Do you track your net worth?
Douglas SkipworthBusiness Member
Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes
Investor's Guide to Memphis Real Estate
Do you track your net worth?
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
2yQuote from @Jeremy Horton:
Quote from @Douglas Skipworth:
Great comments above!
Below is the median net worth of Americans by age according to a recent "Survey of Consumer Finances" conducted by the Federal Reserve.
Under 35: $13,900
35-44: $91,300
45-54: $168,600
55-64: $212,500
65-74: $266,400
75 and over: $254,800
At this stage in your life, if you are ahead of the average American, what do you attribute your "success" to?
Personally, I am ahead and real estate investing played a significant role in getting me there.
Eye opening statistics
I track my net worth yearly - it's more of a game/challenge to me and I like to see how things are balanced. I'm basically 50/50 right now between real estate (accurate equity assessment) and stocks (index funds/401k, roth IRA etc). I like to maintain a degree of diversification and liquidity, and although I like RE, stocks, especially retirement stocks, have some really good benefits as far as tax deferred growth and tax free gains.
As far as your 2 beliefs - I think it's more that those who track their net worth likely have better financial habits and responsibility than those who don't. I don't think actually tracking your net worth does anything significant, but I think those that do it, do it for a reason and may even have goals associated with their net worth as well as other financial goals. These goals and habits are what drives someone to track their net worth, in my opinion.
In my personal experience it's motivating and informing. You can see what works (equity capture at the buy for example can increase your net worth instantly), what doesn't work, what's within your control, and what may be out of your control (negative year in the stock market).
You can also get a good sense of how your portfolio is balanced. I can see my retirement (401k, Roth IRA), my liquidity (index funds/personal emergency fund/RE emergency fund), health related expenses (HSA), kids college (529 state plan), savings (HYSA), Real Estate equity (through appreciation, equity capture at the buy, loan paydown) etc. So I separate mine into categories, then combine the similar stuff (RE equity vs money), then combine the two to get a total.
I do think it's very important to track your progress - it's the only way to improve in my opinion.
Benjamin Franklin said something like "Watch the pennies and the dollars will take care of themselves". I think this is highly important - if you budget monthly, watch your cashflow on a property by property basis (as well as overall portfolio), choose good properties you can force equity into and capture equity at the buy, choose good stocks that consistently gain over the long term, then your net worth will take care of itself.
Exactly. Correlation is not causation. I am certain there's a strong correlation between people who track their net worth and increased net worth over time, but I don't think it is because they tracked their net worth. Rather, people who are prone or conditioned to think that way are going to be constantly doing things that increase their net worth, or at least considering whether or not their actions will have a detrimental effect on it. I definitely track mine but it doesn't particularly motivate me to work harder to make the number bigger. Aside from my banks, I just want to know what it is because I want mathematical confirmation that the crux of my actions over the course of a year (I actually track it about every few months if I'm not submitting it to someone) are contributing to rather than subtracting from my pot of gold.
As for the median American in my age group, yes I'm way beyond that and I attribute that success to the following:
- Willing to delay gratification on a regular basis
- Willing to do jobs no one else wants to do
- Willing to work long hours for results (a strong work ethic)
- Willing to take calculated but high upside/low downside risks
- Willing to allow the "fruits of my labor" to be returned to the business instead of paying for a lavish lifestyle
- A strong commitment to these principles by my spouse
- A strong run of being healthy enough to work to produce excess profits
- The fortuitous grace of being born and growing up in the United States, where opportunities for financial success are everywhere and accessible to anyone
- A splash of luck at being in the "right place at the right time"
Skyline Properties
39 Replies
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
I dont have a choice all my banks require at least annual update financial package to include :
Tax returns.
copy of all K 1s
PFS ( Personal Financial Statement)
When I had an airplane loan that lender required the same.. and I think some DSCR loans require these ( I dont have any DSCR loans just what I have read )
- Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes2y
Thanks, @Jay Hinrichs.
Is it fair to say that your being required to send all that info to your lenders has helped you grow your wealth more than if you weren't required to do it?
Investor's Guide to Memphis Real Estate - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Douglas Skipworth:
Thanks, @Jay Hinrichs.
