Do you include your house in your net worth if you own it outright?

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harrington
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Do you include your house in your net worth if you own it outright?

Post by harrington » Thu Dec 21, 2017 3:58 pm

I have read several articles and opinions on this through the years. Some say yes and others say no. Thoughts?

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Re: Do you include your house in your net worth if you own it outright?

Post by clutchied » Thu Dec 21, 2017 4:00 pm

I include it net of debt even if that debt is zero.

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Re: Do you include your house in your net worth if you own it outright?

Post by Bacchus01 » Thu Dec 21, 2017 4:00 pm

I include it in my net worth even though it’s not paid off


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Re: Do you include your house in your net worth if you own it outright?

Post by Kenkat » Thu Dec 21, 2017 4:02 pm


MrNewEngland
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Re: Do you include your house in your net worth if you own it outright?

Post by MrNewEngland » Thu Dec 21, 2017 4:03 pm

The house is an asset and the mortgage is a liability. Sounds like your liability is equal to zero.

One thing I have started doing since I read it on this board is treating the asset (the house) as what it is valued at minus six percent since that’s what it’ll cost to sell it.

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ResearchMed
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Re: Do you include your house in your net worth if you own it outright?

Post by ResearchMed » Thu Dec 21, 2017 4:04 pm

We figure what the approximate value would be per Zillow, and adjust down a bit (it seems too high).

Then we deduct mortgage, and consider approx half of the supposed "equity" as part of our net worth.

We didn't used to consider it at all, but as property values kept climbing around here (per actual sales, not just Zillow), it became hard to ignore all of it.
But we aren't "counting on" any of it for our plans to "work".

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Re: Do you include your house in your net worth if you own it outright?

Post by bloom2708 » Thu Dec 21, 2017 4:05 pm

Net worth = What you own - what you owe

You may want to not include small items or have a catch all for things below a certain threshold.

Your house is an asset (own). Your mortgage is a liability (owe). If you want to be picky, reduce the net by 6-7% of the potentially selling price.

A car with no loan is part of your net worth. It goes down each month, but it is an asset.

A stamp collection worth $2,000 is part of your net worth. I would only list something if I was relatively confident I could sell it for $X.
Last edited by bloom2708 on Thu Dec 21, 2017 4:38 pm, edited 1 time in total.
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Re: Do you include your house in your net worth if you own it outright?

Post by miamivice » Thu Dec 21, 2017 4:07 pm

Your net worth should include the amount of your home equity (sale price minus mortgage, if any).

Right now, we are not living in a forever house. We'll sell someday. So I surely include home equity in my net worth calculations as we'll be able to use our home equity for non-housing purposes in the future.

When we eventually move to our forever house, I'll probably still include it but consider it part of our non-usable net worth, as we won't sell our forever house. Our kids will have to do that.

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Re: Do you include your house in your net worth if you own it outright?

Post by bgf » Thu Dec 21, 2017 4:08 pm

the liability is easy to calculate, it is just the amount of your mortgage. for the asset side, i just subtract from the purchase price. a house is generally not a liquid asset. rather than guess at what i could sell it for minus transaction costs, i just use the purchase price. if that is overly conservative, so be it. not like anyone cares what my net worth is other than me anyway!
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Re: Do you include your house in your net worth if you own it outright?

Post by SouthernCPA » Thu Dec 21, 2017 4:33 pm

I include it even with a mortgage. It's an asset you own, net of liabilities.

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Re: Do you include your house in your net worth if you own it outright?

Post by KlangFool » Thu Dec 21, 2017 4:36 pm

harrington wrote:
Thu Dec 21, 2017 3:58 pm
I have read several articles and opinions on this through the years. Some say yes and others say no. Thoughts?
harrington,

Why are you calculating your net worth?

If you answer this question, then, you will know whether you should include the house or not.

KlangFool

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Re: Do you include your house in your net worth if you own it outright?

