Net worth

Nosferatu · Post by **Nosferatu** » Fri Apr 06, 2007 11:37 am

What does net worth do for me other than making me attractive to creditors?

For example, my wife and I own about 60% of our family farm - 160 acres total. Its been in the family since 1844. Now, this may make our net worth look good when its paid off in ~10 years, but... so what? We'll never sell.

Is net worth just a feel-good figure? The way I see it, the farm is the farm. Though I treasure it dearly, the farm only breaks even financially from year to year. My money in the bank - liquid assets - is what makes me feel good from a financial perspective, not my supposed net worth.

JohnYaker · Post by **JohnYaker** » Fri Apr 06, 2007 12:05 pm

.
A high net worth gives us choices. Choices on where to live, how to spend our time, and eliminates worries that many have about quality of life - from the bare essentials to the frills.

John

tibbitts · Post by **tibbitts** » Fri Apr 06, 2007 12:07 pm

You can sell the land (at least your portion of it) if you choose to. Someone else might equally value and enjoy having cash in the bank, and therefore "wouldn't sell" their cash. There's no difference except that it would be a little more difficult to sell your interest in the property. You're making the assumption that you value your property more than others value other types of assets, which isn't necessarily true.

Paul

Orion · Post by **Orion** » Fri Apr 06, 2007 12:17 pm

I don't count personal real estate, cars, family heirlooms etc. when I calculate my net worth. I only count stuff I'm willing and easily able to sell.

pjstack · Post by **pjstack** » Fri Apr 06, 2007 12:20 pm

I feel a bit like Nosferatu. The value of my house is supposedly a part of my net worth, but the recent (preposterous) runup in prices doesn't really make me feel "richer". In fact, it seems illusory to me.

Like Nosferatu, I get more comfort from my liquid assets. (And if I had more of them, I'd feel more comfortable!)

NAVigator · Post by **NAVigator** » Fri Apr 06, 2007 12:26 pm

I agree with Orion's comments. Some things are not counted in net worth. I only consider my investments when calculating this value. There have been discussions in the forums about including the value of a home or not. Some people do and some do not.

If the farm is to be passed on in the family as a gift, I would not include it. If it is sold and you plan to sell it upon retirement, then I could consider it as part of the net worth.

Jerry

Prokofiev · Post by **Prokofiev** » Fri Apr 06, 2007 12:30 pm

" Its been in the family since 1844. Now, this may make our net worth look good when its payed off in ~10 years"

Wow! Now that is a real long term loan! 173 years??

livesoft · Post by **livesoft** » Fri Apr 06, 2007 12:37 pm

Yep, I was wondering about that 170+ year mortgage myself.
??

BrianTH · Post by **BrianTH** » Fri Apr 06, 2007 12:40 pm

Unless you are looking to sell shares in yourself, not much.

Edit: By the way, a serious answer is that something like net worth (which if you are being strict about it, should include all assets and liabilities) can be relevant to individuals for estate planning purposes. I think people are sometimes treating "net worth" as meaning the same thing as the current liquidation value of their financial assets.

But frankly, I am not sure how useful that number is either.

dm200 · Post by **dm200** » Fri Apr 06, 2007 12:41 pm

1. Depending on the level, and current laws, your estate may be subject federal and/or state estate or inheritance taxes.

2. Higher net worth may make you more subject to loss from lawsuits, or from someone being able to collect.

3. Higher net worth may make you more "desirable" for marriage (or divorce) :lol:

dan

Nosferatu · Post by **Nosferatu** » Fri Apr 06, 2007 1:02 pm

Prokofiev wrote:" Its been in the family since 1844. Now, this may make our net worth look good when its payed off in ~10 years"

Wow! Now that is a real long term loan! 173 years??

:lol:

I'm sixth generation on the farm. Part was gifted to my wife and I, the part I owe on came from buying out an uncle's share (15 year mortgage at 5.8%).

I believe I'm the first generation to ever pay a mortage on the farm. The attorney who drew up the papers related to the sale said the deed history was unlike anything she had ever seen. There were two dead relatives still on the deed.

Very much appreciate the replies. We'll never sell, and have no plans to ever go into debt. Hopefully the farm will be given to heirs and remain in the family.

