Net Worth at Retirement

CAM00437I quit my full-time job to allow more time for the fun things in life. No more working for “The man”.  My rental property allowed me to FIRE at 56.   I gave up a solid 6-figure job, with 4-weeks of vacation, 10 paid holidays, sick days, a pension, a 401K match and other benefits to pursue the rest of my life.

As part of the personal finance blogger disclosures, as indicated on the RockStar Finance site, here is my net worth on my FIRE date of 7/5/2016.  Keep in mind, an exact net worth for a landlord is rather elusive.

I have a few caveats.  Property is extremely hard to value in an objective way on this site.  I can come up with a reasonable sale price easily, in today’s market, but could it really sell for that?  When I sell, I have to pay a commission, recapture depreciation and pay capital gains.  Or I can do a 1031 exchange and defer those taxes.  If I die before I sell, or donate property, no taxes are due.  The value that goes in my pocket, after I get rid of the building(s), could vary by quite a bit.  Despite all the equity I may have, I cannot even go to McDonald’s and buy a cup of coffee with it.  Cash flow is king here.

See Also

I Quit My Job to be a Landlord

There are also other questions when it comes to calculating net worth.  Many people count many things.  I try to stick to the basics.

Items Excluded

I do not count furniture, vehicles or other equipment.  If I did, you could probably add in another $50K or very likely more.

I do not count the value of my DGFs (of 26+ years) nearly 7-figure investment accounts.  If I displayed our household net worth, like many other bloggers, the household net worth would be quite a bit higher.

What is a Property Value?

Zillow or Trulia do not always have a value for all properties.  Multifamily properties are more difficult for them.

If a single unit in a 4-plex sells for $119,300 with a cash offer, is the entire 4-plex worth $477K?  If other similar 4-plexes are selling with a 6% cap rate, are my 4-plexes valued at a 6% cap rate?  In 2016, a 6% cap rate is not unusual for a multifamily property.

Typically, tax values are at least a year behind the market, and under value a property in a rising market.  I include the tax value as it provides a floor and reference of the value.  Just as I include Zillow information and recent sales.

There is a potential for increased asset value with some re-purposing.  My own property, on ~2 acres, would be worth quite a bit more if it was subdivided.  It shares a lot line with commercial property, on a 4-lane road.  Potentially 6 lots could be sold, for more than my current value, even if I tore the house down.  Or twin homes constructed.  Or a small apartment building.

I have some cash on hand, plus several other accounts that vary quite a bit.  I assumed an average amount for these accounts.

Future Income Streams

I do not count future ‘guaranteed’ income streams.  A pension has a decent net present cash value (NPV).  I do not count any value for my non-COLA pension, which will be $1,262.01 at age 65.  Nor do I count my near maximum amount of social security that I will be able to receive.  Nor do I count my VA disability amount which gives me access to free health care.  Combined, these all add up to ~$3,500 per month at age 65.  What is ~$3,500 a month for life, for a 65-year-old male worth?  Or even at age 62 the number is almost $2,800 a month, not counting drawing any investment income.

What happens to that NPV number when you add in 100% free health care starting immediately?  The DGF has a small pension and Social Security too.  Between all these ‘guaranteed’ income streams, it could be well over $5,000 a month for many years.  The nest present value of this type of income stream would be considerable.

Property values are elusive, and tax values continue to rise…  As of 7/5/2016

Property Realistic Selling Price Mortgage Tax value Recent Sale Zillow 6% Cap Rate
991 – Duplex $240,370 $0 $150,200 $240,370
235 – Duplex $295,000 $0 $231,000 $226,230
886 – 4-plex $499,000 $0 $319,200 $477,200 N/A $525,000
896 – 4-plex $499,000 ($177,195) $319,200 $477,200 N/A $525,000
900 – 4-plex $499,000 ($213,951) $319,200 $477,200 N/A $525,000
926 – 4-plex $499,000 ($108,165) $319,200 $477,200 N/A $525,000
942 – 4-plex $499,000 $0 $319,200 $477,200 N/A $525,000
470 – SFH $97,237 $0 $75,900 $97,237
Residence – SFH $283,281 $0 $228,300 $283,281
Total Property Value $3,410,888 ($499,311) $2,281,400
Equity $2,911,577   $1,782,089

Investment accounts are straight forward.  These values are as of 7/5/2016.

Investment Accounts Amount
After Tax Account $464,978
Traditional IRA $46,771
Roth IRA $201,096
401K $480,195
H.S.A. $11,727
Cash, and others $40,000
Total Investments $1,244,767

Which brings you to a total net worth.  The sum of the investment accounts plus a realistic selling price.

Total Net Worth $4,156,344

Of course, if I added my DGF’s nearly 7-figure investments, we would quickly be closer (or above) the $5M number…

Be sure to check out my entire blog.

What do you count as part of your net worth?  If your household is more than one adult, do you use all assets, from all adults?

 

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