A widely cited guideline is that your primary residence should not be more than 30% to 40% of your net worth. However, this can vary significantly based on personal circumstances, location, and age, with some experts suggesting a lower percentage like 20% of equity or a higher one (up to 50%) for those in high-cost areas.
General guidelines and considerations
- The 30% to 40% rule:
This is a common benchmark to avoid being over-concentrated in a single, illiquid asset, ensuring you have enough liquid wealth to cover other goals and emergencies.
- Age and life stage:
As you get older, the percentage you hold in your home often decreases. For example, the average percentage for a millionaire is around 25%, and for a decamillionaire, it's about 10%.
- High-cost-of-living areas:
In expensive cities, it can be realistic for a primary residence to be a much higher percentage of your net worth, sometimes up to 50% or more. In such cases, you may need to have more liquid investments to compensate.
- Equity vs. total value:
Some advice focuses specifically on the equity (the value of the home minus any mortgage). For example, one guideline suggests that no more than 20% of your net worth should be tied up in home equity.
- Home as an expense:
Some experts argue that a primary residence is a use asset, not a true investment, and therefore, you should aim to have as much of your net worth in income-generating assets as possible.
