Waterfront Poor

[jeffk]

Originally Posted by dpg

brk-int is correct. Technically your a "millionaire" when you have "readily available", spendable assets such as cash, bonds etc. Living in a home worth 1.3 mil doesn't clasify you as a millionaire.

Definitions of millionaire:
Mirriam-Webster

Princeton

Worldweb

All definitions reference wealth, not liquid assets or income.

Wealth is generally defined as net worth; which is the value of all assets, including real estate, minus any indebtedness. You, brk-int, and FLL may wish it to be defined otherwise but this is the common usage. You can take out loans with your house as collateral and I'll bet the lender believes that your house has real value. Try to give a million dollar house to a friend or relative and see if the IRS believes it has real value. For many, many years, before the enlightened came up with income and sales taxes, the wealthy WERE the property owners and they paid the necessary expenses of the town. Now we tend to look at people with high earnings as wealthy.

As to the possibility of the house dropping in value, most assets carry this risk. Safer assets such as savings accounts and CDs offer a lower earning rate in exchange for safety. Riskier investments offer higher rates of return in exchange for the greater risk.

If you think housing values may be variable, how much more likely are stocks or income to be variable. Enron went from boom to bust almost overnight. I once owned a bank stock that lost its whole value in 6 months. If a person earns a million a year for 10 years and invests it into a 5 million dollar estate and then retires and earns NO INCOME should we consider that person poor? Should we feel sorry that he can't afford the property taxes on his 5 million dollar estate?

A stock does not qualify as a liquid asset either. If someone has a million dollars of Exxon-Mobil or General Electric stock should we not consider them rich either? Maybe they like their stock certificates as much as FLL likes his property and they don't want to sell it to pay their expenses either.