Your net worth is rubbish due to poor real estate estimate, your net worth might be very off.
After all these years, Zillow still can’t get its property estimates right. Zillow is also a great reason why you’ve got to be careful calculating your net worth if you have property.
To prove my point regarding “Your Net Worth Is An Illusion” I took a look at Zillow’s latest zestimates of my primary residence and rental property. Apparently, in a span of 3 months, my primary residence gained a whopping $300,000!
I’m popping open a bottle of Crystal, buying a rose gold Patek Philippe Calatrava at Tiffany’s, and ordering the Audi R8 on as we speak. Just kidding, especially since September is frugality month. Besides, Zillow isn’t writing me a check for $300,000!
The dollar sign shows the purchase price after a 4 month escrow that began in late 2004. In other words, the purchase price was $250,000 below what the zestimate measured as fair value in the middle of winter.
You’d think that after 10+ years of existence, Zillow’s price algorithms would be more refined. Perhaps the data is legit, but I’m not buying it. Since net worth calculations don’t include one’s primary residence, let’s strike this example and look at a rental property.
Zillow Estimates Prove Your Net Worth Is Rubbish
According to the chart, the rental made a healthy $100,000 (14%) come back since the summer as well. I can’t believe it dived from $890,000 to $700,000 in the first place, given the location and relative value compared to other properties in the area.
This is a good reason why it’s healthy not to look at online appraisals if you don’t plan to sell. I never would have checked if it wasn’t for the recent net worth post. It just messes with your head. All the same, I’m glad to see values come back a little.
What Else Does Zillow Say
Even after going through the biggest downturn of our lifetimes, property in good locations are holding their own. If you were in a coma for the past 18 months and woke up today, not much has really changed. Restaurants are packed, traffic is horrendous, and I’m still always squished against the window on da bus.
Prices don’t go up or down in a straight line. Prices are cyclical and winter is generally a better time to buy than summer. Why on earth would someone list their house during the holidays when the weather is horrible, compared to just waiting until Spring? It’s called: motivated seller. Sure, your savvy realtor will argue that there’s less supply and hence less competition during the winter. However, buyers during this time frame are even more selective. That said, this past summer looked like an opportune time to buy so far.
The lower line in the chart consist of all the properties in the particular zip code. The primary residence is a house, hence it is more expensive than the average. The rental, on the other hand, is a condominium which hugs the average, although it is still priced above. More expensive properties look like they have higher volatility than the average.
Prices are freaking expensive in San Francisco! My house is modest and probably the size of most people’s basements in the Midwest. The one key positive is that if San Franciscans can ever relocate (nearly impossible), everywhere else except for New York City is cheaper.
Calculating Your Net Worth Properly
These values mean NOTHING. Zillow or an appraiser can say a property is worth whatever they want, but unless they’re willing to write you a check, don’t bank on it. Even though your net worth is rubbish, you can do things to make the calculation more accurate.
Yes, I admit I feel a little bit more buoyant now that the stock markets are on fire, and the property market has rebounded a little bit. However, until I have no mortgage on my rental property, I don’t include this as an asset even though it generates positive cash flow.
Strike your private equity, rental property, furniture, and bunny rabbit from your net worth calculation. Your illiquid assets are only as worth as much as someone will pay for them.
Even though we are out of the recession and are back to the go go days (hard to get restaurant reservations on the fly anymore), don’t trust for a second your assets are worth as much as some appraiser or website says. Write your assets off, and revisit them once you’ve liquidated.
Calculating your net worth takes precision. It’s better to be conservative than too aggressive. Your net worth is rubbish without better insights.
Wealth Building Recommendations
Explore real estate crowdfunding. If you’re looking to buy property as an investment or reinvest your house sale proceeds, take a look at Fundrise, one of the largest real estate crowdfunding platforms today. They allow everyone to invest in mid-market commercial real estate deals across the country that were once only available to institutions or super high net worth individuals. Thanks to technology, it’s now much easier to take advantage of lower valuation, higher net rental yield properties across America.
Shop around for a mortgage. Check the latest mortgage rates online through Credible. They’ve got one of the largest networks of lenders that compete for your business. Your goal should be to get as many written offers as possible and then use the offers as leverage to get the lowest interest rate possible from them or your existing bank. When banks compete, you win.
Thanks to the global pandemic, mortgage rates are at all-time lows! I just got a 7/1 ARM jumbo for only 2.125% with minimal fees. Take advantage with Credible.