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Buyers in a high priced area are taking on way more risk then people realize. If you have $200K and buy a $1M dollar apartment, you just put 500% of your net w
by jimlawruk 9y ago
Buyers in a high priced area are taking on way more risk then people realize. If you have $200K and buy a $1M dollar apartment, you just put 500% of your net worth into one asset. If prices fall by 20%, you just lost all of your money. Hot markets like NYC and SF have inflated prices propped up by high incomes, restrictive building practices, low interest rates, and high desirability. You can't assume all of these factors will remain forever.
- jdavis703 9y agoNo, you put 100% of your net worth into that condo. Assuming that a market crash doesn't affect your ability to pay your mortgage you're still seeing a positive ROI in regards to imputed rents.
- IanCal 9y agoYou have $1M in real estate and an $800k debt. Your net worth is still $200k, however.
- alpha_squared 9y agoWhy wouldn't the net worth be -$600k? Debt is usually accounted for in net worth.
- sndp 9y agoYou'd account for the debt, as well as the value of the property. Liabilites: $800k loan Assets: $1M property $0 cash Net worth: $200k
- IanCal 9y ago$1M assets - $800k debt = $200k net worth Assuming everything keeps its value equal and buying and selling have no cost (which at these scales and required accuracy is probably reasonable for the comment), any amount of buying and selling and borrowing should keep your net worth identical.