Hi everyone,
Could someone please help me out with the following:
Question
An investor owns a personal residence worth $1,000,000 and mortgaged for $700,000, a warehouse worth $3,000,000 and mortgaged for $2,000,000, a private business worth $6,000,000, a savings account of $150,000, and a stock and bond portfolio of $6,000,000. The present value of the investor’s primary and secondary objectives are $6 and $4 million, respectively. Based on this information, the investor’s advisor should:
Answer
Not recommend monetizing the home or selling the personal business as the investors primary capital in the home less mortgage plus savings plus stocks and bonds is $1.0 – 0.7 + 0.15 + 6.0 = $6.45 million, which is more than the primary capital needs of $6.0 million.
My query
Why is his house considered primary capital? My understanding was that real estate is held in the Aspirational Risk Bucket and so would be considered surplus capital?
Thank you.