I found this stat from the book “Automatic Wealth” 2005 from Michael Masterson to be very suprising that Millionaires in America live in very modest homes. I was wondering if this same theory holds true for Millionaire Households living in Orange County?

Page 79: Step 3: Develop Wealthy Habits : Table 3.1

Networth (in millions)    Average networth     Average house value
$1 to under 2.5             $1,470,553                 $220,796
2.5 to under 5             $3,392,416                 $354,043
5 to under 10               $6,809,409                 $545,499
10 to under 20             $14,045,501                 $779,444
20 and more               $58,229,024               $1,073,980

Let’s assume for argument sake that we double the Average house value for a millionaire living in orange county (since it is an expensive place to live compared to rest of America). That would put a millionaire who’s networth is between $1 to under $2.5 million without the equity of their primary home to be living in a average home value of $441,592 which is still very impressive? IPO, did you happen to see any of your detached condo neighbors in West Irvine with a networth of $2M - $10M range?

I am really curious about the lifestyles of the millionaires of Orange County compared to Cook County. The stats shown above is very realistic for millionaires I have known and ran into in Chicagoland area. Their home values are practically 10% - 12% of their entire networth? Is this the case for an Orange County Millionaire? Have any of you seen millionaires who have a networth between $5 - under $10 million live in a 1600 square feet detached condo in Irvine? or are they living in a 4000 square feet mansion in Shady Canyon? This is a very interesting topic for me and I was wondering if any of you can give me some input and opinions?

I could be completely off on my assessment, but the vast majorities of millionaires i have encountered in my life in Cook County, IL live the “Millionaire Next Door Lifestyle” modest cars, modest homes, and a frugal lifestyle. Perhaps Orange County millionaires are different in that they are indeed wealthy, but they are also show that they are wealthy in their lifestyle?

Agree or Disagree?

Thanks
Panda

It’s the same here Panda.  We also have the real money people, those in that $10M+ range and a large number of million plus a year income people.

But in general, SoCal is full of people that look like they are living like millionaires but are juggling their credit card payments.  IR covered it Southern California’s Cultural Pathological.  If you don’t remember it, you should re-read it, because IMHO, it’s particularly strong in Irvine.

There are many debtors, but there are also many who have million dollar or multi million dollar homes and own them outright.  Personal residence real estate is a much larger proportion of net worth in Orange County.

I saw the topic listed on top in the forums page and I strongly suspected it was Panda who posted it.

awgee - 26 July 2008 09:32 AM

There are many debtors, but there are also many who have million dollar or multi million dollar homes and own them outright.  Personal residence real estate is a much larger proportion of net worth in Orange County.

Awgee, a million dollar Irvine home is $300,000 in 90% of the country.

Good point NSR.

The national average of U.S. homes is $196,300 while the OC average is about $498,900. Therefore an apples to apples comparison would be in the $561,157 range for a median home price for a tyical OC millionaire who’s networth is between $1 to under $2.5 Million? Does this seem about right?

$1 to under 2.5 $1,470,553 $220,796

First, never include your home as part of your net worth. Financial advisors do not include it in their net worth calculations, second homes and rentals they do, but not your primary residence. Why? Because you need a place to live, it isn’t worth anything until you sell, and when you sell what are you going to do? Live in a cardboard box? Go rent? Or… go buy another house? Only living in a cardboard box will make it change your net worth, and the other two are something you need to have. Most millionaires are not going to rent, and even for the awgees out there, they plan on buying again. And, when awgee does buy, hopefully his timing will have increased his net worth over the time since he sold his place, but is the exception to the norm. You don’t include the equity of your car in your net worth do you?

graphrix - 26 July 2008 11:15 AM

Go rent?

Trust me, quite a few individuals with high incomes need to follow work, educational or personal situations to new places.  As much as the “equity burn” featured on this site is speculative, it has certainly been a reality during the past couple of years.  Personally, I’d rather have a guarantee of spending 40K than the possibility of losing a large multiple of that (and a guarantee of losing a good chunk of that in transaction fees).

Perhaps it isn’t the idea of housing as an investment that’s to blame for the recent bubble, but the inability of some folks to realize that a leveraged play on a half-mil+ asset with sky-high relative income fundamentals isn’t the most conservative thing to do with one’s savings, credit, and future income.

A nice house in Southern California isn’t just an investment which should be thought of as such, it’s a relatively frivolous luxury asset.

substitute “money pit” for asset and it might be even more accurate.  Not only are you paying around 7% interest these days on a mortgage, you are paying 1% to 2% on property taxes, plus ongoing maintenance and occasional remodeling and furnishings, and you’re looking at close to a 10% annual hurdle before you make money on your house as an investment.  And don’t forget the 5% back end “sales commission fee” when you sell your asset.

