed (Jun 8, 2009)

Take off interest paid on mortgage over that period, maintenance and upgrades, property taxes and insurance et al. None of those apply to tenants. Homeowners are in denial about the real costs of ownership. Takes away almost all of the dividend. The best you get is capital appreciation IF you are lucky enough to live in a location where cap appreciation exceeded inflation. In most cases, home ownership is s zero sum game.


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## Eder (Feb 16, 2011)

Better to live in a trailer and use the leveraged 1.5 mill buying Royal bank stock. (do the 25 year graph)


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## Retiredguy (Jul 24, 2013)

AltaRed said:


> Take off interest paid on mortgage over that period, maintenance and upgrades, property taxes and insurance et al. None of those apply to tenants. Homeowners are in denial about the real costs of ownership. Takes away almost all of the dividend. The best you get is capital appreciation IF you are lucky enough to live in a location where cap appreciation exceeded inflation. In most cases, home ownership is s zero sum game.


Never did have a mortgage on this particular home until much later - for investment purposes and the interest was deductible. I did in my example take off taxes and maintenance/upgrades. Agreed, location is important but so is the pick of any other investment. The original post drifted to whether RE is an asset or not... not whether its a zero sum game versus renting. Depending on the specifics of the example/location I may agree with you.


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## Retiredguy (Jul 24, 2013)

I lived in the house and used the leverage in 1996 to buy TD @$24 with a dividend of then $1.00 yr. Today the shares are worth (adjusted for splits) $296 and the div pays me 9.60 per sh per yr.

A much smaller position of RY, bought in 1988 has done nicely as well.

etc. etc. etc.


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## Just a Guy (Mar 27, 2012)

Retiredguy said:


> Not sure why you would consider a stock purchase dead money and the dividend a windfall l!
> 
> House 1984 - 167k, a Monday sale 1500k. ROI 6.88% compounded (33 yrs) tax free plus dividend each and every month. 36k yr (after tax dividends on 1500 2.4%). ROI 9.28% (after tax).


First off it's not a stock, it's real estate (which I am heavily involved in, and run like a business). It doesn't make much sense to me to hold a stock that has a small ROI if I could potentially exchange it for a stock earning significantly more. So, it I've got stocks worth 500k, earning $5000/year, I'd probably look at changing, especially if the stock isn't appreciating...even more so it the stock has reached a peak and could decline sharply.

As for real estate, if I have a rental worth 500k (present value, not purchase price) which is renting for $2000/month I'd definitely look at selling it and buying five 100k places which I could rent for $1000/month each.

Btw, single digit ROI on real estate is a pretty bad ROI. That's why more people get wealthy from real estate than stocks. 

If you're using your purchase price, not your present value, your ROI is typical of people who want to justify returns that aren't actually there. Houses have reached their peak prices in all likelihood, but it's your money, you earned it, you can do what you like with it.


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## TomB16 (Jun 8, 2014)

Eder said:


> Better to live in a trailer and use the leveraged 1.5 mill buying Royal bank stock. (do the 25 year graph)


I take it you're single. 

I'm sure that, somewhere, right now, someone is explaining to a Ferrari dealer they can get a used Pontiac Fiero in Red for $2500, thus proving the lack of value of the Ferrari.

Oddly enough, I pitched my wife on the idea of moving to a trailer, some years ago. The idea was, quit our jobs: sell everything, and buy a cheap house trailer on Vancouver Island. Once there, we would use our money to travel the world.

She considered it for a few weeks but just couldn't do it.

There is no doubt, we will live in a rental one day. When that day comes, we will sell our house for a nice return.


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## Retiredguy (Jul 24, 2013)

Just a Guy said:


> Understand "but it's your money, you earned it, you can do what you like with it." Back at you..... Hmmm kinda like opinions.


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## Just a Guy (Mar 27, 2012)

I'm just saying it's not what I would do, doesn't mean you're wrong.


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## Benting (Dec 21, 2016)

Retiredguy said:


> I lived in the house and used the leverage in 1996 to buy TD @$24 with a dividend of then $1.00 yr. Today the shares are worth (adjusted for splits) $296 and the div pays me 9.60 per sh per yr.
> 
> A much smaller position of RY, bought in 1988 has done nicely as well.
> 
> etc. etc. etc.


@24 ? My very first trade, bought 300 shares TD @ $26 in 1996. Disregard the capital gain, the dividend is almost 37% per share !
Bought 200 shares RY @ $32 in 1997, the dividend for those is 20+% per share.
I still have those shares and added a lot more......



My KISS portfolio: 60% TD, 40% RY.


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