(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.