It is pretty common for new investors in the real estate industry to focus on analyzing and finding good investment options as they spend a lot of money investing in a profitable but fragile industry. Doing their due diligence in researching an asset is a big part of becoming a successful investor, but a lot of people do not realize how crucial it is to get their net worth and financial house in order.
Without improving, tracking, and knowing the total holdings, people limit their access to different financing options, even other types of investment options. We will take a closer look at why net worth is a very important factor in this industry, as well as show how to calculate.
To find out more about this topic, click here for more information.
What is net worth?
In its basic form, it is a person’s monetary value. Technically, it is the sum of all the assets minus the liabilities. People, businesses, as well as reputable companies or corporations, can use it to derive their value as a person or company. If they have more assets compared to liabilities, this will result in positive net worth. But if a person or company has more debt obligation than physical assets, there is a big chance that their total holdings will go down negative.
Why is it very important to investors?
Total holdings is a very important factor that can help people or companies understand or work toward improving since it is a component that lenders consider when it comes to approving commercial or real estate loans. In this industry, net worth is a major determinant in a person or a company’s ability to get their loans approved.
If an individual bought a property – take, for example, a personal residence or a car – they have unknowingly calculated their total holdings or allowed lending institutions to calculate it for their clients. If you have minimal assets and high liabilities, there is a small chance lending company will not approve the loan or charge higher interest rates since the risk of getting a default is much higher.
What is investing? Visit https://www.investopedia.com/terms/i/investing.asp to find out more.
Calculating net worth
If an individual is working directly with a lending organization to get a loan, whether for personal or business purposes, the lending firm will likely have a certain estate value form for them to complete, as well as provide to them. If the person or corporation tries to track or stay on top of increasing their net worth, they can get a free form from the internet or use templates that are free in platforms like Excel. Regardless of the tracking method, people are simply going to add all assets and subtract their liabilities. Assets minus liabilities equals net worth. Assets may include:
Monetary investments like savings, checking, or cash reserves outside banking institutions
Real estate properties like vacation homes, investment properties, or primary residences
Investments like REITs or Real Estate Investment Trusts, retirement accounts, or stocks
Other items with value that people own like jewelry, furniture, appliance
Collectibles of value like arts and antiques
Liabilities may include debt obligations like:
Mortgages from lending companies, private loans, and equity lines of credit
Alimony and other payment people may be obligated to pay
Credit card debts
How can excellent net worth create business opportunities?
With a good and positive net worth of at least one million dollars or more and without considering personal residence, people or companies are considered investors. For instance, Josh Altman’s net worth is at roughly $10 million; with that amount of estate value, he can have access to different financial investments without worrying whether the lending company or the bank will approve his loan.
The high total holdings allow them to sidestep annual income requirements of $200,000 as a filer or $400,000 for the past two years with exceptional expectations of the same revenue for the following year. Being an investor allows people to access institutional investments using crowdfunding opportunities or a private hedge fund investment.
According to the United States Securities and Exchange Commission, less than ten percent of the United States population has access to these types of financial investments even though the population hold at least 70% of total household wealth in the country. The higher the estate value, the better terms people can receive when it comes to financing terms, higher lines of credit they can approve for, as well as higher quality of financial investments they can access.