Post by mlebuf » Thu Dec 21, 2017 4:51 pm

We own our house outright and include in our net worth. To be conservative, I estimate the value at 80 percent of what Zillow says it is. The only other assets I add to our net worth are cash and liquid investments. Clothes, jewelry, cars, etc. are not included.
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Re: Do you include your house in your net worth if you own it outright?

Post by Nate79 » Thu Dec 21, 2017 4:52 pm

Net worth is your assets - liabilities. Whether you include it in the calculation or not, your net worth includes your house.

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Re: Do you include your house in your net worth if you own it outright?

Post by TG2 » Thu Dec 21, 2017 5:16 pm

Yes, your house is included in your net worth whether you own it outright or not. No, your net worth is generally not a number you should be concerned with day-to-day. For what purpose? The value of your house only really comes into play if you are going to sell it. I'm never selling mine. What do I care if it is valued at $100,000 or $1,000,000? Granted, I would much prefer to pay property tax on a $100,000 house, but I'm certainly not going to change the way I live based on my house value.

The number that I AM concerned with is my financial assets, or investable assets as some call it. That is what will help determine how I live the rest of my life. The income and the financial flexibility it provides is what is important. Net worth and house value are not, unless you sell. My financial assets need to be enough to enable me NOT to sell. That is how you get to independence.

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Re: Do you include your house in your net worth if you own it outright?

Post by quantAndHold » Thu Dec 21, 2017 5:17 pm

Net worth is a technical term with a pretty unambiguous definition. Yes, the house is included.

Including it, or not, in the list of assets available for retirement is a different story. You might or might not include it, depending on the amount of equity you have, your plans for the future WRT housing, and your general temperament. Several threads have long, long discussions on this point.

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Re: Do you include your house in your net worth if you own it outright?

Post by seawolf21 » Thu Dec 21, 2017 5:28 pm

The way I look at is this. If I had to leave the country and liquidate everything, would I be able to get cash for it? So, a house would be included.
Last edited by seawolf21 on Thu Dec 21, 2017 10:02 pm, edited 1 time in total.

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Re: Do you include your house in your net worth if you own it outright?

Post by MN-Investor » Thu Dec 21, 2017 5:37 pm

For estate planning, I include all assets minus all liabilities.

For retirement planning, I only look at investment assets. Our house, car, etc. are excluded.
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Re: Do you include your house in your net worth if you own it outright?

Post by NYCguy » Thu Dec 21, 2017 5:38 pm

Yes but understand the value and limitations of net worth as a number.

It provides an overall number of how you were doing financially.

Net worth does not answer the question of whether you have sufficient financial assets to be financially independent or are able to retire. You may want to increase or decrease the value of your financial assets for the purposes of calculating financial independence by your home value or mortgage liabilities.

Scenario where you may want to decrease the value of your financial assets: If you have $1 million of financial assets and a $500,000 home with a $250,000 mortgage and you expect to live in a $500,000 home in retirement, I would subtract the $250,000 mortgage from my $1 million of financial assets. (This adjustment assumes that you want to be debt-free in retirement which for me is an appropriate assumption because otherwise you are dealing with negative carry on the debt relative to your investment returns on a risk adjusted basis, which I don’t find to be a meaningful topic.)

Scenario where you may want to increase the value of your financial assets: If you have $1 million of financial assets and a $500,000 home with no mortgage and will live in a $200,000 home in retirement, I would add $300,000 to my $1 million of financial assets for purposes of a financial independence calculation.

Scenario where I would make no adjustment to the value of your financial assets : if you have $1 million of financial assets and a $500,000 home with no mortgage and expect to live in a $500,000 home in retirement, make no adjustment.

If you’re going to make an adjustment based on selling the home, remember to deduct the sales commission, taxes and make a conservative valuation.

I hope that helps your thinking.
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Re: Do you include your house in your net worth if you own it outright?

Post by Broken Man 1999 » Thu Dec 21, 2017 5:56 pm

As a general rule I really only have practical use for our $$$ amounts in our retirement portfolio.

A true net worth figure would include the value of your home, less any mortgage, but frankly I see little use for it other than if we were seeking credit and the net worth was asked by a lender.

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Re: Do you include your house in your net worth if you own it outright?

