Home as percent of net assets?

[james22]

The penthouse corner unit my building just became available.

 

Not great timing, given my currently depressed portfolio, but thinking I probably need to move on it.

 

It'll be ~33% of net assets (I expect it to be less than 20% by year's end, but can't know, of course).

 

That seem unreasonable?

 

If the market goes against me, I sell and risk losing not much more than the transaction costs.

 

If I don't move on the place, I lose it forever - there's really nothing like it.

 

Thoughts?

 

Edited yesterday at 01:55 AM by james22

[Castanza]

Do what makes you happy but don’t jeopardize your financial security? 

[thepupil]

33% unlevered? For your dream home? 
 

money is the slave, not the master.

 

I’m on team “buy it” given the information provided. 
 

Only you can decide / have enough information to make this decision. 

[Gregmal]

Yea I’d jump in an instant. Once you’re secure financially it’s about things that improve your quality of life. Who cares what %s are. A home will hold its value. Guesstimating the kinda numbers you’re talking about, I’d say if you’re on the fence put 50% down and do a 15 yr ARM.

[crs223]

The fact that you’re asking here first makes me think: this is not a once in a lifetime dream opportunity!

[Red Lion]

About 15% here. I’d do 33% but it would really need to be a dream home I think. Sounds like it is for you. Go for it. Especially if you can leverage it. 

[Xerxes]

Go for it. It is there to serve you. 
 

That said, you can always liquidate a bit to get a cushion even at depressed value. You do need to sleep at night.  

[bizaro86]

I think the absolute numbers matter a bit here. Not saying to share them obviously, but if 67% of your net worth is enough to live comfortably forever, then clearly it makes sense to buy it. If it’s really a one of a kind then I think that's another point in favour.

 

You could always lower the risk in your portfolio as well (add some fixed income, whatever) to hedge against a big loss in your assets base immediately after making the committment.

[Blugolds]

Would you keep your current place? Option could be to buy this place to secure it, then down the road or whenever just sell the current place and it becomes a swap. RE totally depends on location, so a good unit in a good location can be very valuable and in some instances provide a super solid return without market volatility. I dont know where you are at but if its something you think is valuable personally and financially with a long term view, its generally a pretty solid way to place a bet. 

[Paarslaars]

I'am at 33%, more common for younger/less wealthy people to have much higher %'s in RE.

 

Go for it I would say... When MSTR skyrockets you won't care about the % anymore.

Edited yesterday at 05:40 AM by Paarslaars

[RichardGibbons]

My calculation was to take the amount of money I needed to maintain the lifestyle I wanted indefinitely, and then be willing to spend any additional on a place to live.

 

In practice, that meant 38% of my net worth in the house back in 2019, and 25% now. It was non-optimal from a "maximize money" strategy, but a win from a "optimize life" strategy.

[Redskin212]

I am at about 23%.  A year ago, it was 30%, but thanks to a nice concentration in FFH and a good year the net % of real estate has come down.  Interesting thought process to think about - reminds me of the early days of my career, when the rule of thumbs was spending no more than 25% of your income on rent. I feel that 25-30% of your net worth in real estate is reasonable.

[Xerxes]

I am guessing the % that is being quoted here by folks is the equity 

 

home equity / (home equity + all investments net of any leverage)

 

I am 30% or so as well. 

[73 Reds]

11 hours ago, james22 said:

The penthouse corner unit my building just became available.

 

Not great timing, given my currently depressed portfolio, but thinking I probably need to move on it.

 

It'll be ~33% of net assets (I expect it to be less than 20% by year's end, but can't know, of course).

 

That seem unreasonable?

 

If the market goes against me, I sell and risk losing not much more than the transaction costs.

 

If I don't move on the place, I lose it forever - there's really nothing like it.

 

Thoughts?

 

If you have to think about it, it's probably not worth it.  

[cwericb]

Absolutely go for it!

 

If markets crash, you may lose lose your money and your investments that may or may not recover.

If housing crashes, you still have a place to live and an asset that will likely retain its value relative to the housing market.

