# What portion of your net worth should your house comprise?



## pwm (Jan 19, 2012)

I just got a new property assessment that shows a fairly large increase in the value of my house. I keep that number in Quicken, and after updating the number I see that my house is now *23%* of my total net worth. 

Background info: I'm retired, have no debts, have more income than I need from pensions and government benefits, children are adults. We bought a lot and custom built the home in 2003. We are 5 km from the Winnipeg city limit in a semi-rural setting. It's much larger than we need, it's on a .815 acre lot, but I'm very happy here and glad we made the move. It's where we plan to stay until I can't keep up with the maintenance. I don't consider my house to be an investment, although it is an asset, and part of ones net worth calculation.

Questions: Is that a reasonable percentage of ones net worth? What would people consider to be reasonable? Anyone care to comment on what their number is and in what range the recommended number should be?

Thanks in advance.


----------



## iherald (Apr 18, 2009)

My house is probably 60% of my net worth. I'd like it to be 23%, but that's not the case yet. I am focusing on paying off my mortgage so my money is going towards my house versus other avenues. This means that my house is increasing as a part of my net worth. However, when it is paid off I can put all that money I was putting into my mortgage into the market, and that percentage will start to drop (hopefully fast).

Edit: I'm in my Mid-30's.


----------



## mind_business (Sep 24, 2011)

Right now my house value represents 41% of our networth (47 years old). Below is my forecasted percentage based on retiring at 55, 60, & 65:

Age 55: House value forecasted to be 22% of our networth
Age 60: House value forecasted to be 16% of our networth
Age 65: House value forecasted to be 11% of our networth

Obviously a lot can change between now and then


----------



## Echo (Apr 1, 2011)

Our house represents about 68% of our total assets and the home equity represents about 42% of our total net worth. I'm 33 years old.


----------



## Nemo2 (Mar 1, 2012)

Our condo townhouse is ~ 10.5% of net worth.


----------



## MorningCoffee (May 8, 2013)

I guess I look at my numbers differently. I don't count my house in my net worth. My house is an asset and has value, but unless I'm willing to move, I don't want to consider it in my net worth. It won't pay my bills or buy my groceries when I'm retired, since I have to live somewhere. Even if I downsize, if I buy in the same city and market, the price difference would not be that significant. In an emergency, I know I can sell and rent somewhere with the profits.

I've seen too many people with a big, expensive house (and not much else) consider themselves to have a high net worth and want to retire, and can't. I just focus on net worth of investments to calculate when I can retire. Just a different way of looking at it.


----------



## none (Jan 15, 2013)

In Canada right now? I'd say the smart money says zero.


----------



## Four Pillars (Apr 5, 2009)

There is no "right" answer for this. Way too simplistic.

Really depends on how old the person/family is among other factors.


----------



## Ihatetaxes (May 5, 2010)

none said:


> In Canada right now? I'd say the smart money says zero.


Can you say "BROKEN RECORD"?


----------



## none (Jan 15, 2013)

Ihatetaxes said:


> Can you say "BROKEN RECORD"?


Yes: Broken Record.

What? I'm not allowed to answer a question? He asked, I gave my answer - that's how forums work.


----------



## cman2 (Jan 14, 2011)

In April 2011 it was 52 %. Today, I'm still 52 %. I guess I'm paying off the mortgage at the same rate as I'm increasing my investments.


----------



## OhGreatGuru (May 24, 2009)

I agree with FourPillars. There is no correct answer. Depends on too many personal variables, as well as what real estate market you are in.


----------



## arrow1963 (Nov 22, 2011)

I agree with the posters above, there is no right answer.

However, I think you know that, and you're interested in a rule of thumb. Garth Turner has referenced a 'rule of 90' repeatedly: 90- Your Age = max. level for home equity as a proportion of a balanced financial profile.


I think that primarily this is intended to discourage over investment in real estate by young buyers and upgraders, suggesting that a 30 year old couple shouldn't pile all of their worldly assets into their down payment.

It seems to me that the rule (or any rule of thumb) will start breaking down when people are in retirement, where it would be entirely natural for you to stay in your home, it to grow in value (perhaps slowly), and for you to spend down your financial assets. Unless you take out a reverse mortgage or downsize, there isn't much to do with the equity in your house.

Oh, and to the OP, before you beat yourself up about concentrated wealth in your house, I'd be sure to include the net present value of any pensions (including CPP and OAS) in your net worth calculation.