Nosferatu · Post by **Nosferatu** » Fri Apr 06, 2007 1:06 pm

dm200 wrote:1. Depending on the level, and current laws, your estate may be subject federal and/or state estate or inheritance taxes.

2. Higher net worth may make you more subject to loss from lawsuits, or from someone being able to collect.

3. Higher net worth may make you more "desirable" for marriage (or divorce) :lol:

dan

Well, I'm married, but trust me - a 170 year old farm that hasn't been lived in for 25 years ain't much of a hook for the ladies!

paulob · Post by **paulob** » Fri Apr 06, 2007 2:33 pm

Nosferatu wrote:What does net worth do for me other than making me attractive to creditors?

It makes you very attractive to estate taxes! You might consider a Family Limited Partnership to freeze your estate value. However, I'm guessing here, because farm land can vary widely in price per acre.

livesoft · Post by **livesoft** » Fri Apr 06, 2007 2:42 pm

Well, it's too late to help Nosferatu, but the idea of "family land" that will never be sold outside the family can be one of those irrational things that behavioral finance folks like to write about. All others besides Nosferatu can check out "Why Smart People Make Big Money Mistakes" to see what I mean.

I would not want to burden my heirs with a boat anchor that they had to keep and then wrap around the necks of their children when they died. Sure it can make sense to pass on the land, but something else might make better sense.

zapper · Post by **zapper** » Fri Apr 06, 2007 3:02 pm

Lets say that one has $100,000 in a standard IRA and $100,000 in a taxable account, $50,000 of which is composed of unrealised capitol gains. How much would you folks figure the NET value of these assets when calculating your new worth, considering the considerable tax liability imbedded in those figures?

LH2004 · Post by **LH2004** » Fri Apr 06, 2007 3:58 pm

zapper wrote:Lets say that one has $100,000 in a standard IRA and $100,000 in a taxable account, $50,000 of which is composed of unrealised capitol gains. How much would you folks figure the NET value of these assets when calculating your new worth, considering the considerable tax liability imbedded in those figures?

It depends on the purpose for the calculation. For a simple statement of your net worth, it's proper not to adjust for taxes: under any normal kind of accounting rules, you don't have to accrue taxes just because of appreciation. If you're planning to figure out your retirement spending ability, you need to do something fancier, like valuing the tax exemption of future growth; but, then, you probably care more about cash flow projections than a net worth number. The place where it really matters is in making investment decisions (e.g., asset location); for those purposes, you may well want to do something entirely different (like minimizing the present value of taxes) to get to the right result.

mephistophles · Post by **mephistophles** » Fri Apr 06, 2007 4:08 pm

Your land is not only part of your "net worth," it is also part of your total worth as a being traveling on this planet we call earth. From the dawn of time, for all living creatures, the land has been our mother, our father, our sustainer, that from which we arose and that to which we will return. Land can provide us with food, water, shelter, clothing, a place to mate and a place to call home. It can satisfy our physical needs, our emotional needs and provide a spiritual connection to all that is.

Put more concretely, Nosferatu, you can build and live on your land, grow crops and raise animals there and have the space to provide for those of your clan.

The land you own has far more value than any bank account, 401 K, mutual fund or electronic entry next to your name.

They say that value lies in the eye of the beholder, but in the case of land the value will be there long after the beholder is gone.

Respectfully,

ole meph

shadowrings · Post by **shadowrings** » Fri Apr 06, 2007 11:00 pm

livesoft wrote: but the idea of "family land" that will never be sold outside the family can be one of those irrational things that behavioral finance folks like to write about.

livesoft wrote:I would not want to burden my heirs with a boat anchor that they had to keep and then wrap around the necks of their children when they died. Sure it can make sense to pass on the land, but something else might make better sense.

font of wisdom in both those statements Live. Got first hand experience of it from administering my parents and grandmothers estates this last year. Thing was none of the deceased wanted the "family land" to be an anchor, twas half the heirs, strangely enough.... was the entirely the males, cousin and brother on grandma's and same brother on parents... has been many months of interesting and irksome headaches both to be totally off my shoulders within the next 30-60 days. And thank gawd I had a good sympathetic estate/elder law lawyer that was able to weld big stick on the male heirs for me and prod them into a fair and equitable settlement for themselves...

