How to Calculate Your Net Worth as a Real Estate Investor
Hi guys, Franklin Cruz here – REI Drill Sergeant and Mentor …
I lived a good portion of my life serving in the military and had no idea what "Net Worth" even was, let alone how to go about calculating my own. Now, I get the question all the time from my students.
They ask me: “How do I figure out my net?”
Well, look no further… I’m going to show you today this quick, easy way to calculate your net worth as a real estate investor. Knowing yours will be super helpful.
May I Have the Definition Please?
Webster Definition of Net Worth:
In business, net worth (sometimes called net ) is the total assets minus total outside liabilities of an individual or a company.
Put another way…
Your net worth is simply what you own minus what you owe.
For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time.
In the case of an individual, the term ‘estate’ is used in relation to deceased individuals in probate. For businesses, the term is used in the context of fraudulent law and on the dissolution of the company.
Pay close attention, this part is for you, REIer…
In personal finance, net worth (or wealth) refers to an individual's net economic position. Similarly, it uses the value of all assets (long-term assets) minus the value of all liabilities.
Know Your Net
Your Net Worth is not your bank account balance.
Maybe you just thought: “Yes! I got a bonus today!” That's great, but unfortunately, it's not truly a bonus until 100% of your liabilities and debts are paid.
Back in 2005, I had tons of liabilities: two cars, big house, credit cards, etc., etc… That was the time I decided to NEVER HAVE DEBT again. This was the beginning of my increasing net worth.
Get Good Net
So, how did I get out of debt and stay there?
I followed one simple rule: If I can't pay cash for it, I don't buy it.
Debt is destroying this great country of ours, and I’ll be damned if I let it destroy me, my family, friends, or any of my amazing students. My cars are paid for. My house has 80% equity, meaning it’s ¾ paid off. I have ZERO credit card debt. That, friends, is Net and REI success.
So the simple way to calculate your Net is:
- Take a sheet of paper and draw a T-Bar
- On one side, put (Total Debts): Everything you owe at this time.
- On the other side, put every (Income Streams): All revenue you have coming in.
- Then subtract (Total Debts) from (Income Streams) and that will equal your total NET WORTH.
My kids will have their college funds taken care of. My assets are almost primarily liquid, which means I can access them at any time. I don’t have to wait for them in a pension. I don’t have to act as though I like my coworkers for another few years until I get my “retirement money.”
If I can do it, so can you… enough waiting!
PS. Got a Mentor?