Post by Angelus359 » Thu Dec 21, 2017 6:16 pm

I don't consider my house an asset because I own less than 50%.

Will I later? Maybe. I might not unless I plan on selling
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Re: Do you include your house in your net worth if you own it outright?

Post by Watty » Thu Dec 21, 2017 6:22 pm

Kenkat wrote:
Thu Dec 21, 2017 4:02 pm
Oh no, not again :D

viewtopic.php?f=2&t=227132
+1

If you look up the definition of net worth there is no question that your home equity is part of that.

There can be valid reasons for looking at other calculations but they would not be called net worth.

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Re: Do you include your house in your net worth if you own it outright?

Post by Capsu78 » Thu Dec 21, 2017 6:52 pm

I include it as it is an "owned" asset...however, I am also a "bucket" guy so I place it as my assets of last resort in sequence of spending. I would only readjust if we readjusted our housing arrangement.

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Re: Do you include your house in your net worth if you own it outright?

Post by whatusername? » Thu Dec 21, 2017 6:57 pm

I include it, but since it's an illiquid asset with significant transaction costs, I have not "marked to market" as it has appreciated. For my purposes that's enough.

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Re: Do you include your house in your net worth if you own it outright?

Post by H-Town » Thu Dec 21, 2017 7:25 pm

harrington wrote:
Thu Dec 21, 2017 3:58 pm
I have read several articles and opinions on this through the years. Some say yes and others say no. Thoughts?
Yeah, I include my principal house and my car to my net worth but I ignore those two numbers in any type of planning. They are just accommodation and transportation prepaid expense for my purpose of financial planning. If it's a real estate property for investment purpose, I will include it in net worth.

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Re: Do you include your house in your net worth if you own it outright?

Post by whodidntante » Thu Dec 21, 2017 7:38 pm

I would think you have a pretty strange definition of net worth if your most valuable asset is excluded from it.

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Re: Do you include your house in your net worth if you own it outright?

Post by cheese_breath » Thu Dec 21, 2017 8:21 pm

In net worth, yes. In investments, no.
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Re: Do you include your house in your net worth if you own it outright?

Post by Wildebeest » Thu Dec 21, 2017 8:24 pm

I consider our house an expense. It is paid off but we still have to pay for the upkeep, taxes etc. Just paying for the cleaning may be abhorrent if we did not have the money.

We love our house, but it leaks money. We have to live somewhere and it is good to love where you live and while it adds to the quality of our lives it definitely does not add to our net worth. Income producing investments add to our net worth.
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Re: Do you include your house in your net worth if you own it outright?

Post by ge1 » Thu Dec 21, 2017 8:29 pm

No I don't.

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Re: Do you include your house in your net worth if you own it outright?

Post by Traveler » Thu Dec 21, 2017 9:01 pm

I calculate my net worth about once a year for the heck of it. I include my home which is paid off as well as my car with is paid off (I depreciate the car each year and use averages of like homes sold in the last six months for the value of the home). If neither were paid off I would include the value of each and take off the respective liability. As others have said, net worth isn't a very meaningful or actionable calculation but if you're going to do it, why would you exclude large assets?

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Re: Do you include your house in your net worth if you own it outright?

Post by AlohaJoe » Thu Dec 21, 2017 9:21 pm

harrington wrote:
Thu Dec 21, 2017 3:58 pm
I have read several articles and opinions on this through the years. Some say yes and others say no. Thoughts?
I think you will get several opinions where some say yes and others say no.

On Monday, Wednesday, and Friday...I include it.
On Tuesday, Thursday, and Saturday...I don't.

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Re: Do you include your house in your net worth if you own it outright?

Post by Slacker » Thu Dec 21, 2017 9:33 pm

We don't own any real estate outright, but all real estate we own is in the form of rental properties so we do include it in our networth.

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Re: Do you include your house in your net worth if you own it outright?

Post by greg24 » Thu Dec 21, 2017 9:36 pm

Since net worth is your net....worth.... I include all assets and liabilities.

To do any different would not be your net... worth.