i've really learned to hate hearing from my kid brother anything involving keeping the land in the family LOL

regards
vickie

WiseNLucky · Post by **WiseNLucky** » Sat Apr 07, 2007 6:15 am

mephistophles wrote:Your land is not only part of your "net worth," it is also part of your total worth as a being traveling on this planet we call earth. From the dawn of time, for all living creatures, the land has been our mother, our father, our sustainer, that from which we arose and that to which we will return. Land can provide us with food, water, shelter, clothing, a place to mate and a place to call home. It can satisfy our physical needs, our emotional needs and provide a spiritual connection to all that is.

Man this sounds like something my Dad would write! Please tell me you are not a 70 something retired soldier/journalist living on the Atlantic coast of Florida.

rob · Post by **rob** » Sat Apr 07, 2007 8:33 am

I have a "net worth" summary but I have one that I call Liquid Net Worth and it excludes the house & college savings e.t.c. It's the second I really care about - the house is somewhere to live and the reason for me to get rid of the mortgage is the cash flow it will open.

tibbitts · Post by **tibbitts** » Sat Apr 07, 2007 9:56 am

My family had land that was "intended" to remain in the family. But it's possible that you may not have children to pass it on to. If you do, they may die before you do. The land can become undesireable for any number of reasons (adjacent development, for example.) "Owning" that property may have been one generation's dream, but it might not be another's.

It's wise to not become too attached to any possessions, including property.

Paul

mephistophles · Post by **mephistophles** » Sat Apr 07, 2007 10:01 am

My grandfather emigrated from the Ukraine in 1914. Over there they were not allowed to own land, go to school or work in many occupations. They were also subject to periodic pogroms during which, what they did have was often taken away, including their lives.

Grandpa Louis started work as a Peddler and gradually became owner of a Department store where he did well. His dream, which he never fulfilled, was to own farmland of his own but he died before he achieved it.

My father never forgot the dream of his father and in the 50's bought a thousand acre farm and grew potatoes, tomatoes and other crops. He managed it on Saturdays as we lived 50 miles away and he had a full time executive job. He wanted to retire there, someday, but my mother wanted no part of the farm then or in retirement. Well, my father got his land for 20 years or so and then sold it as his business took him elsewhere.

Growing up our firewood came from the farm as did our tomatoes and potatoes. Dad had white oak from the farm fashioned into bedroom furniture for my brother and I and into a rocker that my wife used to nurse our first child. I still own that rocker and I still own the bedroom furniture, and when I think of my Dad, I think of the farm.

Regards,

ole meph

dooble · Post by **dooble** » Sat Apr 07, 2007 10:17 am

hmmmmmmm. I hope you have a lot of life insurance or other assets in your estate. To transfer it to your heirs, you may need to pay estate taxes or the like depending upon value. It would be a shame to have it lost due to estate taxes.

While you might not sell it, it is an asset you control. So from that standpoint it is part of your net worth. You control it in that you can choose not to sell it. But you could mortgage it, although I would guess you'd prefer not.

From an estate planning aspect even life insurance may be seen as an asset based upon how it is owned. That is it can become included in your estate for estate taxes depending upon how it is set up.

When I think of net worth, I use what I call liquid net worth. This is just assets that I and turn to cash quickly minus my debts. But for estate planning, I extend the definition to include anything that adds value to the estate.

WiseNLucky · Post by **WiseNLucky** » Sat Apr 07, 2007 7:40 pm

About land - it's still the only thing they're not making any more of. We have a farm in our family and I would hate to see it go out of the family. My grandparents and father suffered a bunch to build it up and own it free and clear. I still have fond memories of all the visits there. It was where I learned to shoot a gun and bow, to hunt, to milk a cow, to ride a horse . . . I still feel it all when I visit. There's more to land than just an asset.

Back to the original post, I see net worth as a way of keeping score, less so with others than with myself over time. I also see it as a way to track where I am compared to what I will need to live off of once I retire. For those purposes, I don't include the farm or my house.

rich · Post by **rich** » Sun Apr 08, 2007 4:25 pm

About land - it's still the only thing they're not making any more of.