----------



## My Own Advisor (Sep 24, 2012)

Our house is about 50% of our net worth. Age 39. We still owe 6-figures on the mortgage. 

At time of retirement, I hope our house is worth about 25% of net our worth. Net worth is expected to include $1 M portfolio, paid off home, and not including pensions.


----------



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

Now I am intrigued. If you thought 23% was the wrong amount what would you do about it?


----------



## GoldStone (Mar 6, 2011)

Sell a bedroom to rebalance.


----------



## Islenska (May 4, 2011)

On a strict valuation process, about 18%

but have to live somewhere so I look at my real estate as part of the inheritance and really don't care if it goes up or down 10%

That said nice to have a chunk on standby!


----------



## Nemo2 (Mar 1, 2012)

GoldStone said:


> Sell a bedroom to rebalance.


+1


----------



## eulogy (Oct 29, 2011)

I don't think there is a right answer since everyone has their own way of doing things and their own comfort levels. Some people can just throw money into the stock market (like myself) and other people turn into nervous wrecks, so they invest in something they can touch (property). No right answer.

The only metric I would be looking to measure is that your worth is growing every year at an acceptable rate to sustain your goals in the future. Or if you're in retirement, things aren't depleted faster than they should be.


----------



## My Own Advisor (Sep 24, 2012)

Eulogy, good point, focused on the bigger picture. In your opinion, what is a good net worth growth rate? Thoughts?


----------



## pwm (Jan 19, 2012)

Thanks for the replies. 

Yes, I know that everyone has to find the balance between house and investments that suites their situation. Also the ratio will vary as one ages. At the time that I paid off the mortgage on my previous house, it comprised almost all of my assets. Then I started investing the money I would have paid into a mortgage, and the value of the house began to diminish as a percent of the total. So it's reasonable for younger people to have a higher percentage.

arrow1963: You make an interesting point about including the present value of pensions in one's net worth. If I do that calculation, it adds roughly 1/2 million to my total assets, and the house percentage goes down to 18%. By Garth Turner's rule of thumb, 90 minus my age equals 26% so I'm not out of line by that standard.
MorningCoffe: Yes, I like you, and never considered my house to be part of my net worth until I built this place. After signing several large cheques for the land and to the builder, and selling securities to cover them, then spending more to finish the place, I began to think a little differently. 

Whether to even own a house and if so how much to have tied up in it is a very personal decision and I appreciate everyone's thoughts on the topic.


----------



## MrMatt (Dec 21, 2011)

When I bought my house it was initially about 2000% (yes about 20x) my net worth and has slowly shrunk down from there.

I know people who were still paying off student loans when they bought their house, I'm not sure how you'd even consider those with negative net worths.

It matters, what stage of life you were at, what you value, and your overall net worth. Your house will be a massive portion of your assets when your net worth is low.


I consider home value as the market price.
I consider mortgages just another liability.


----------



## ranbam (Jan 12, 2013)

Our house is just under 30% of out total assets and our house equity is just under 20% of our net worth.


----------



## Jungle (Feb 17, 2010)

Our principal residence is worth 94% of our net worth. If I liquidated our net worth we could have a paid off house and a little sum left over.


----------



## Plugging Along (Jan 3, 2011)

Ours is about 35%, we have no mortgage and are 41. 

Ideally it would be 5%:tongue-new: but if we get it to that stage, we will buy a big place.

I think early on it was a much higher percent as we paid down he mortgage, and now that we are just focusing on investments, it will go lower and lower until we upgrade our house.


----------



## kcowan (Jul 1, 2010)

Four years rent is about 33% of our net worth including present value of pensions. After adjusting for rental income, it drops to 17%.


----------



## Jon_Snow (May 20, 2009)

Just crunched some numbers - looks like our home comprises about 17% of our net worth. Like PA, mortgage free at 41! Every available nickel now going to ER fund!!!


----------



## My Own Advisor (Sep 24, 2012)

17% is pretty impressive Jon. When are you retiring? I know you're planning to...


----------



## Jon_Snow (May 20, 2009)

Not sure you can really call it "retiring" if your wife still intends to work. But I may quit my current career next year and become a "kept man". :tongue-new: Although, to be fair, between managing our investments, maintaining our gulf island properties and building a cottage on one of them, there is no shortage of things that need to be done. My career, while lucrative, has left me very little opportunity to work on the things that truly make me happy - soon, this won't be an issue. When the time comes to walk away from my career, I don't think its going to be easy leaving that much income on the table - and my family may very well try to have me committed. 

