Property 'wealth'

pinkteapot

I count wealth as everything that would form part of my estate if I died, or everything we'd have to divvy up if MrTeapot and I divorced. So:

1. Cash savings
2. Investments (including pensions)
3. Equity in property (value minus mortgage, whether lived in, rented out or empty)
4. Other assets (cars, valuable collections etc - but I wouldn't bother with every single thing someone owns that might be worth a couple of quid on eBay)
5. Minus any other debts

Wealth is a combination of assets of varying degrees of liquidity. People need to manage the balance between these. We're almost at a point where our savings equal the balance remaining on our mortgage (i.e. we could pay off the mortgage if we wanted to). However, we plan to keep the mortgage (unless interest rates go up sharply) as paying it off would leave us with zero savings for emergencies. Can't pay for a replacement boiler with a house.

Going back to OP's original point - I wouldn't call someone with a house but a very high LTV mortgage "wealthy" (assuming they don't have loads of money elsewhere). They'll obviously increase their wealth over time as they pay off the mortgage.

EDIT: Here's a good link on the subject - scroll down the page to the section on your Personal Balance Sheet:
http://www.investopedia.com/articles/pf/08/evaluate-personal-financial-statement.asp#axzz1pUbgwlDg

pinkteapot

googler wrote: »

Don't know that I have a category for it - I'm quoting someone else's methodology here, not my own.....

I suppose 'potential asset' would sum it up for me....

I'd call it a straight-up "asset" rather than a "potential asset". It's something that has value and could be liquidated to raise cash. That's an asset as far as I'm concerned...

Someone raised the point that you don't know what a house is worth until you sell it. That's true in terms of the exact valuation, but you can estimate the valuation based on recent sales data in the area.

All those investment funds that your pension holds - the assets in each portfolio are valued daily, weekly or monthly. They generally do that by looking at the last traded price or average traded price for the day of each stock on the stock markets. That's not to say that's exactly what the fund manager would receive if they sold their shares. But it gives them a fair estimate. Same with houses; you can say roughly what it's worth, if not exactly to the nearest £.

jjlandlord

girl_withno_name wrote: »

How would you categorise a house that is neither on a mortgage or providing rental income?

For me - this would be a (non-current) asset...

A house is an asset. A mortgage is a liability. Rent is an income.

Whether a mortgaged house is a net asset or a net liability depends on the difference between its value and the value of the mortgage.

shegar

Well the way I look at it is, its no good living in a mansion on tick, a car on tick and a boat on tick , but havent got a pot to p!!! in.......:D

FATBALLZ

shegar wrote: »

Well the way I look at it is, its no good living in a mansion on tick, a car on tick and a boat on tick , but havent got a pot to p!!! in.......:D

You wouldn't need a pot, you could get sail out to sea in the boat and do it over the side.

chucknorris

ognum wrote: »

I have heard someone described as seriously wealthy when in fact they have property that is heavily mortgaged.

What is wealth now? Shouldn't your worth be your assets minus your debts.

I have also seen people include their pension pot in their wealth, this can't be so either can it as it is not accessible.

I am now seriously confused as to what a multimillionaire is, is it someone with that sum in assets despite their debts?

Well this is how I define my assets (wealth) on my spreadsheet:

Cash (obviously)

Investments (shares, property (not my home), less disposal costs incl CGT)

Pension (I chose to buy most of it so I do consider it an asset, not that I can cash in 75% of it, but it will provide me with significant income in 11 years)

Kynthia

Assets can be valued by more than one method and there are arguements for and against each:
Purchase value - what you paid for it.
Replacment value - what it would cost to buy another now.
Net realisable value - what you would get it you sold it less selling costs.
To get a net worth you must also deduct liabilities.

RenovationMan

ognum wrote: »

I have also seen people include their pension pot in their wealth, this can't be so either can it as it is not accessible.

It's accessible when they turn 55, opr at least 25% tax free as a lump sum and the rest as a monthly pension.

The idea about adding the pensions pot to your net worth is simply that you have accrued X amount and so you're not as badly off as someone starting their pot from zero.

chucknorris

RenovationMan wrote: »

It's accessible when they turn 55, opr at least 25% tax free as a lump sum and the rest as a monthly pension.

The idea about adding the pensions pot to your net worth is simply that you have accrued X amount and so you're not as badly off as someone starting their pot from zero.

That's the way I now view it too, my pension never used to feature on my finance spreadsheet because it wasn't accessible. But then I thought hang on a minute I've just started paying quite a bit into my pension, so I obviously acknowledge it's worth. Therefore I should also count it in my spreadsheet too, which I now do. As you say if I didn't already have it I would have to buy it (with cash).