That is the tag line of every Realtor everywhere.

1. What about gold, silver, oil, famous paintings, sculptures, etc?
2. Just because "they" are not making more of it, does that make it worth owning?

dcnut · Post by **dcnut** » Sun Apr 08, 2007 5:11 pm

Nosferatu, you may own a 60% undivided interest in the farmland, and have no interest in selling, but one of your fellow owners may have a different idea. My wife and several of her cousins owned a farm that was ripe for development. A majority of the owners wanted to sell, but two did not. The family was at an impasse. Three of the owners (including my wife) became plantiffs in a partition suit. Eventually, the farm was sold at auction. This can be a very expensive way to sell a farm, but fortunately my wife still did pretty well on the sale.

Glenn

WiseNLucky · Post by **WiseNLucky** » Sun Apr 08, 2007 8:53 pm

rich wrote:
About land - it's still the only thing they're not making any more of.
That is the tag line of every Realtor everywhere.

1. What about gold, silver, oil, famous paintings, sculptures, etc?

Still making or finding it

2. Just because "they" are not making more of it, does that make it worth owning?

I think so. You apparently don't. Neither of us is right or wrong -- it's a matter of personal preference.

Nosferatu · Post by **Nosferatu** » Mon Apr 09, 2007 7:25 am

Wow. Lots of varied responses here. A few notes in response:

My wife and I own the majority of the farm. The bank owns the rest until we pay them back.

The farm generates a good income simply by leasing the land to local full-time farmers. This income exceeds the property taxes and the heating costs for the farm.

I don't see a debt-free, income-generating homestead as an anchor to heirs. There is no tax on passing a working farm to a family member. Nor is there a change in the property tax on a working farm. In addition, our farm is listed on the National Registry of Historic Places, which gives us additional tax breaks.

mephistophles' post reflects exactly the wealth I feel from my land. Driving my great-grandfather's tractor on my great-great-great grandparent's farm gives me a feeling of richness far beyond my retirement account statements ever could.

mephistophles · Post by **mephistophles** » Mon Apr 09, 2007 12:17 pm

Your wisdom is exemplary. True wealth lies in the realm of the soul and not in the performance of "rational markets."

Best regards,

ole meph

rich · Post by **rich** » Mon Apr 09, 2007 12:54 pm

1. What about gold, silver, oil, famous paintings, sculptures, etc?

Still making or finding it

I am certain they are not making any more Picasso, etc.

However, if you want to use your mistaken logic then I assert they are still developing huge quantities of land. You can’t have it both ways. If you insist on counting the things that you want to count as new then you also have to count newly developed land which renders your original statement that they are not making any more land incorrect.

So using your logic the new tagline would be “Land – one of many things they are still making more of”.

Best,
Rich

chaz · Post by **chaz** » Mon Apr 09, 2007 1:09 pm

I have read newspaper articles within the last year with complaints that many family farms had to be sold to pay the federal estate tax.

Nitsuj · Post by **Nitsuj** » Mon Apr 09, 2007 1:46 pm

WiseNLucky wrote:About land - it's still the only thing they're not making any more of.

Wanna bet?
http://en.wikipedia.org/wiki/New_islands

BrianTH · Post by **BrianTH** » Mon Apr 09, 2007 1:57 pm

Chaz,

Did they mention actual, specific cases? Because last I knew, this turned out to be a bit of an urban legend.

Nosferatu · Post by **Nosferatu** » Mon Apr 09, 2007 2:04 pm

chaz wrote:I have read newspaper articles within the last year with complaints that many family farms had to be sold to pay the federal estate tax.

Working farms have several advantages.

In our case, the property was gifted to us over time. A month ago I filed an afidavit that we are continuing to farm the land, which negated the rather enormous increase in property taxes that the .gov had hoped to collect.

I would guess that the real death of American family farms is greed; i.e., heirs fighting over the inheritance.

chaz · Post by **chaz** » Mon Apr 09, 2007 4:08 pm

Several families were quoted as saying their farms had to be sold to pay the federal estate tax. These people were testifying brfore a Congressional committee looking into revising the statute. Not an urban legend giving testimony.