I wouldn't be opposed to working part time here and there, if something strikes my fancy.


----------



## olivaw (Nov 21, 2010)

I think the original question is a good one. It can be helpful to assess your financial wellbeing using a variety of metrics. 

Age: mid 50s. 
Wife retired. 
Me retired in two years. 
No pension. 
Location: Calgary
Mortgage free. 
Net worth calculated using real estate, stocks, bonds and cash. Present value of CPP and OAS were excluded from the calculation. 

House worth about 22% of total net worth. 

Taking into account our location and age, I'm fairly comfortable with the figure.


----------



## fraser (May 15, 2010)

I think that it is very much a function of your income, your net worth, your age, your location, and your lifestyle and family requirments.

We sold our home several months ago. |We are in a furnished rental. We had planned to buy but have decided to rent for at least a year. Going to try a lock and go apt/condo.
Travelling, and our desire for more extended travel. If we do buy, it will probably be at 15 percent of our net worth, inclusive of the value of my DB. If extensive travel was not in our plans, then our real estate choices would change-as would would the percentage spent. Conversely, if we decide to relocate to another city that happens to have much lower housing values, our percentages would drop accordingly.


----------



## Homerhomer (Oct 18, 2010)

Meaningless number, I would rather be 90% (900k in a house and 100k elsewhere) than 33% (50k house, 100k elsewhere).


----------



## Karen (Jul 24, 2010)

Mine is about 42% which would be worrisome at my age (70) except for two things - I have a federal government db pension and my house is fully paid for, so I don't need a lot of income beyond my pensions and my savings. Then again, I live in the Greater Vancouver area, where house prices are ridiculously high!


----------



## summer (Jul 7, 2011)

Homerhomer said:


> Meaningless number, I would rather be 90% (900k in a house and 100k elsewhere) than 33% (50k house, 100k elsewhere).


exactly


----------



## My Own Advisor (Sep 24, 2012)

I not so sure. You can do anything with numbers, so let's take $1 M as the baseline. I'd rather have my paid off home (eventually) as a lower % of my net worth than my investments.

@summer, you can't live off your home; you gotta live somewhere.


----------



## cainvest (May 1, 2013)

Homerhomer said:


> Meaningless number, I would rather be 90% (900k in a house and 100k elsewhere) than 33% (50k house, 100k elsewhere).


I'd rather be 90% as well but the other way around!  ($100k home with $900k in investments)


----------



## My Own Advisor (Sep 24, 2012)

cainvest said:


> I'd rather be 90% as well but the other way around!  ($100k home with $900k in investments)


Exactly.


----------



## Homerhomer (Oct 18, 2010)

We can keep coming up with better numbers until cows come home, the percentage by itself is absolutely meaningless.;-)


----------



## summer (Jul 7, 2011)

My Own Advisor said:


> I not so sure. You can do anything with numbers, so let's take $1 M as the baseline. I'd rather have my paid off home (eventually) as a lower % of my net worth than my investments.
> 
> @summer, you can't live off your home; you gotta live somewhere.


Well, no you cant live off your home. I agree.
However, these numbers dont say too much.

Person A may have a 1.5 million dollar home and a net worth of 2 million.--home is 75% of net worth

Person B may have a 100 000 home with a new worth of 300 000. --home is 33% of net worth

I would rather be Person A. So, I just dont see why having your home as a smaller % of your net worth really means anything.

Plus, I enjoy having a nice home. To me that is important (not from an investment standpoint but from a life enjoyment standpoint). My point is the percentages are meaningless.
Plus, most people do downsize when they retire. That frees up cash too.


----------



## kcowan (Jul 1, 2010)

summer said:


> Plus, most people do downsize when they retire. That frees up cash too.


But we have seen from the US meltdown that home equity should never be counted on for living.

But I am of the old school that any net worth of residence above 35% of your total puts you in the house poor range. Granted it may be required in Vancouver and maybe Toronto when you are young, but you should be striving to push it down.


----------



## Eclectic12 (Oct 20, 2010)

summer said:


> Well, no you cant live off your home. I agree.
> However, these numbers dont say too much.
> 
> Person A may have a 1.5 million dollar home and a net worth of 2 million.--home is 75% of net worth
> ...


Too many variables to make it meaningful.

If it's Windsor or somewhere reasonable - Person A looks better. If it's Vancouver or Toronto - then I'm leaning towards person B.




summer said:


> My point is the percentages are meaningless.


