The One Day That Matters In Real Estate
Pop quiz, quick – what is the current value of your home? No cheating by looking it up, I want to know exactly what your house is worth and what you will get for it this very second.
Big fail, as most everyone reading this has no clue what their house is worth. I ask people every day the value of their home and one spouse says $500k, and the other will say no the Johnsons sold theirs for $575k- etc. Point is, arguably the most valuable asset that you own you have no real idea of the value, kind of bizarre right?
The truth is there is a reason why most people do not know the actual value of their home, it doesn’t matter. As a matter of fact, you may own your home for ten, twenty, or even thirty-plus years and have no real clue about the actual fair market value of your home. Crazy right?
“But Andrew, I really don’t care about the value of my home right now I’m not selling it.”
Bingo, Bango, Boom!
You are absolutely correct sir or madam. As a matter of fact, you will make and forge many memories in that home. Perhaps the birth of your first child, or where you proposed to your significant other. You will pour money into making it look nice, and fixing it up through the years. Yet again, with no real regard to the actual value of your home. The harsh reality is the one, and literally, the only day that matters (financially), when it comes to homeownership is…… the day you sell it.
When Assets Become Liquid
You see the day you sell is the only time you are actually turning this purchase, or investment, into liquidity. Every other day in the history of owning this home is basically irrelevant. You can call a realtor every single day you own it, sounds crazy right, and ask them the actual value. How about getting a real estate investor to come over to your house every morning for coffee and discuss the actual value you’d get, seems productive right?
In the end, all roads lead back to the same place, the only day that matters are when an offer is made on your property and you accept it. Take a minute and actually think about that. Really is crazy when you read it for the first time.
I can hear you screaming at the screen right now. Hey dummy the reason is x, or y, or z. A little secret – you are absolutely correct as to why this is the case. At the end of the day, all roads lead back to the same simple reality. The value of something is simply not the perceived fair market value, rather it is the actual realized proceeds of that asset. Before it is realized proceeds, it is simply a value on a page with no real utility.
Investing Is Like Real Estate
I could end this blog now and leave you all with this interesting perspective to chew on for a week. However, I think there is another valuable lesson to be learned so I’ll forge ahead. You see, your home isn’t the only thing where its true value is only relevant the day you sell, bet you’ll never see this coming; your investment account plays by the same rule (yup there it is).
The funny thing is it works a lot like real estate. The value of your accounts is only realized when you make an offer to sell and someone accepts it. At that point, you realize the true current value, and hence it is the only day your account value matters. Up until then, it is simply numbers on a page.
The interesting and huge differentiator is in my investment world, there are real-time values being thrown in your face. It would be like every time you turn on the tv or open a news website there would be a realtor screaming at you as to what the value of your home is this very second. Think how exhausting that would be.
To make matters worse, what if these realtors were telling you their opinion on what the value will be in a month from now or a year? WHO CARES DUDE, and I agree! Think how crazy that sounds, not only is the current value of your home/investments only matter when you sell, but we spend so much time and energy guessing or listening to people guess as to what direction your investments are going.
The interesting thing about investment accounts vs. real estate is your investment accounts’ time horizon is actually much longer. You see with your home you’ll sell it all at some point and downsize, rightsize, upsize, what have you. While your investment account is meant to last literally until the day you die, and most of the time beyond.
This all leads me to my proclamation for you all. I hope this puts into perspective the fact that stock and real estate markets go up and down over time. During your tenure, there will be good times and bad in both markets. That said one of the biggest keys to successfully investing in anything, is to not let irrelevant data cloud your emotions. Because once you let emotions into the investing game generally bad things happen.
Two lessons for the price of one!
Stay wealthy, healthy, and happy.
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