After a brutal sell-off in March 2020 and the correction in early 2022, we should really ask ourselves: Do we really own any of our wealth? When trillions of dollars of wealth can disappear in a matter of days, maybe not.
Now that the stock market has rebounded, it really is time to spend more money on a better life!
Personally, I'm really focused on revenge spending once my entire family is inoculated. With so much pent-up savings, I'm absolutely sure corporate earnings are going to rebound aggressively.
Wealth May Just Be An Illusion
“You never actually own a Patek Philippe. You merely take care of it for the next generation.“
The above quote is one of the best marketing lines today by a company that regularly produces $30,000+ timepieces. The line targets the aspirational generation. It also begs the question whether we really own anything in this world due to impositions by the government.
In 2021, if we accumulate more than $11.58 million per person upon death, the government will tax us 40% – 50% for every dollar over that amount. Hoarding much more than $11.58 million per person seems like a waste. We should have spent more time enjoying our wealth and conducting better estate planning.
If we don't pay ongoing income taxes, property taxes, sales taxes, business taxes, and/or FICA taxes, we may get fined, lose what's ours, or even go to prison. That doesn't sound like true ownership.
We Really Don't Own Any Of Our Wealth
“I find this site entertaining and have read every post. This is my first time commenting in a while because the idea of owning a home “Free and clear” is a bit of a pet peeve of mine.
You don’t own your home “free & clear” because if you stop paying your property taxes, you will lose your home. In a perfect world, we would all own our homes “free & clear.” But this is not possible. Unless you have an allodial title to your property (which is practically nonexistent in the US), you don’t really own your home, even if you don’t have a mortgage since you have to pay property taxes. Semantics & legal verbiage aside, do you truly own something if another entity will take that something away from you unless you pay an annual tax?
I believe the concept of mortgage freedom does not exist and is a false sense of security and ownership. I know this is an unconventional way to think about home ownership which is why I felt compelled to comment on here for the first time in a while. I’d be curious what other people think.
To me, ownership is something that you own outright, and you are indebted to nobody in order to maintain ownership of that something. So when you have a home, you are indebted. Call it a mortgage payment, call it taxes, but you owe money and if you don’t pay you lose your property. I don’t consider that ownership but maybe I’m missing something.
People have said to me, “Well, what about your car? You need to pay insurance, and have it registered, and in some states emission inspections.” But the difference between a car & a house is that a car can sit inert in your driveway, unregistered and without insurance. Sure, it can’t legally be driven but you still own it, could sell it, get it registered, inspected, etc. Most importantly, it won’t be confiscated. The same cannot be said for a home. So it’s not just semantics. This is a key difference.
Other “well-followed” personal finance bloggers have said to me, “That’s like saying, “You can never really own your home because you still have to buy food. If you stop buying food, you’ll die and dead people lose all their property. So really, in the face of the fact that humans require nutritional sustenance, home ownership is an illusion.”” (Yes, a well-respected blogger actually wrote that!)
Of course the educated and above average net worth readers of this blog I’m sure know that dead people (at least in the US) do not lose their property when they die! If they did, I (and many others) would be out of business.
Very wealthy people whose wealth will outlive them spend a lot of time and a lot of money planning with lawyers, accountants, and financial advisors to figure out where they want their property to go when they die. So if you own something, you own it even if you stop buying food and die. It is part of your estate.
So I’m going to stick to my guns and say you don’t really own your home. If you were to pass and leave your child a t-shirt, that t-shirt is your childs’. If you were to leave your child your house, the house is your child’s so long as he “rents” it from the city/state (i.e. property taxes).”
Joe has a good point. Ongoing property taxes is the biggest downside to owning property. But then again, taxes is the biggest ongoing expense for everyone. Although, roughly 47% of Americans don't pay any Federal income taxes.
The older I get, the more I enjoy investing in income producing stocks over real estate. But that's because I'm also just growing lazier. If I look at which asset class did the most to boost my net worth over the past 15 years, that asset class is real estate. Now I'm trying to outstrip my real estate returns by building an online business.
Owner Versus Renter
If we never truly own our home, how are homeowners different from renters? The answer lies in the ability to sell a home to someone else for potential profit.
After 30 years of paying either the landlord or the bank for the privilege of living in your home, the person with the title to the property has a call option to potentially make a return. Heck, the homeowner has the option to sell as soon as he takes title.
For example, according to RealtyTrac, in 2021, nationwide, home sellers on average sold their homes for 17% more than they paid for them. If the average home price is $380,000, we're talking about a $50,000 gain vs. $0 for the renter.
In San Francisco, the results are even more striking, with the average seller seeing a 58% higher selling price than purchase price. In 2022, big city real estate is heating up further as everyone rushes back now that Covid levels have plummeted.
The YOLO economy is back with a vengeance!
Custodians Of Wealth After All
We don't really own anything. All we really have are our experiences, and even those can fade over time due to old age. I'm hopeful that by documenting my journey for as long as possible on Financial Samurai, I can look back when my fingers are too arthritic to type and remember all the funny things that happened.
In a box on the top shelf of my sanctuary is a bundle of pen-pal letters I received as a kid while living in Malaysia. I still revisit them from time to time. I still smile at all those little love notes I saved which were passed around during intermediate school class. Those mixed tapes made for high school girlfriends were great. Nostalgia is wonderful.
Perhaps it's really time to sell some property and convert the proceeds into something more hands off. Real estate crowdfunding and other passive income investments seem wise. A simpler life sounds good to me.
In fact, that's what I did in 2017. I sold one San Francisco rental property for 30X annual gross income. Then I reinvested $550,000 of the proceeds in real estate crowdfunding to take advantage of lower valuations and higher net rental yields in the heartland of America.
Fundrise is the leading real estate crowdfunding platform today. It's free to sign up and explore. It's great to earn income 100% passively and not have to deal with maintenance issues.
I've got $810,000 invested in real estate crowdfunding to diversify my investments and earn income 100% passively. If you are an accredited investor, I'd check out CrowdStreet as well. CrowdStreet focuses on cheaper, faster-growing, 18-hour cities.
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
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