Agreed ... though I'd hope that the closer to retirement, the less the % the house is. That certainly gives one a lot more flexibility in retirement that having huge amounts tied up in a house.




summer said:


> Plus, most people do downsize when they retire. That frees up cash too.


They do? 

Most of my relatives has fallen in love with their house so that at retirement - they are maintaining a multi-bedroom house with two or less people in it. They are only downsizing when they have limited mobility.


Cheers


----------



## Eder (Feb 16, 2011)

In my case it is zero unless you count the sailboat that I bought with the proceeds from the house...then it is 25%


----------



## summer (Jul 7, 2011)

>>But we have seen from the US meltdown that home equity should never be counted on for living.>>

I agree fully. You never know what can happen. You cant count on it. Thought most DO downsize and most DO free up cash when doing so. There is no guarantee.


----------



## summer (Jul 7, 2011)

Eclectic12- I should have said when they are elderly. Not necessarily when they retire.


----------



## summer (Jul 7, 2011)

Question-when you are giving your percentages, are you deducting the mortgage? Or are you using the full value of the house?


----------



## AltaRed (Jun 8, 2009)

summer said:


> Question-when you are giving your percentages, are you deducting the mortgage? Or are you using the full value of the house?


It has to be the 'net' number, i.e. deduct mortgage amount.


----------



## summer (Jul 7, 2011)

Thanks,that's what I figured.


----------



## Spudd (Oct 11, 2011)

I saw this relevant article on FP today:
http://business.financialpost.com/2013/05/15/do-canadians-love-real-estate-too-much/?__lsa=1b38-984b


----------



## LondonHomes (Dec 29, 2010)

Ideally you would want to make it as small as possible .... the worst thing you can be is "house poor".


----------



## pwm (Jan 19, 2012)

Good article at the Financial Post today by Garry Marr on this topic. As the title says: Stocks beat real estate in the long run. As he says, and as I have always believed, a house is not an investment, and any appreciation is just a bonus.

http://business.financialpost.com/2...le-between-stocks-and-real-estate-stocks-win/

From the article: _Statistics Canada says half of our wealth is now tied up in property. Clearly, many of us have well exceeded the 30% to 50% range financial advisors often suggest as the appropriate portion of assets to be held in bricks and mortar._


----------



## My Own Advisor (Sep 24, 2012)

Agreed pwm. Houses are not liquid. If my house appreciates over time, and it should, great. If not, I'll love living here in the meantime.


----------



## olivaw (Nov 21, 2010)

Like MOA, we don't consider our home to be an investment. We also don't include it in our RSQ calculations. 

I think this thread is useful. The percentage of net worth tied up in a home is one indicator of financial readiness for retirement. A million dollar net worth* that includes a nine hundred thousand dollar home leaves a paltry 100K to generate retirement income. You'd probably end up needing to "re-balance" through buying down or taking a reverse mortgage.


----------



## CanadianCapitalist (Mar 31, 2009)

pwm said:


> Good article at the Financial Post today by Garry Marr on this topic.


I think the article misses a number of points it could have made. One cannot compare just the price appreciation on home prices to total return from stocks. Rental income (or imputed rents if one is owning a home) is a huge component of returns from real estate. The article is therefore comparing apples to oranges.

Also, risk should be considered when comparing returns. If stocks are riskier than real estate, then one would expect stocks to post higher returns.


----------



## cato (Jul 4, 2011)

House (actually condo) is less than 10% of our total investments. I'm retired and 65 yrs old and I prefer it this way, a house is a lifestyle choice and provided that you are comfortable and in a city that you enjoy, why saddle yourself with a house that is costly to mantain?

I believe in real estate investment but restrict my exposure to REITS, I do not have the patience or mindset to invest in rentable real estate.


----------



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

Another factor the experts fail to allow for is leverage. It is possible for a young couple to buy their first house with 10% down. If the house goes up 10% they doubled their money. The equity can build quickly in a rising market, even if it is only 5% a year.

If they are like most people they will "trade up" 2 or 3 times in their lifetime using equity for a down payment and end up with quite a substantial sum of money when the last house is paid for. All from a small down payment, and regular monthly payments that are no more than they would have paid in rent.

There are thousands of examples of ordinary Canadians who put a few thousand down on their first house 20, 30 or 40 years ago who now own a house worth $250,000 or more. In many cases this the bulk of their fortune. We are talking about people who are not sophisticated financially (they don't follow Canadian Money Forum lol).

