Friday, February 28, 2014

March 1st 2014 Net Worth Numbers

The net worth number to start the month of March is.... $1,031,715.  The increase for Feb was $24,790, a 2.46% gain, which annualized is about a 33.8% return.  This gets us to just over where we were at the start of the year, $1,030,262,   At one point the number was in the 997K range a week into the month and then the number really started turning around.

I wanted to mention one thing about the net worth number.... as mentioned in the net worth primer, that does include both houses.  I read some discussions in some of last months net worth postings about including houses or not and here is my reason.... I have substantial equity in my houses.  Just consider a couple of examples and see if you do not agree.  Lets say two people have similar net worths when calculated without equity in houses.  Lets put those numbers right around 500K.  Now lets say both of those people have a house and both of those houses have a mortgage of about 375K.  Now what if I told you one of those houses was worth 415K and the other was worth 860K?  Would you say both of those people had the same net worth?  If you said yes, do you realize that the person with the 860K house could sell it and take the proceeds, after expenses and pay cash for a 450K house, own it outright and live with no mortgage expense?  Still think they have the same net worth?

The truth is, I own both of those houses.  My residence is worth about 860 and the rental about 415 and both mortgages are currently in the 375 range.  So I have slightly more than 500K equity in the two houses.  What if I sold both, rented someplace cheap and put the 450K money in the bank or in stocks.  That would be included in my net worth, correct?  So to not include those in my net worth calculations would say that my net worth would be the same even if I did not own those houses or regardless of the amount of equity.  I just do not see the logic in that reasoning.

Now another argument centered around houses as an investment.  While I would argue that a house can be an investment, I would not compare a house to stocks but regardless, my residence has been a great investment..  In less than 4 years for the residence, I took a less than 250K down payment and mortgage payments that have totaled less than 100K and the result has been 500K equity.  That's a return of close to 45% or about 10% annually and most of those mortgage payments should not be included since I would have incurred the same or similar costs paying rent had I not bought the house.  Now do I expect my equity to increase that 10% each year?... maybe.  On the one hand the market is the market and it goes up and down so who knows.  On the other hand I now control an asset worth 860K and the predictions say house prices in this area should increase 7% in 2014.  So if that holds true, I would have another 60K worth of appreciation and even using the down payment and the full mortgage amount extended out another year for my cost, that would still be a 15% return for the year.

So here is my tip for the month about doing well with an investment or any purchase for that matter.  You make your money at the time of the buy so don't put yourself in a position where you have to buy right now.  When I bought the house I did not need to buy but I had done my homework and spent the time looking at enough houses to know that this house was worth way more than what they were asking.  Why was it under priced?.... long story that involves Paris, Microsoft, Iran, cheating spouse and Canada.  The same goes for other purchases.  I buy on eBay occasionally, most of the time shoes and almost all of the time a specific brand.  I know what I want and I know what they are worth.  I check a few times a week and if I find something of interest at an exceptional price, I consider buying.  I have that luxury because I do not need to buy right now.  If I needed to have a pair of shoes right now, I am limited to what is being offered right now and its probably not going to include that one really great deal a month I manage to find.  I am currently watching 2 pairs of shoes.  1 of the pairs I have that exact shoe and I love them but they are starting to show some age.  I just don't love the price they are asking and I highly doubt they will get it.  If they come down, I will be ready.

Be patient, know the market, know when something, a stock, a house, a pair of shoes is being offered at a great price and when you recognize it, pull the trigger.  Chances are you made or saved yourself some money.

Here is my Net Worth Primer in case you want to understand what I calculate and why... plus a few more thoughts.


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