Hormiguero - 27 July 2008 11:09 AM

Perhaps it isn’t the idea of housing as an investment that’s to blame for the recent bubble, but the inability of some folks to realize that a leveraged play on a half-mil+ asset with sky-high relative income fundamentals isn’t the most conservative thing to do with one’s savings, credit, and future income.

Sorry, that was too good not to emphasize.

25w100k+ - 27 July 2008 02:36 PM

Hormiguero - 27 July 2008 11:09 AM

Perhaps it isn’t the idea of housing as an investment that’s to blame for the recent bubble, but the inability of some folks to realize that a leveraged play on a half-mil+ asset with sky-high relative income fundamentals isn’t the most conservative thing to do with one’s savings, credit, and future income.

Sorry, that was too good not to emphasize.

That’s a great point.

People who would scoff at the idea of buying 10,000$ worth of stocks on margin would on the other hand have no problem buying a 700,000$ home with a 2% downpayment.

Statistics on high net worth individuals seem to be not very reliable, and I would tend to dispute the OP’s numbers.

Here’s another source that would put the average home value for 1 to 10 million net worth at 810,000$. I have this book “the millionaire mind” that also argues that millionaires generally have low housing values but looking further I found the book’s references to be 10 years old.

I think most people agree that a net worth in the low 1,000,000$ does not necessarily qualify one for a high roller life. It’s pretty easy to burn through one million if one isn’t careful.

Just because someone’s primary residence increased up to $1M doesn’t qualify him or her as a millionaire in my book.
There are a lot of people in Irvine living in $1M+ homes that are not millionaires but middle class.

Making those assumptions based on the value of someone’s primary residence is a complete joke.

muzie - 28 July 2008 10:40 AM

Statistics on high net worth individuals seem to be not very reliable, and I would tend to dispute the OP’s numbers.

Here’s another source that would put the average home value for 1 to 10 million net worth at 810,000$. I have this book “the millionaire mind” that also argues that millionaires generally have low housing values but looking further I found the book’s references to be 10 years old.

I think most people agree that a net worth in the low 1,000,000$ does not necessarily qualify one for a high roller life. It’s pretty easy to burn through one million if one isn’t careful.

Muzie, you are right. I was looking at my old past time favorite book “The Millionaire Mind” by Thomas Stanley and saw that the data from “Automated Wealth” was taken from the “Millionaire Mind”.
Seeing that the stats below is 10 years old. I would say that in today’s value that a person with a networth of $1M - $2.5M networth (excluding primary residence) would be living in a $600,000 home in Orange County.

Does this sound right to all of you?

Networth (in millions) Average networth Average house value
$1 to under 2.5 $1,470,553 $220,796
2.5 to under 5 $3,392,416 $354,043
5 to under 10 $6,809,409 $545,499
10 to under 20 $14,045,501 $779,444
20 and more $58,229,024 $1,073,980

Most millionaires are exposed to owning a business, owning property, and owning stocks & bonds. They can compare the returns on each, and they will put their money in the proper vehicle. They usually put about 50% of their net worth in the stock market (it’s more liquid, and easier to diversify – safer)

ERPguy - 28 July 2008 12:23 PM

it’s more liquid, and easier to diversify – safer

Yes, exposure to the broader market today meant that you could lose over 2% in under 7 hours in a veritable smorgasbord of investments!  And you don’t even need to wait to sell to know exactly how much you lost, unlike real estate.

tenmagnet - 28 July 2008 10:46 AM

Just because someone’s primary residence increased up to $1M doesn’t qualify him or her as a millionaire in my book.
There are a lot of people in Irvine living in $1M+ homes that are not millionaires but middle class.

Making those assumptions based on the value of someone’s primary residence is a complete joke.

It’s all about the net worth baby…  If they are living in $1M homes and own them free and clear, they are millionaires (at least for today) in my book.

I remember when our condo was driving towards the $750K price range back in 2006 and our net worth calc was going up and up every month by leaps and bounds…  I had visions of the coveted $1M mark.  Alas, reality stepped in and slap us with a lovely 20% decline in home prices and the ole net worth calc headed down, down, down.

Hormiguero - 28 July 2008 12:35 PM

ERPguy - 28 July 2008 12:23 PM

it’s more liquid, and easier to diversify – safer

Yes, exposure to the broader market today meant that you could lose over 2% in under 7 hours in a veritable smorgasbord of investments!  And you don’t even need to wait to sell to know exactly how much you lost, unlike real estate.

A large part of the entire US net worth MUST be in stocks. The US economy would collapse if we didn’t invest in our production. The poor don’t have any capital, so the millionaires do it.

ipoplaya - 28 July 2008 12:46 PM

It’s all about the net worth baby…  If they are living in $1M homes and own them free and clear, they are millionaires (at least for today) in my book.