I know the accountants out there can prove that it is cheaper to live in an apartment than own a house, and if you put your savings into stocks you will end up richer. But I can point to 100 home owners who have made money on their home, for every accountant or mathematician who has made more money in stocks.

There is also the lifestyle factor. Some people get more pleasure out of their own home and garden than they would looking at a broker's statement, no matter how many figures there are in the bottom line.

I know this is not a popular opinion on this forum. I like to point out that your home owning friends are not necessarily irresponsible idiots no matter what the financial press says.


----------



## sags (May 15, 2010)

Can't disagree with you Rusty...............but you don't think that times have changed?

As I was buying my homes over the years............our wages kept going up, and the % of income the mortgage payments required from my income continually went down year after year.

I don't think that happens in today's job market.

Today, people extend themselves to the maximum to buy their first home, and then money gets tighter and tighter from there.


----------



## fraser (May 15, 2010)

We have always owned our homes. When we had children it was a lifestyle choice and an investment choice. And our various homes in Vancouver and Calgary appreciated well in excess of stock market performance- and of course we we needed somewhere to live. 

Now, not so much, We are retired and are about to rent for the first time in in years. Why? We need a lock and go place so we can travel. Don't want a' furnace' and don't want to be responsible for upkeep. We also want a smaller living space. In our case, we believe that renting may put us ahead.

Rents in our area are a little low compared with the price of the condo and the mtce fees attached to it. And we have some flexibility. We may decide to put everything in storage again and travel for six months. Or we may decide to move to another country altogether. At our point in life, early retirees, the decision to rent or buy very much takes into account the financial aspects. We do not need the equity on former home to live. But if we can get a better return by investing that equity instead of buying a condo or a house we intend to do so.


----------



## Eclectic12 (Oct 20, 2010)

Rusty O'Toole said:


> Another factor the experts fail to allow for is leverage. It is possible for a young couple to buy their first house with 10% down. If the house goes up 10% they doubled their money. The equity can build quickly in a rising market, even if it is only 5% a year ...


True.

Though unless one is willing to move and lock in the equity, it's not necessarily going to be there later. Then too, maintenance costs can eat it up from an investment perspective. IMO it's similar to someone buying stock that does not pay dividends and being proud of it trading at 100% more. Unless one cashes in, it's all on paper. The difference is that the house is likely a lot tougher to cash in on.




Rusty O'Toole said:


> I know the accountants out there can prove that it is cheaper to live in an apartment than own a house, and if you put your savings into stocks you will end up richer. But I can point to 100 home owners who have made money on their home, for every accountant or mathematician who has made more money in stocks ... There is also the lifestyle factor ...


That's why IMO it is too simplistic to look at a house as an investment (unless one is flipping them). 

Whether it's cutting costs at home, renting instead of owning, staying with relatives instead of renting, having cash flow is great but if one does not choose to invest it, one will not a have a chance to build one's net worth.


Cheers


----------



## kcowan (Jul 1, 2010)

I think it boils down to asset allocation. Are you willing to reduce your exposure to your home equity as an investment choice. If the answer is no then the question is moot.

Are you counting on your home equity to retire? If so what are you doing to reduce exposure to that one asset class?


----------



## Mother (Jun 24, 2021)

So BC property assessment is now available to look up on their website. Our property has gone up 35% this year and is now 33% of our networth. When we first started, it was ALL we had.

Happy New Year!


----------



## kcowan2000 (Mar 24, 2020)

When we started out, only the down payment represented an asset, and our annual cash flow requirements made that asset insignificant. It was the forced saving from mortgage pay down and property maintenance that made that asset grow. It was not until the mortgage was paid down that our non-home assets started to grow. That began ten years after I started working. Those are now the "good old days". Now the decision revolves around how house poor do you want to be? For how long?


----------



## Mechanic (Oct 29, 2013)

Now that BC just hiked my assessment by 45%, I guess net worth just increased !!


----------



## Mookie (Feb 29, 2012)

Wow, 45%! What area do you live in???


----------



## pwm (Jan 19, 2012)

I see this thread has recently been bumped. I just did an update in Quicken and my house now comprises 14% of my net worth. It's gone down considerably since I started this thread. That shows that my "all stock" portfolio has grown much faster than my house valuation since 2013. I'm basing the house value on my property assessment which is probably not very accurate. As I have said before, I've never considered my house to be an investment, and that's a good thing, since it hasn't kept pace with my investment accounts.


