Investor · Bryan, TX · Member since 2016 · 165 posts · 82 votes
This should be a fun topic. For arguments sake lets say.... You have 1 mil net worth in rentals. Positive cash flow. Let's say it's all financed through the bank with 20% down on each. That makes 20% of it your cash and the rest debt. Are you a millionaire?
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
10y
You don't have 1 mil in net worth, you have 1 mil in gross value. You have 200k in net worth based on what you have posted, assuming you have no other assets. Using your example, you need 5 mil in real estate to have 1 mil in net worth. And of course that is a moving target, depending on what the market looks like when you sell.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
Millionaire means $1M in assets. If you have $1M in real estate that only has 20% equity, then you have $200,000 in assets. Add on other assets like cash and personal property and if the total is under $1M, then no you are not a millionaire.
A better question is whether being a millionaire is even a big deal. It is pretty easy to reach $1M worth of assets because that is not very much money anymore. Tons of people own $1.5M houses that they paid $500K for and that alone could make them a millionaire. In my opinion you need a net worth over $3M to be comfortable. That is totally debatable, so happy to hear other opinions.
Brooklyn, NY · Member since 2015 · 33 posts · 13 votes
10y
I started my answer with "NO" as 1MM * 20% is only 200k as a millionaire is someone who has net asset of 1MM or more.
What if the property is yeilding 100k is net profit? Shouldn't that be considered somehow?
If not 100k for an indefinite term, then 100k for a lease term. What if it's a commercial building with a 10 year lease. The lease value itself is 1MM. Is that counted? If a broker were to get commission on that lease, his/her commission would be based on 1MM not 100k.
On the other hand, a person with a 1MM luxury / super car (depreciating asset, unless it's a classic an/or a celebrity UBER driver) as his/her only asset (owns free and clear) by definition they would be a millionaire while the leveraged property owner would not be... I know which guy i'd rather be
My answer is still "NO" but I would still call myself a millionaire if it were me ;)
Millionaire means $1M in assets. If you have $1M in real estate that only has 20% equity, then you have $200,000 in assets. Add on other assets like cash and personal property and if the total is under $1M, then no you are not a millionaire.
A better question is whether being a millionaire is even a big deal. It is pretty easy to reach $1M worth of assets because that is not very much money anymore. Tons of people own $1.5M houses that they paid $500K for and that alone could make them a millionaire. In my opinion you need a net worth over $3M to be comfortable. That is totally debatable, so happy to hear other opinions.
This is where the conversation always gets interesting to me ... and also runs off the tracks. Different people have different perceptions of how much money is enough money.
I agree completely that $1M is not "worth" the same as it was 20 years ago. OTOH, a relatively very small percentage of the world's population has a net worth of $1M. Even in America, going by household income, 90% of USA households earn less than $150K a year -- 70% of American households earn less than $75K/yr. So, speaking solely in relative terms, having a net worth of $1M still places a household in rarified air.
Now, some people will say that life on $100K/yr is barely worth living. Others will say that if their household earned $150K/yr, life would be wine and roses and without worry. Trying to convince one group that the other group is "right" is where these conversations go wrong. Saying, "It's not enough!" or "It's more than enough" over and over isn't going to change anyone's mind.
To me, it's all in lifestyle. If driving a 10-year-old car is easy for you, you may feel $1M is a lot of money. If your sensibilities demand a luxury (meaning anything over $40K) car less than 4-years-old with all the bells and whistles, you probably think $1M (or $150K/yr) is just barely escaping poverty.
If you send your kids to public schools and in-state universities, you might be satisfied with $1M. If you think your kids have to go to private schools and private universities, you laugh at the idea that $1M net worth is something to be proud of.
Some people's yearly property tax is more than other people's yearly mortgages. Some people have one car in their garage that cost more than the four cars in another family's driveway. Some people are satisfied with two short vacations a year. Other people think the year is wasted without at least three international jaunts, and a ski trip, and a week in NYC to catch up on Broadway, and a week in Hawaii.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
10y
I got through most of the posts but this was crazy long.
Here is what I would say.
If your properties are worth 3million and you have bank loans of 2 million, then you have a net worth of 1 million and you're a millionaire. Are you really worth a million dollars though? Yes. Do you HAVE a million dollars though? No
If you were to have to come up with a million dollars cash you couldn't do it. Thats the good and the bad with real estate. On paper, you can be worth a million dollars. But if you had to get that money out, you'd have to sell the real estate and have to figure in the costs to make the homes retail ready. And then the costs of them sitting vacant. And then the costs of the closing costs.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
10y
@Randy E. I agree that how much money is needed to live on and be happy is completely a matter of lifestyle and perspective. There are people who live on nothing and retire young on a modest income.
The term millionaire was first used in the 1700's and through the early to mid 1900's indicated extreme wealth. Over time, the term mult-millionaire and more recently billionaire have come to represent extreme wealth. Millionaire continues to mean less as inflation reduces the buying power of money. $1M in 1900 is closer to $30M today. A private college education for kids entering kindergarten today will easily cost a half million dollars in the future.
My point is that when someone claims their status as a millionaire, it doesn't carry the weight it once did. You are really upper middle class rather than elite rich. Of course age matters too. If a 22 year old is a millionaire it is impressive; whereas a 65 year old probably just has a comfortable retirement.