Is it fair to say that your being required to send all that info to your lenders has helped you grow your wealth more than if you weren't required to do it?
well its eye opening for sure. I dont know if its helped or not.. I am more of a big picture blue sky guy.. Although when doing this in 08 to 2011 I was afraid to even look..And my banks had me on a very short leash I had to provide financial every 90 days if I wanted to keep my large lines of credit. - 2yJordan RayBusiness MemberReal Estate Agent · Memphis, TN · Member since 2023 · 623 posts · 321 votes
I actually track my net worth on the Rocket Money app. After putting in my assets and debts, I felt better about myself realizing my net worth was more than I thought haha! Still got some growing to do, definitely not where I want to be and I am not sure I will ever be satisfied.
Jordan Ray - eXp Realty5110 Reviews - 2yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
Like Jay, I am required by lenders to update annually with a rent roll and PFS. That being said, when I was younger I found one bad habit created by updating and checking my PFS (net worth statement) when I wasn't required by lenders to keep it.
It can be de-motivating at times. Clear expectations have to be set and an understanding that in almost all cases, net worth is built slowly, deliberately and over time. Two things can happen. A person can easily become discouraged by the pace of wealth building and take risks. Or can they can be satisfied with their current situation and stop building early if they like what they see.
So, it is a tool in my opinion and probably worth a whole lot more as a tool to gain access to capital and better priced capital than it is for anything else. In my opinion. Hope you're doing well.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Douglas Skipworth
Like others I am required to track it as well. We also through a group I am in Called gobundance they created a “one sheet” which is like your baseball card - you can track your net worth on it as well as personal and professional goals for the year.
7e investments53 Reviews - Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes2y
OK I'm gonna come at this a little sideways.
$11 million worth of eclectic assets in Albuquerque to some people is not the same as $11 million worth of part of a partnership/LLC that owns prime real estate in Manhattan.
Having net worth is helpful when seeking borrowed money for business Ventures, as some of the men above have already pointed out.
But net worth is not the be all and end all goal. Because you cannot spend net worth. Cash flow is required to live well.
Yes you can borrow against your net worth, but it's Cash flow has to support the loan.
If you are teaching this to children the nuances of the net worth equation as far as a CPA would do it correctly- are probably going to be lost on them. But exposure to it is always a good thing.
As far as it being the be all end all driver of business decisions, for some people it may be and for some people it may not be.
It's always great to have more equity in a deal than less when you get done with your vision of it.
Whatever is measured is more likely to be changed in favor of what you want it to be. But then along comes things like the divorce court system in the USA which can liquidate you like a hot knife through butter.
So with all of that coming at it sideways said above, having a positive net worth that is large is much more comfortable feeling than having a net worth that is small or nonexistent.
But let's not forget the importance of cash flow, and the impact of federal state and local taxes on our assets and cash flow also.
I have reviewed many many statements of net worth. One thing I will say is it is a piece of the puzzle. Along with total amount borrowed, cash flow, length of time in business, business practices, Interpersonal skills and what makes up your assets, Etc...
Good Luck!
- 2yCameron TopePro MemberProperty Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
Quote from @Douglas Skipworth:
I'm teaching a class on buy and hold real estate investing in Memphis and I'm looking for some real life examples to share with the students.
Here's the brief background on my question below.
I believe 2 things.
1. People who regularly measure their net worth have a larger net worth than those who don't track it.
2. People who track their net worth regularly grow their net worth faster than those who don't measure it regularly.
If you're like me and you belief these 2 statements (I'm assuming everyone does, right?!), will you share some basic facts with me about your experience so I can have some real life examples to encourage with my class with (below is my personal experience)?
Personally, I have been tracking my net worth on a monthly basis since 2008 and it has grown 50X over that time period.
What is your experience with tracking your net worth?
I wonder if it's not that tracking your net worth increases net worth, rather the people who are tracking their net worth have assets to track. Whether I looked at my rental property values this year or not, they would have still gone up by the same amount. (I update all my rental property values annually).
Also, it's hard for folks to put assets and liabilities side by side, because for some, they have a negative net worth - and facing that fact in black and white is not fun.
- 2yByron VallesPro MemberMSFP, CFP, Financial Advisor · San Francisco Bay Area · Member since 2020 · 66 posts · 53 votes
This is a great thread.