----------



## nobleea (Oct 11, 2013)

This is one of the metrics I track, along with Debt/Equity, Debt/Asset, and other ratios similar to what businesses use.

Ours is currently 33%. The high was 64%, 7yrs ago. I have under 30% being a goal for this metric, though I'm not sure how I came up with that percentage.


----------



## nathan79 (Feb 21, 2011)

Mookie said:


> Wow, 45%! What area do you live in???


Not sure where Mechanic lives, but that would be a typical increase for the Fraser Valley area. My mom's valuation is up 40% this year. That's $985,000 for a 2-bed house in Abbotsford.

This is why I need crypto.


----------



## AltaRed (Jun 8, 2009)

Probably Fraser Valley. Ours went up 36% YOY in the Okanagan Valley


----------



## HappilyRetired (Nov 14, 2021)

Rusty O'Toole said:


> Another factor the experts fail to allow for is leverage. It is possible for a young couple to buy their first house with 10% down. If the house goes up 10% they doubled their money. The equity can build quickly in a rising market, even if it is only 5% a year.
> 
> If they are like most people they will "trade up" 2 or 3 times in their lifetime using equity for a down payment and end up with quite a substantial sum of money when the last house is paid for. All from a small down payment, and regular monthly payments that are no more than they would have paid in rent.
> 
> ...


And there are a lot of people that can't save a dime but would never miss a mortgage payment. Those are the people that benefit from owning a home...it's forced savings they never would have had otherwise.

A lot of my friends have paid off house and are retired. Many of them plan to sell their house sooner or later (netting $300k or more), and move to an apartment freeing up a nice lump sum that can be used for travel and other things.


----------



## MrBlackhill (Jun 10, 2020)

HappilyRetired said:


> Many of them plan to sell their house sooner or later (netting $300k or more), and move to an apartment freeing up a nice lump sum that can be used for travel and other things.


I may be ignorant because I don't have a HELOC yet, but why selling the house instead of keeping it and using the HELOC?


----------



## HappilyRetired (Nov 14, 2021)

MrBlackhill said:


> I may be ignorant because I don't have a HELOC yet, but why selling the house instead of keeping it and using the HELOC?


I'm talking about my retired friends (I'm 59), they'll have a different perspective than someone younger. Some of them are tired of maintenance and yard work after decades of doing it. Plus they want to travel and it's a lot easier to leave an apartment for a month or two than a house where you need to find someone to check on it, shovel the driveway and sidewalk every time it snows, etc.

Some of them also have no dependents to leave an estate to. Those with kids might look at it differently.


----------



## AltaRed (Jun 8, 2009)

Don't borrow money to fund retirement cash flow spending. It is a very slippery slope. The debt cannot be paid off and interest charges keep accumulating.

P.S. Some retirees use reverse mortgages for this purpose but I consider them shark infested territory.


----------



## MrBlackhill (Jun 10, 2020)

AltaRed said:


> The debt cannot be paid off and interest charges keep accumulating.


I was thinking that instead of selling the house for $500k and then rent at $1500/month, maybe use the $400k HELOC and pay $1000/month to cover 3% interest and once you're tired of the house sell it to pay back the HELOC.



HappilyRetired said:


> Some of them are tired of maintenance and yard work after decades of doing it.


Yes, definitely, I can relate.


----------



## AltaRed (Jun 8, 2009)

MrBlackhill said:


> I was thinking that instead of selling the house for $500k and then rent at $1500/month, maybe use the $400k HELOC and pay $1000/month to cover 3% interest and once you're tired of the house sell it to pay back the HELOC.


The math will depend on where one lives (regional cap rates) and the risk of substantial increases in interest rates. What happens when that 3% HELOC hits 4-5% in the next year or two (along with declining or stagnant house values as a result of mortgage rate increases)? It would be a terrible situation for seniors to find themselves.


----------



## Mechanic (Oct 29, 2013)

Mookie said:


> Wow, 45%! What area do you live in???


Vancouver Island


----------



## kcowan2000 (Mar 24, 2020)

Our house equity is about 25% of our net worth for both houses. We could easily reduce that because together, they account for 4500 sq.ft of living space for the two of us.


----------



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

MrBlackhill said:


> I may be ignorant because I don't have a HELOC yet, but why selling the house instead of keeping it and using the HELOC?


Some people over the years, trade up to bigger and better houses then when their children grow up and leave the nest, find the big house too much for 2 people. Too much work to keep it nice, too much expense for taxes, insurance, maintenance. It makes sense to cash out, invest the money, and move to an apartment or condo.