I remember when our condo was driving towards the $750K price range back in 2006 and our net worth calc was going up and up every month by leaps and bounds…  I had visions of the coveted $1M mark.  Alas, reality stepped in and slap us with a lovely 20% decline in home prices and the ole net worth calc headed down, down, down.

That’s my point exactly.
What percentage of people in Irvine in that $1M home category own it free and clear?

Unless I’m mistaken, you didn’t pay all cash for a $300K condo back in ’01.
Like most people in Irvine at the time, you took a Heloc and bought lifestyle (SUV, etc.) with the appreciation.
IR’s daily posts on the main blog confirm it.

For what it’s worth, the SEC excludes the value of your primary residence when determining net worth for purposes of determining when an investor is accredited—I agree with graph’s reasoning, there may be value in the primary residence, but I’d exclude it from net worth calcs.

How likely is it for an OC millionaire to live in a house that is worth equal to less than $600,000 in OC? Again i am not counting equity from primary residence. would you say it is very likely or unlikely. Looking at several homes from IR2’s stats there are many who bought million dollar homes with a mortgage of $800,000 plus. I doubt these guys have a networth of million dollars, but probably make $200k plus income.

If you buy a house for $1M dollars, your taxes are super expensive, maintenance cost is expensive, and you have spend a lot $$$ just to furnish the place. You now have to spend money to fit in with the lifestyle of living in the $1M home like luxury cars, luxury clothes, luxury toys. Also all the guys mowing your lawn and maintaining your home will also jack up their rates because you live in a $1 Million dollar home and you look rich so why not??

The reason i started this thread was because I am really interested to find out if there is a lifestyle difference between a millionaire living in the midwest compared to a millionaire living in Orange County. I’ve met several millionaires in Cook County, but I have never personally known or met a millionaire living in Orange County. Suprisely, many of the millionaires I met in Cook County live the lifestyle of the book “Millionaire Next Door” from Thomas Stanley.

Panda

skek - 28 July 2008 02:03 PM

For what it’s worth, the SEC excludes the value of your primary residence when determining net worth for purposes of determining when an investor is accredited—I agree with graph’s reasoning, there may be value in the primary residence, but I’d exclude it from net worth calcs.

Ipop never got the memo.
When his place hit $750K, he was too busy applying for membership at Pelican Hill.
At least back then he’d take the family to Buca di Beppo on occasion.

ERPguy - 28 July 2008 01:10 PM

The US economy would collapse if we didn’t invest in our production.

That’s why all good people need to invest in quality tickers like SKF.  Because Amurica is strong!  It’s our patriotic duty to keep her that way.

tenmagnet - 28 July 2008 02:19 PM

skek - 28 July 2008 02:03 PM

For what it’s worth, the SEC excludes the value of your primary residence when determining net worth for purposes of determining when an investor is accredited—I agree with graph’s reasoning, there may be value in the primary residence, but I’d exclude it from net worth calcs.

Ipop never got the memo.
When his place hit $750K, he was too busy applying for membership at Pelican Hill.
At least back then he’d take the family to Buca di Beppo on occasion.

I hate the food at Buca.  We took a bunch of friends there to sample the food as a precursor to selecting a site for our rehearsal dinner.  I think two or three people ended up with stomach aches the next day…  We went with Tommy B’s instead.  The outside patio there is a nice place to have a group dinner.

tenmagnet - 28 July 2008 01:38 PM

ipoplaya - 28 July 2008 12:46 PM

It’s all about the net worth baby…  If they are living in $1M homes and own them free and clear, they are millionaires (at least for today) in my book.

I remember when our condo was driving towards the $750K price range back in 2006 and our net worth calc was going up and up every month by leaps and bounds…  I had visions of the coveted $1M mark.  Alas, reality stepped in and slap us with a lovely 20% decline in home prices and the ole net worth calc headed down, down, down.

That’s my point exactly.
What percentage of people in Irvine in that $1M home category own it free and clear?

Unless I’m mistaken, you didn’t pay all cash for a $300K condo back in ’01.
Like most people in Irvine at the time, you took a Heloc and bought lifestyle (SUV, etc.) with the appreciation.
IR’s daily posts on the main blog confirm it.

Quite right Tenster.  I only put down $50K and it has produced quite a nice return… 

With our HELOC, we didn’t buy lifestyle, we bought life.  The HELOC funded years off work for the wife to be with the babies after they were born while still allowing us to max our tax-deferred investment savings and live comfortably.

ipoplaya - 28 July 2008 02:51 PM

I hate the food at Buca.  We took a bunch of friends there to sample the food as a precursor to selecting a site for our rehearsal dinner.  I think two or three people ended up with stomach aches the next day…  We went with Tommy B’s instead.  The outside patio there is a nice place to have a group dinner.

Just working the jab on you, where’s Tommy B’s?