I've been tracking my net worth since 2016 and it's grown 30X since. I've only been asked to provide it to lenders a handful of times, but I believe that to intentionally improve something you must measure and track it.
On the professional side, I provide annual net worth statement updates to the families I serve.
- 2yByron VallesPro MemberMSFP, CFP, Financial Advisor · San Francisco Bay Area · Member since 2020 · 66 posts · 53 votes
Also, it's hard for folks to put assets and liabilities side by side, because for some, they have a negative net worth - and facing that fact in black and white is not fun.
I couldn't agree more Cameron. Money in general but also specific things like net worth are tough topics for many people to talk about/deal with.
As a quick example, I grew up in a household of limited financial means. The only conversations I remember having about money were about its scarcity. Not surprisingly, I had a negative net worth until I started learning about personal finance. Having that knowledge helped me face the scary topic of a negative net worth.
I guess the main thing I got from that is that while scary, the sooner we learn about these personal financial topics, the sooner we can start to take charge of our financial well-being. - Investor · Member since 2021 · 591 posts · 695 votes2y
@Douglas Skipworth yes, I track my net worth.
However, far more important to me are my financial projection models (which include projections about my net worth). The projection models show how I'll reach various goals. Good projection models are a lot more difficult to create than simply tracking my net worth, but they're incredibly useful.
Some of the main variables in my projection models include: expenses (broken down into various categories like personal expenses, capex, debt service, vacancy, etc.), income, cashflow, debt, DTI, equity, property appreciation, rent appreciation, mortgage paydown & amortization, rate of net worth growth, cost of living increases, hours worked per week, cash on hand, etc, etc.
I have short term (12-24 month), 5 year, 10 year, and 15 year projection models...sometimes I'll mess around with longer term (20+ years) projection models, but it's pretty difficult to project that far into the future, because there are so many unknown factors--so, the longer the projection model is, the less I tend to believe in its feasibility...
My projection models allow me to make more informed decisions about things like: whether to buy or sell a particular property, whether to refi a property, whether to rehab a property, whether to pursue or abandon a particular revenue stream, how to approach rent increases, how to manage risks, what debt to pay down first, whether a particular goal is worth the amount of hours I'll need to work to achieve the goal, what my goals should be, how to achieve various goals as efficiently as possible, etc., etc.
A good projection model will show you not only how to reach various goals, but it can show you all sorts of potential roadblocks that could prevent you from reaching goals (as well as potential solutions to those problems). Projection models allow you to answer all sorts of "If I do X, what will happen in Y years?"-type questions.Also, net worth can also be an incredibly misleading number. Consider two hypothetical investors:
Investor A tells you "my net worth is $10 mil". That may sound pretty good...until you discover that their net worth is decreasing at a rate of $2 million per year, and they've got $100 mil of adjustable rate debt on a portfolio of D class properties that forces them to work 80+ hours per week just to keep the whole thing afloat...
Investor B tells you "my net worth is $1 mil" --to many successful investors, that sounds like a relatively insignificant net worth...but, investor B owns a portfolio of A class properties with zero debt, professionally managed, their cashflow is $500k per year, their net worth is increasing at a rate of $1 mil per year, and they only have to work about 1-2 hours per week to keep their machine going.
Personally, I'd MUCH rather be investor B than investor A, even though investor A's net worth is 10x of investor B's.
So yeah, tracking net worth is advisable, but it's only a small part of what an investor should be tracking and modeling, and net worth alone might not be very indicative of an investor's success.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Scott Mac:
OK I'm gonna come at this a little sideways.
$11 million worth of eclectic assets in Albuquerque to some people is not the same as $11 million worth of part of a partnership/LLC that owns prime real estate in Manhattan.
Having net worth is helpful when seeking borrowed money for business Ventures, as some of the men above have already pointed out.
But net worth is not the be all and end all goal. Because you cannot spend net worth. Cash flow is required to live well.
Yes you can borrow against your net worth, but it's Cash flow has to support the loan.
If you are teaching this to children the nuances of the net worth equation as far as a CPA would do it correctly- are probably going to be lost on them. But exposure to it is always a good thing.
As far as it being the be all end all driver of business decisions, for some people it may be and for some people it may not be.
It's always great to have more equity in a deal than less when you get done with your vision of it.