----------



## MrMatt (Dec 21, 2011)

Mookie said:


> Wow, 45%! What area do you live in???


Canada?

Our assessment hasn't been done in a long time, but at 20-30% growth per year over the last few years it's going to be a doozy.

Real estate prices have gone nuts, and the only thing that's going to really bring them down is to build enough housing for everyone. Until they build houses, the prices will keep going up.

As far as what portion real estate should be, I don't think there is a right answer there. I'd think 20% would be nice, but that's just not realistic. For me the excess allocation is simply a luxury spend/cost avoidance.

I don't really see home ownership as an investment, I think it's basically reflected family wage growth, until very recently where it's been monetary policy and continuing bad housing policy that's messed up the market. (bad policy has been the norm for decades)
If they didn't restrict the housing supply, and there wasn't all this free money, I don't think home prices would have increased by as much.

I love having a nice home and not dealing with rent, threat of eviction etc, I love being "settled" despite the cost.

























Bank of Canada Interest Rate 1935-2022 & 2022 Forecast | WOWA.ca


Check today's Bank of Canada interest rate. See how the rate has changed in the last 85 years. Find our forecast for 2022.




wowa.ca












Canada's unhinged housing market, captured in one chart


Canada’s rate of housing prices increase has given rise to a new economic term to describe the market: ‘shelter inflation'




nationalpost.com




Notice in the early80's and 1990 the interest rates spiked and pull prices down?

The prices seem to get quite a bit crazier at the end when rates drop really low.


----------



## Money172375 (Jun 29, 2018)

Driving from Toronto to Windsor reminds you how much vacant land we have.


----------



## MrMatt (Dec 21, 2011)

Money172375 said:


> Driving from Toronto to Windsor reminds you how much vacant land we have.


How much of that land are they letting people build on? Not very much.


----------



## gardner (Feb 13, 2014)

Mechanic said:


> Vancouver Island


My empty lot in rural Metchosin went up 40% this year vs. average for the area of 33%. And since 2020 there is no exemption on the foreign ownership tax for empty lots. I am starting to wonder what to do. As an investment, virtually all of the selling price would be taxable CGs -- I would have taxable income in the 350K range and taxes of 180K. Yowch.


----------



## Ponderling (Mar 1, 2013)

Greater Fool site once offered a formula that:
90 minus your age is the max of net worth you should have tied up in a house.

That sort of approach makes sense to me.


----------



## latebuyer (Nov 15, 2015)

What house price do people use for calculating their networth statement? I've always ever just used the original sales price. I guess what is important is to be consistent.


----------



## latebuyer (Nov 15, 2015)

I struggle with the housing price as part of networth as i feel unless you decide you are renting after you sell your home, you are still going to have to use that money to buy another home.


----------



## londoncalling (Sep 17, 2011)

Most people use current value minus any mortgage amount left to be paid. I do not include our home in our net worth calculation. As we move closer to retirement we will try to assign a value to our property as my living situation will change when retired. It is likely that we will move from a higher value property to something less expensive (house to condo). The transition may not be right away as we are very happy with our house and area. If I had revenue/investment properties I would definitely include those. There is nothing wrong in including your primary residence, in fact it is likely a more true net worth value. I prefer to keep items that are easily liquidated in this calculation. Some people also include their vehicle. i do not see vehicles as assets but as a means of transportation. However I am glad the credit providers see them as assets


----------



## Tostig (Nov 18, 2020)

I'm very late in the discussion. But what does the house owner plan to do if his equity in it (net after liabilities) has ballooned to an overwhelming proportion after his purchase? Will he take out additional mortgages to bring his equity down proportionally? What if his equity drops afterward? Sell his other investments and pay off his mortgage? Would he be planning to do this analysis every year to balance everything he owns?

When I purchased my first houses over 30 years ago, buyers were required to put down 20%. Nowadays, it's 10% or even 5%. So it may be relatively easy for someone's equity to double based on leverage and real estate appreciation.


----------



## Mechanic (Oct 29, 2013)

We have 3 vehicles but the only one I include in NW is the collectible. I also consider the home as part of NW as it could always be liquidated and downsized, or rent a condo if required.