This has nothing to do with proprty tax or greed among heirs.

WiseNLucky · Post by **WiseNLucky** » Tue Apr 10, 2007 6:58 am

Nitsuj wrote:
WiseNLucky wrote:About land - it's still the only thing they're not making any more of.
Wanna bet?
http://en.wikipedia.org/wiki/New_islands

WiseNLucky · Post by **WiseNLucky** » Tue Apr 10, 2007 7:02 am

I am certain they are not making any more Picasso, etc.

I agree with the Picasso, but not the etc. Picasso was an etc. before he was Picasso.

However, if you want to use your mistaken logic then I assert they are still developing huge quantities of land. You can’t have it both ways. If you insist on counting the things that you want to count as new then you also have to count newly developed land which renders your original statement that they are not making any more land incorrect.

So using your logic the new tagline would be “Land – one of many things they are still making more of”.

I don't get this. Developing land is very temporary. The land itself is not. I would equate it with cleaning a Picasso -- you may be making it prettier but you aren't making it.

Obviously we disagree. As I said before, there is a real emotional aspect to owning land.

janakybrent · Post by **janakybrent** » Tue Apr 10, 2007 9:06 am

BrianTH · Post by **BrianTH** » Tue Apr 10, 2007 9:20 am

chaz wrote:Several families were quoted as saying their farms had to be sold to pay the federal estate tax. These people were testifying brfore a Congressional committee looking into revising the statute. Not an urban legend giving testimony.

Do you have any links? I am not doubting you, but this would in fact be a new development from what I understand (people have made the claim to Congress before on the behalf of unnamed others, but not with documented cases as far as I knew).

Here, by the way, is a 2005 CBO report on the issue:

http://www.cbo.gov/ftpdocs/65xx/doc6512 ... ateTax.pdf

rich · Post by **rich** » Tue Apr 10, 2007 11:11 am

Obviously we disagree. As I said before, there is a real emotional aspect to owning land.

We have no disagreement about this. I think there is an emotional component and it has real value.

I just disagree with the Realtor tag phrase.

Best,
Rich

jmFightSpam · Post by **jmFightSpam** » Fri Mar 07, 2008 9:05 pm

Do you include 401K plans, IRAs, Roths, in your "Liquid" Net Worth?

Thanks.

timid investor · Post by **timid investor** » Fri Mar 07, 2008 9:28 pm

Nosferatu wrote:What does net worth do for me other than making me attractive to creditors?

For example, my wife and I own about 60% of our family farm - 160 acres total. Its been in the family since 1844. Now, this may make our net worth look good when its payed off in ~10 years, but... so what? We'll never sell.

Is net worth just a feel-good figure? The way I see it, the farm is the farm. Though I treasure it dearly, the farm only breaks even financially from year to year. My money in the bank - liquid assets - is what makes me feel good from a financial perspective, not my supposid net worth.

Sounds like you are ripe for a LBO

SpaceCommander · Post by **SpaceCommander** » Fri Mar 07, 2008 10:45 pm

Not all net worth is equal... One guy has 1M net worth. Broke down like this:

Rental property value: 20M
Mortgages: 19M
Equity: 1M

Another guy has 1M in cash.

Both have a net worth of 1M. But the first guy is in a very uncertain and risky position. The 2nd guy's position is solid.

I prefer the cash. I grin at all the cash poor "real estate millionaires" out there mortgaged to the max... Show me da money!

JC

Bogleheads.org

Net worth - ?

Net worth - ?

Choices

selling the farm

"Net worth" can matter in a number of ways:

Re: "Net worth" can matter in a number of ways:

Re: Net worth - ?

calculating new worth

Re: calculating new worth

Hellos NOSFERATU

Re: Hellos NOSFERATU

don't rule out selling land

FOR WISE AND LUCKY

leaving it to the heirs

realtor refrain

Partition of land

Re: realtor refrain

GOOD FOR YOU NOSFERATU

re: land - the only thing they are not making more of

Re: re: land - the only thing they are not making more of

the emotional aspect

Liquid Net Worth

Re: Net worth - ?