Whatever is measured is more likely to be changed in favor of what you want it to be. But then along comes things like the divorce court system in the USA which can liquidate you like a hot knife through butter.
So with all of that coming at it sideways said above, having a positive net worth that is large is much more comfortable feeling than having a net worth that is small or nonexistent.
But let's not forget the importance of cash flow, and the impact of federal state and local taxes on our assets and cash flow also.
I have reviewed many many statements of net worth. One thing I will say is it is a piece of the puzzle. Along with total amount borrowed, cash flow, length of time in business, business practices, Interpersonal skills and what makes up your assets, Etc...
Good Luck!
Also there is a huge difference in Net worth in real estate assets and other assets. U have net worth based on what you write down as retail values.. However at any given time liquidating these RE assets if your moving to cash is going to cost you 8 to 20%.. 8% sales costs if nothing needs to be done and values are exactly what you state.. 20% or more discount if you have to rehab or market price softens at the time you have to sell.. Huge difference in 10 million of equity and 10 million in cash. or cash equivalents. I will have to ask my Banker if they discount net worth when the majority of it is real Estate assets.
This thought process was very pronounced when my Timber partners wife would only look at cash as assets everything else she said was just numbers on paper :) - Investor · Member since 2021 · 591 posts · 695 votes2y
@Jay Hinrichs exactly...which is why, in my models, net worth is broken down into different categories (e.g.; real estate equity, equity after capgains and selling expenses, cash on hand, stocks/bonds, other assets, etc.).
...a singular variable like net worth really doesn't say much about an investor's position without all those other variables...
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Leo R.:
@Jay Hinrichs exactly...which is why, in my models, net worth is broken down into different categories (e.g.; real estate equity, equity after capgains and selling expenses, cash on hand, stocks/bonds, other assets, etc.).
...a singular variable like net worth really doesn't say much about an investor's position without all those other variables...
it goes back to the over leverage comments.. a RE portfolio refinanced as many did at 80% or bought with only 20% down.. clearly does not establish a net worth of the entire 20% of equity I will submit that those that use max leverage while they have equity on paper in reality if they were to need to cash out for any reason that net worth is probably half and if then when hit with recapture they have zero cash net worth from those assets. ?? Which also points out the need to buy where you can reasonably expect decent appreciation . I never could understand the I only buy for cash flow and could care less about appreciation comments.
- Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes2y
Quote from @Byron Valles:
Also, it's hard for folks to put assets and liabilities side by side, because for some, they have a negative net worth - and facing that fact in black and white is not fun.
I couldn't agree more Cameron. Money in general but also specific things like net worth are tough topics for many people to talk about/deal with.
As a quick example, I grew up in a household of limited financial means. The only conversations I remember having about money were about its scarcity. Not surprisingly, I had a negative net worth until I started learning about personal finance. Having that knowledge helped me face the scary topic of a negative net worth.
I guess the main thing I got from that is that while scary, the sooner we learn about these personal financial topics, the sooner we can start to take charge of our financial well-being.Hey, Byron. This is great!
I'm teaching folks from ages 15 to 60+, some of whom have no net worth or a negative net worth. They need to hear that they can make a change if they are willing to push through the pain of being uncomfortable (I agree with @Cameron Tope that most people don't want to face the fact in black and white!).
In my experience, the people who are most skilled at talking about personal financial statements are the ones who end up with the largest amount of assets, equity, and income!
Investor's Guide to Memphis Real Estate - Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes2y
Quote from @Allan C.:
@Douglas Skipworth track it annually. I’m really curious why you measure it monthly given MTM fluctuations. Seems to not be prudent use of time.
I guess there's not necessarily magic in measuring it monthly. That is just a good rhythm for me. Plus, if I miss it one month it doesn't matter because I'll do it next month instead.
To me, the purpose is to do it on a regular basis (eg, monthly, quarterly, or, at a minimum, annually - which is sounds like a ton of people do). The exercise of tracking it regularly helps to keep it top of mind and it also allows me to see how my plans are working compared to my goals and if I need to make adjustments (I agree with @Chris Clothier that you've got a keep a long-term perspective because real estate investing, like life in general, is a marathon not a sprint).
Great question, Allan!