----------



## MrMatt (Dec 21, 2011)

Tostig said:


> I'm very late in the discussion. But what does the house owner plan to do if his equity in it (net after liabilities) has ballooned to an overwhelming proportion after his purchase? Will he take out additional mortgages to bring his equity down proportionally? What if his equity drops afterward? Sell his other investments and pay off his mortgage? Would he be planning to do this analysis every year to balance everything he owns?
> 
> When I purchased my first houses over 30 years ago, buyers were required to put down 20%. Nowadays, it's 10% or even 5%. So it may be relatively easy for someone's equity to double based on leverage and real estate appreciation.


The real question about this "net worth" is "why".

Net worth for me is an intellectual curiosity of little real worth.
When I die and it's liquidated it will be more applicable to the kids.

Net worth is nice if you want to measure "financial success", but that's a silly game, for me, money is a tool. 
Do I have enough of the right tool to accomplish the task? 
My stocks spitting out dividends are a tool, hopefully they will eventually be enough to handle the task of supporting my lifestyle.
My household equity, really doesn't do much other than secure my home and avoid rent, irregardless of $ value.


I think of "investible assets" as more useful than net worth.
I wouldn't take out a mortgage to invest in bonds so I hit some silly imaginary ratio


----------



## latebuyer (Nov 15, 2015)

I agree. A networth statement is something you are told in financial planning to do but i don’t see the point really. I think it is useful to know if due to job loss or sickness you have to start drawing down your assets but i don’t think thats why financial planners tell you to do it. I think its supposed to show your financial health but as long as your networth isn’t negative how do you judge.


----------



## edip (Jun 3, 2017)

I don't count the house in my net worth. It is paid and I forgot about it. It is just the place where I live with my family.


----------



## Plugging Along (Jan 3, 2011)

I have 2 net worth calculations. One includes the principle residence and recreation property, the other excludes these two. The one excludes our personal property is what I use to plan our retirement because we plan to live in the house and use the recreation property. They are only there as an emergency if there we start to run short in our final years and long term care is more than planned. 

The other calculation includes both. This is for my estate planning and when were were determining how much life insurance we would need to buy. In the case we both died, my kids would have lived with a relative, and both the house and rec property would have been sold for their care. 

In terms of percentage, I don't think there is a right answer for the amount of house. I think we are about 25% for our house of networth. 



Ponderling said:


> Greater Fool site once offered a formula that:
> 90 minus your age is the max of net worth you should have tied up in a house.
> 
> That sort of approach makes sense to me.


I think this makes sense for when you are in the accumulation stage, but when you are retiring, I don't know if it applies. One is decreasing the retirement assets, while their house keeps increasing. My dad is 87. His house is more than 3% of his estate.


----------



## prisoner24601 (May 27, 2018)

My house represents 26% of net worth and I use my original purchase price + inflation as a valuation. On a related note, since reading the Millionaire Next Door many years ago, I have used that book's measure of expected net worth and looked at it every 5 years. The goal of being a PAW or prodigious accumulator of wealth (instead of all hat no cattle) seemed to resonate with me and motivate me to save/invest money. I just updated it for 2021. My mid-life crisis sports car from Stuttgart may have played a role in me being an under-accumulator of wealth in my early 40's! 😎


----------



## MrMatt (Dec 21, 2011)

Ponderling said:


> Greater Fool site once offered a formula that:
> 90 minus your age is the max of net worth you should have tied up in a house.
> 
> That sort of approach makes sense to me.


Why?
Lets say you're 80, in good health with a net worth of about $1M, you're suggesting a $100k house s too much?

It makes no sense to me.
As long as you can afford your lifestyle, it doesn't really matter how much is "tied up" in your house.


----------



## nathan79 (Feb 21, 2011)

It's pretty meaningless.

In Vancouver, where houses are well over a million dollars, it might be 50% -- and that would be just fine.

In St. John, it might be 20%, but maybe your house is only worth 200K, which means you only have 800K outside of the house. That's worse than the Vancouver person who has a higher percentage in their house.


----------



## londoncalling (Sep 17, 2011)

I also think the 90-age formula is not of much use . Asset allocations are personal based on a lot of factors. However many often overlook the fact that their home makes often make up a large portion of their assets. When I first started DIY I felt I needed a portion of equities to REITs. I still have REITs in my portfolio but not a very large concentration. Having a large allocation to any asset increases risk. As long as you are within your risk tolerance it's fine. Sadly until you have experience a correction in your overweighed assets you really won't know if you are within you actually wihtin your risk tolerance. A 40% correction in equities has less impact on someone who has 90% of their assets in physical properties.


----------

