(1) “What percentage of your net worth is currently in RE?”
(2) “To what extent is your equity in RE sensitive to changes in the RE market?”
These are important questions for all RE owners and RE investors, and we are here collecting ‘group anecdote’ information in this regard. Raw dollar numbers are likely too personal. Rather, you are invited to share the answers to the two questions above. Posters on other Vancouver RE blogs are also being invited to participate in this survey. Results will be collated on VREAA.
First, establish the following variables -
x = Total current market value of owned RE
y = Total outstanding mortgage debt on owned RE
z = Value of all other your assets, including savings, RRSPs, etc.; minus non-mortgage debt.
Now, calculate -
(1) “What percentage of your net worth is currently in RE?”
Percentage of net worth in Real Estate = ((x-y)/(x-y+z)) X 100
Then calculate -
(2) “To what extent is your equity in RE sensitive to changes in the RE market?”
Leverage ratio = x /(x–y)
[Illustrations regarding leverage -
If RE prices go up (or down) by 10%, someone with a ‘leverage ratio’ to the RE market of 1.0 will have their equity in RE move by 10%.
If their leverage is 1.2, it will move 12%; and if their leverage is 4.0, by 40%.
A negative leverage ratio occurs when there is more owing on the mortgage than current market value.]
At the very least, these are numbers with which all RE owners and RE investors should be familiar.
This is an invitation to do the math, and to share answers if you feel comfortable doing so.
Post your answers to questions (1) & (2) as a comment below.
4 responses so far ↓
Jim DeLaHunt // 22 April 2009 at 2:57 am |
I’ll start.
For me, x = 0, y = 0. 0% of net worth in real estate (except that some of my other assets, e.g. stocks, are based on real estate). Leverage ratio = 0/0.
I’m just about to finish a one-year lease on a nice condo in Yaletown. I’m wondering if I can persuade my landlord to drop my rent, or if I can move to a similar apartment with lower rent.
vreaa // 1 May 2009 at 6:28 am |
Jim -
Thanks for being the only person bold enough to reply here.
Extrapolating from your single data point, nobody in Vancouver has any equity in Real Estate!
Just joking, of course – What it probably shows (here and on RE Talks) is that people with RE positions are reluctant to share that information with others (and perhaps even reluctant to see the numbers in black and white for themselves?).
Canada's Poorest Postal Code // 6 May 2009 at 5:25 pm |
I’m another zero – sorry to further skew your survey results.
I think the reason you might not be getting more results is that anyone who is invested in RE is feeling a little a burned these days. Even if someone’s property is 100% paid off and generating revenue, it’s worth less than it was a year ago. Not seeing gains from quarter to quarter or year to year is depressing. The only thing going up these days is property tax.
You would have had to sort through many more responses when the boom times were rolling a year ago. One year ago, a guy I know could have written in with these facts:
May 1, 2008: SFH in Vancouver – 5 beds, 4 baths, 2 kitchens, over 3000 sq. ft – bought in
Jan. 2005 for $335,000. Excellent revenue. Worth at least double the purchase price in three short years. Yee-haw!
May 1, 2009: SFH in Vancouver 85% paid off, but just had to buy 10-yr.-old condo in West End last December after prices had gone down (temporarily) an incredible 10%!!. No money down, will try to re-fi to pay off the other 15% left on SFH mortgage. Oh, guess that didn’t work. RE worth as of today – negative. But not selling the condo – oh, no! It’s going up, up, up.
You could see why this guy wouldn’t be rushing to fill in the blanks on this survey, or the many others like him/her.
When my student loan is paid off at last, I will become a true zero, or neutral. That doesn’t seem so lowly when so many of yesterday’s “haves” are now “have nots”.
Canada's Poorest Postal Code // 6 May 2009 at 5:31 pm |
Whoopsie:
Guy I know paid the same amount of money for his 1 bedroom, 675 sq. ft. condo in Dec. 2008 as for his house in Jan. 2005 – $335,000. Yikes.
This person is far from stupid and makes an excellent salary. Greed can make anyone do crazy things.