July 31, 2011

I've lost close to $300,000 in Real estate, but I've gained $150,000

My home is currently valued at about $184,000 on Zillow.   At the peak it was valued over $260,000.   Thats a loss of about $76,000.   Looking at all the real estate that my wife and I own, our properties are down $294,600 from the peak values.   At the peak all the properties were worth a bit over $1 million.   Now they are worth a total of about $737,000.   Overall our real estate is down about 28% in the past 3-5 years.   I could honestly say that we've lost about $300,000 in our real estate assets.  Thats not very warming thought is it?

The loss above is just a paper loss.  Nobody took any money out of my pocket.   My net worth suffered a hit.  We weren't and aren't planning to sell any of the properties in the short term.  Most of our assets are rentals that we plan to keep for quite some time.  One of the properties is our own home which we currently live in.  If or when we move to a different home our current plan is to rent out our current home.    That $300,000 paper loss doesn't hurt us in our daily lives.  A paper loss is nothing more than numbers on a ledger (or Excel sheet).

While our real estate has gone down in value since the peak, it has actually gone up considerably from what we paid as a whole.   The total purchase costs for all our real estate was about $580,000.   With a current market value estimate of $737,000 that means our real estate has gained about $157,000.   Thats roughly a 27% increase over all.   Over all our total real estate assets have appreciated at roughly 3% annual average growth rate over the past 13 years.   Two of our rentals are up 12% annually on average.   Only one of our properties is actually worth less than we paid for it.

The half empty glass :   We've lost $300,000 in real estate values and our assets are down about 28% in the past few years. One of our rentals is currently worth less than we paid and the mortgage is underwater.

The half full glass :   Our real estate has grown 27%.  We've gained over $150,000.   Overall our real estate assets have grown at an annual rate of 3%.  We own two properties outright and our total mortgage debt is only about 40% of the market value.

I could bemoan the $300,000 of paper losses from the real estate bubble peak values.  I could worry all day about that one rental that is underwater.   But I should instead be happy with over  $150,000 in gains and annual average growth of 3%.  

Side notes :
There are many people who are underwater on their primary mortgage and don't have the assets or gains that we do.   I'm not meaning to make light of the serious financial problems those people have.   My wife and I are in a much better financial situation than most people and we're thankful of that.

The real estate values I'm looking at are just what Zillow states.  Those estimates are not highly accurate and for a couple of our properties I think they are probably off by a lot.   If I were to actually consider selling the property I'd want to get a more accurate estimate of the value.   But for thinking out loud about my finances, the values on Zillow are sufficient.

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