 

Always been my theory anyway.

[james22]

12 hours ago, crs223 said:

The fact that you’re asking here first makes me think: this is not a once in a lifetime dream opportunity!

 

Ha. I may question some's politics, but no one's financial sense.

 

It really is a unique place that won't likely become available again anytime soon.

[Sweet]

When you say 33% of your net assets, does that include the house you are currently in?

 

I don’t think that number is high btw.  For many people their home is their only asset, and they only own a part of it.

 

Edited yesterday at 02:57 PM by Sweet

[james22]

Thanks everyone.

 

I realize the volatile nature of my investable assets makes the housing percent not so meaningful.

 

The real issue for me is opportunity cost.

 

Any MSTR shares (55% off high) sold now to fund the place might otherwise might be expected to return me 50% or more by year's end.

 

I'm thinking It'd cost me less to approach the new owner then and offer them +$1M.

[73 Reds]

1 minute ago, james22 said:

Thanks everyone.

 

I realize the volatile nature of my investable assets makes the housing percent not so meaningful.

 

The real issue for me is opportunity cost.

 

Any MSTR shares (55% off high) sold now to fund the place might otherwise might be expected to return me 50% or more by year's end.

 

I'm thinking It'd cost me less to approach the new owner then and offer them +$1M.

Have you thought about what the new unit will cost you each year over and above the costs associated with your current residence and the opportunity cost of those additional yearly expenses?

[james22]

2 minutes ago, Sweet said:

When you say 33% of your net assets, does that include the house you are currently in?

 

I don’t think that number is high btw.  For many people their home is their only asset, and they only own a part of it.

 

I do see it's not much above the rule-of-thumbs out there. And not an unusual percent on fatFIRE.

 

I've probably been a little spoiled by living in company housing for so long.

 

But I also recognize the risk holding MSTR. That 33% could rise to 50% easily enough.

 

Would make for a sleepless year.

 

Would have been very easy back in November to convert to several million in short-term Treasuries and set aside, but not now. Grr.

[james22]

5 minutes ago, 73 Reds said:

Have you thought about what the new unit will cost you each year over and above the costs associated with your current residence and the opportunity cost of those additional yearly expenses?

 

Sure: + Insurance, + HOA, + Property tax.

 

All require income (taxed at 35%).

[bizaro86]

2 hours ago, Xerxes said:

I am guessing the % that is being quoted here by folks is the equity 

 

home equity / (home equity + all investments net of any leverage)

 

I am 30% or so as well. 

 

For someone living 100% off investments (which I believe applies to James iirc) I'd use house price / net worth.

 

When I bought my current house as a young person that calc spit out ~500%. Now it would be more like 25-30%. And since I don’t plan to ever move but do plan to compound I expect it to continue to decrease.

[nsx5200]

2 hours ago, 73 Reds said:

If you have to think about it, it's probably not worth it. 

+1.  I don't know about you but peace of mind is worth a lot to me personally, and find this Warren quote to be potentially relevant to your scenario:

"The financial calculus that Charlie and I employ would never permit our trading a good night’s sleep for a shot at a few extra percentage points of return. I’ve never believed in risking what my family and friends have and need in order to pursue what they don’t have and don’t need"

 

You only need to be rich once in your life to be set, don't risk having to try to become rich again to be set, especially for something that you might not need.  So it's really up to you how much you need this unique property.

[Red Lion]

1 hour ago, james22 said:

Thanks everyone.

 

I realize the volatile nature of my investable assets makes the housing percent not so meaningful.

 

The real issue for me is opportunity cost.

 

Any MSTR shares (55% off high) sold now to fund the place might otherwise might be expected to return me 50% or more by year's end.

 

I'm thinking It'd cost me less to approach the new owner then and offer them +$1M.

 

Can you qualify to get a mortgage with 5% down and then refinance/pay it off down the road? 

[Xerxes]

1 hour ago, bizaro86 said:

When I bought my current house as a young person that calc spit out ~500%.

500% !
 

Probably same for me. Hard to remember now