Investor's Guide to Memphis Real Estate - 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
I don't track it, but doing taxes, working with banks, etc., force me to be more or less aware of it. The real doozy is working with an estate lawyer and managing yourself in the event a family fall out happens.
With that said, it doesn't make more conscientious of increasing it. Almost has no barring of it, I believe if I were to lose significant amount of net worth it'd make me think twice, but not to do a radical 180 of what I'm doing. Maybe just some tweaks.
It makes more conscientious of remaining as anonymous as I can and remaining under the radar.
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votesI also grew up with limited means. When you're poor, you think just to make it to the next day and stall time. When you get a little more savvy, you start leveraging your time for more money & opportunity.
Quote from @Byron Valles:
Also, it's hard for folks to put assets and liabilities side by side, because for some, they have a negative net worth - and facing that fact in black and white is not fun.
I couldn't agree more Cameron. Money in general but also specific things like net worth are tough topics for many people to talk about/deal with.
As a quick example, I grew up in a household of limited financial means. The only conversations I remember having about money were about its scarcity. Not surprisingly, I had a negative net worth until I started learning about personal finance. Having that knowledge helped me face the scary topic of a negative net worth.
I guess the main thing I got from that is that while scary, the sooner we learn about these personal financial topics, the sooner we can start to take charge of our financial well-being.
When you take risk and try to make a lot of money, you risk your money, time and reputation to make extravagant money. When you make extravagant money, you pay money to save your time. And that time gets you more money and opportunities. - 2yChris ClothierBusiness MemberRental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votesThis statement really hit home. I completely relate with the desire to remain as anonymous as I can. There is a lot to be said for just being in the background. Sometimes I can and other times I can't as the face of our company, but I totally get the desire.
Quote from @V.G Jason:
It makes more conscientious of remaining as anonymous as I can and remaining under the radar.
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes2y
On a hopefully related note. I find real estate investing really really slow and boring. (Mostly in a good way.). So I find it “useful” to compare my monthly net real estate income. What I mean by this is seeing that this month I made $xxx more than last month because I paid off some debt and lowered my interest expenses. I made $xxxx more this January than last January because of 12 months of debt payoff and increasing rents.
On the net worth side of real estate I usually only update that yearly and use ”safe/minimum/must sell prices” (say 20% discount and 10% closing costs.) to me the income is way more important than the net worth. (Would you rather be worth $1M in assets with no income production. Or have an asset with no value that produced $1M/yr income.). It makes zero difference in my life when my real estate goes up $100k or even a $1M. But when the monthly net income went from $1k-$5k-$20k that was life changing.All this to say I do love tracking progress just to stay motivated if nothing else. I just don’t know that net worth is the metric. If it’s for kids, show them the effect of compounding savings? Or debt reduction though most probably don’t have any debt.
- Investor · Member since 2021 · 591 posts · 695 votes2y
This thread got me wandering how many BP people use projection models, and how they approach projection modeling... so I started another thread on that topic (I'd be interested in hearing people's thoughts on the issue). Here's the link:
https://www.biggerpockets.com/forums/48/topics/1164330-are-y...
- Rental Property Investor · Memphis, TN · Member since 2014 · 1k+ posts · 1k+ votes2y
Great comments above!
Below is the median net worth of Americans by age according to a recent "Survey of Consumer Finances" conducted by the Federal Reserve.
Under 35: $13,900
35-44: $91,300
45-54: $168,600
55-64: $212,500
65-74: $266,400
75 and over: $254,800
At this stage in your life, if you are ahead of the average American, what do you attribute your "success" to?
Personally, I am ahead and real estate investing played a significant role in getting me there.
Investor's Guide to Memphis Real Estate - 2yAlecia LovelessPro MemberMember since 2019 · 3k+ posts · 2k+ votes
@Douglas Skipworth I have done a PFS several times for lenders when borrowing money. Last year I got curious and set about calculating my net worth. It was something I hadn’t done before. It surprised me.
Just after the new year I took out my trusty notebook and looked up last years net worth, turned the page and calculated my new net worth. Once again I was pleasantly surprised.
I am far ahead of most people I know but no where near where I want to be. At a minimum I want to 25X where I am right now. If that makes calculating my net worth a motivating factor then I guess it is.
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