But you are right, most Americans are dirt broke. If someone can build up $1M in net worth, the can live a comfortable life if they control spending. Me personally, I just want to enjoy the second half of my life. That involves travel and not living on rice and beans.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
Why does it matter? You can be rich but not wealthy. It is better to be wealthy anyway IMO. Rich is measured in $s and wealth is measured in time. Time is the more valuable asset.
I for one will take wealthy & anonymous over rich & famous any day :)
Investor · New York, NY · Member since 2016 · 91 posts · 46 votes
10y
On your title, yes. In your description no.
When it comes to any asset valuation (other than cash), your net worth is only what it is trading/selling for at that moment, minus your outstanding debt.
Your asset valuation of 1mm is fine. But your net worth is only 20% of that. The lender controls 80%.
Investor · New York, NY · Member since 2016 · 91 posts · 46 votes
10y
Actually, if your lifestyle makes you want luxury cars, you can do this business, do a write off on a lease, where the "real" cost is only marginally more than doing the same with a regular mid sized sedan. There is a reason why so many luxury cars are leased, and not bought.
Investor · North Myrtle Beach, SC · Member since 2012 · 32 posts · 4 votes
10y
Here's one for ya... Can anyone tell me what your net worth would be in this scenario:
If you hold RE secured 1st lien position on $500K in note partials that have a payout of $648K in 4 yrs, IRR of approx. 11.24%, with the asset values of $1M what is your net worth based on? The value of the secured property or the $648K return?
Real Estate Investor · Houston, TX · Member since 2014 · 173 posts · 128 votes
10y
Short answer no. The confusion, in my opinion, is when the OP stated "1 million net worth in rentals", then contradicted that by saying your cash was 200K and 800K mortgages. So the net worth is 200K, not 1 million. So no, you are not a millionaire, as that is defined as 1 million net worth. A lot of the answers above dealt with how much is enough, or a millionaire mindset, which is a totally different topic.
Investor · North Myrtle Beach, SC · Member since 2012 · 32 posts · 4 votes
10y
I think you misunderstood the question. I am the partial note holder of $648K worth of mortgages paying off in 4yrs. The value of the assets are $1M. I paid $500K for the notes. The net worth is at least $648K. Can the value of the assets be taken into consideration in the net worth?
Here's one for ya... Can anyone tell me what your net worth would be in this scenario:
If you hold RE secured 1st lien position on $500K in note partials that have a payout of $648K in 4 yrs, IRR of approx. 11.24%, with the asset values of $1M what is your net worth based on? The value of the secured property or the $648K return?
You don't own the property. So your asset isn't the fmv of the property.
As a note holder, your asset - a receivable - should be the note and the npv of the future interest payments to be received. If the note can be paid off before the 4yrs, and the interest avoided, then you only have claim to the npv of the interest to be accrued to you in the future.
The 1m property could be yours if the property owner loses the house to you via foreclosure due to unpaid debt.
Real Estate Investor · Houston, TX · Member since 2014 · 173 posts · 128 votes
10y
@Rick Rapant, I am not sure who you are addressing, but there is a clear definition of net worth.
Net worth = Assets minus liabilities.
So yes, assets (that you own)factor into net worth, but if you own only the notes, the underlying assets are not your asset. The asset value of the notes you own would be the "market value", not the unpaid balance, since you will collect that over time. If you end up with a delinquent mortgage and foreclose, after the foreclosure the underlying property would be your asset. However, then the note you held is essentially wiped out as an asset.
Investor · Sneads Ferry, NC · Member since 2016 · 28 posts · 4 votes
10y
I'm not being a smart horse here but your question states "1 million in net worth" and "80% is financed"
That would mean the 20% down is a million dollars or more. " you didn't specify how much down or financed"
yes you said 80/20 but that could be 5 million financed 1 million down.
I think you worded it wrong, but if it is not an error than yes "1 million in net worth" is a millionaire.
Also plenty of other factors not detailed here. But the way your question is worded yes that is a millionaire
I think you misunderstood the question. I am the partial note holder of $648K worth of mortgages paying off in 4yrs. The value of the assets are $1M. I paid $500K for the notes. The net worth is at least $648K. Can the value of the assets be taken into consideration in the net worth?
No, the value of the asset cannot be used in consideration of your net worth. Your net worth is 648k, because that is the value of the asset that you currently own (you own the mortgage note). Your purchase price has nothing to do with it. Heck you could have gotten it for $1, and as long as someone appraises it for 648, then your good to go.
Investor · North Myrtle Beach, SC · Member since 2012 · 32 posts · 4 votes
10y
Thanks All,
A combination of what Rick Wang and Karen O said is what I thought. The 648K is the net worth. All my partials indicate in the legal eze that there is no discount for early payoff. I figured the asset values would only count as net worth if the foreclosure process took place. Thank you all for your input.
@Anthony Gayden I have the same goal. I'm running right behind you though. My 1st goal is to own 1mil overall in rentals. Then convert that to a bunch of zeros and commas in my bank account. A long uphill battle for sure but if I can pull it off the fish population around the world will will fear me after my retirement.
Sounds like a good plan. It is a long battle, that is for sure. I bought my first two properties in 2014, and it took me two years before I finally was able to buy my third property.
Real estate investor · Las Vegas · Member since 2013 · 798 posts · 171 votes
10y
It's not 648k. Those are future payments. The "net worth" would be the market value. Future money is always worth less than money now. No on would pay 648k for something that might pay 648k over 4 years.
