Huge Surge in Household Net Worth

In my example your equity is now $600k minimally which would catapult many into millionaire status.

 

Nope. More like a shit sandwich and a dog shit sandwich. Still eating shit. But not surprising to hear it from someone admittedly so hyper partisan.

 

Only read about half the thread, but I feel like some are missing the obvious.

A huge jump in equity gives you borrowing power. A lot of folks have enough equity to reinvest HELOC money into a second property (for instance) that in turn can make a profit for you.

Your equity can equal investment power.

 

Only if that house is paid off though right?

 

I think the point is that if your house went from $500k to $1M+, you have added at least $500k to your net worth. Probably $600k+ if you've paid down the mortgage and didn't pull cash out. That's a huge chunk of getting to the $1M mark.

FWIW, this is exactly my situation. Our ~$500k house purchase from 2014, is worth over $1M today, and the mortgage is <$300k.

 

Undersrood. Many of us have seen our equity soar. Just saying net worth subtracts what you owe on the house.

 

It is net equity in home - market value less remaining mortgage.

 

If you are counting true net worth, you would count the home value less mortgage. Some will argue from a practical perspective when evaluating what you will need to live in the future you should exclude home, because unless you are going to rent somewhere if you sold your house you’d have to buy a new one at equally inflated prices. Regardless true net worth concludes your home equity.

 

all of my neighbors that I know in a 25 mile radius have experienced the same increases.

 

Yep, but home equity rates are about twice what they were back in 2016 when I bought my first investment property. That lets me charge a lower rent to keep my commercial renter (law firm) happy longer. Today’s higher rates would mean lower profit at the same rental rate.

 

So what are you going to do when you have to refinance at higher rates ?

 

Perhaps bet on them going down in a few years?

 

Both my investments and home are free and clear as of this year. Don’t see a need to refi ever. Thankful I jumped in when I did. Means I can retire in a few months.

 

Ok. You can charge lower rental rates, because of no debt, but what’s the point of getting mid single digit rates of return on real estate when you can get the same thing with risk free bonds?

 

I’m not an accountant, my degree is in engineering, and I didn’t even do well in my engineering economics class, so my math could be wrong. I’m not greedy and I like my tenants, so I am willing to set rent at a bit below market. Lots of good reasons to keep good tenants. As of the first of the year I will realize a 16.5% annual ROI based upon current rental income over total cost of the real estate. I will raise rent a bit next summer after some building improvements are made with a grant (no match required, thanks Hurricanes Michael and Sandy and our flush-full-of-money govt coffers) that will put my ROI up to 18%. These are after taxes (ad valorem and state rental, not pers income). Hard to beat when I can liquidate the RE when and if needed, pursuant to rental lease notice clause, and take advantage of what I think are higher RE value increases than inflation. At that time the ROI would skyrocket, right? I don’t know how to figure that total ROI out. Again, I am thankful I jumped in seven years ago.

 

Not necessarily. It's actually pretty common when you look at population net worth statistics that they provide two sets of data - one including and one excluding primary residence. In and of itself, the strict definition of net worth is assets minus liabilities. My house is certainly an asset, the mortgage is a liability. There's an argument for counting it in net worth calculations. Though it's useful to understand how much equity in a primary residence is propping up net worth statistics - hence why they tend to report it both ways.

Edit: Misread what you said... missed the "what you owe" part. Still left my post up...

 

16-18% is certainly very good ROI. My question what is the return based upon current market value?

 

At what kind of interest are you talking about? It's far more than the mortgage rate, that is for sure.

 

On a HELOC? A little higher yes, on average around a quarter percent...but closing costs are less.

If you have a half million in equity like City mentioned above you can buy and renovate a gut job small place for half that and fix it and rent it and own it free and clear and still have 250k in equity in your primary while your tennant in the free and clear is paying your mortgage on your primary, or at least a big chunk.

Then you feel real crazy, you can roll some of the equity in the free and clear into another place.

All while not getting a "better job" per say. You are just rolling RE assets and equity.

And in the end, if the world comes tumbling down, and you have to sell off, you have a renovated house that you own free and clear that you can live in until the dust settles.