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Re: Do you include your house in your net worth if you own it outright?

Post by JDCarpenter » Thu Dec 21, 2017 9:36 pm

It is in net worth.

It is not in liquid net worth, which is what we base our withdrawal/spending rate on.

Whenever we fall over from an unsolicited offer and sell it, we will include the proceeds (less the cost of the new house/condo) in the liquid net worth.
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Re: Do you include your house in your net worth if you own it outright?

Post by Jags4186 » Thu Dec 21, 2017 9:39 pm

Of course it’s part of your net worth whether you own it outright or if you’re underwater. So are your cars (provide you own, not lease them) and so is any fancy jewelry you may own. I don’t consider things I’d throw in the trash part of my net worth hence I value almost all of my possessions at $0.00.

Net worth is of little use unless it is so high you need to work on avoiding estate taxes.

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Re: Do you include your house in your net worth if you own it outright?

Post by cheese_breath » Thu Dec 21, 2017 9:53 pm

AlohaJoe wrote:
Thu Dec 21, 2017 9:21 pm
harrington wrote:
Thu Dec 21, 2017 3:58 pm
I have read several articles and opinions on this through the years. Some say yes and others say no. Thoughts?
I think you will get several opinions where some say yes and others say no.

On Monday, Wednesday, and Friday...I include it.
On Tuesday, Thursday, and Saturday...I don't.
And you don't work on Sunday?
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Re: Do you include your house in your net worth if you own it outright?

Post by jhfenton » Thu Dec 21, 2017 10:32 pm

KlangFool wrote:
Thu Dec 21, 2017 4:36 pm
Why are you calculating your net worth?

If you answer this question, then, you will know whether you should include the house or not.

KlangFool
This is always my first reaction to the question. Why am I calculating my net worth? It's not a number I give any thought to.

(One answer: It's not includable in your net worth for accredited investor status.)
whodidntante wrote:
Thu Dec 21, 2017 7:38 pm
I would think you have a pretty strange definition of net worth if your most valuable asset is excluded from it.
Our home is not our most valuable asset by a long shot. Our retirement account assets are several times the value of our home.

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Re: Do you include your house in your net worth if you own it outright?

Post by KlangFool » Thu Dec 21, 2017 10:41 pm

OP,

Some folks like to calculate net worth with their house value. Their houses represent a significant part of their net worth. Meanwhile, for some other folks, their house is a small part of their overall net worth. They do not calculate net worth at all. They just calculate their investment asset.

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Re: Do you include your house in your net worth if you own it outright?

Post by ResearchMed » Thu Dec 21, 2017 10:48 pm

KlangFool wrote:
Thu Dec 21, 2017 10:41 pm
OP,

Some folks like to calculate net worth with their house value. Their houses represent a significant part of their net worth. Meanwhile, for some other folks, their house is a small part of their overall net worth. They do not calculate net worth at all. They just calculate their investment asset.

KlangFool
The equity in our home, although difficult to ignore these days (so, as mentioned above, we count a bit less than half) is a rather small part of our total "net worth".

However, we certainly count it.

It will be used, just as will our investments, to cover our living and continuing care expenses in the future.
We won't be living in this house forever.
We'll be in independent living/assisted living/etc., unless/until we need nursing care.

Why in the world would we not include an approximation of the value?
(And we don't *need* it, although the extra would be nice. So if RE values crash, so be it. No different than if equities crash. Not great, but "could happen".)

It's been part of the plan for a long time.

RM
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harrington
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Re: Do you include your house in your net worth if you own it outright?

Post by harrington » Fri Dec 22, 2017 8:41 am

Should have done a search on the subject. Sorry for being lazy 😁.

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Re: Do you include your house in your net worth if you own it outright?

Post by miamivice » Fri Dec 22, 2017 9:20 am

bloom2708 wrote:
Thu Dec 21, 2017 4:05 pm
If you want to be picky, reduce the net by 6-7% of the potentially selling price.
Do you also reduce the value of your investments by 15% * unrealized gain to reflect the long term capital gains tax that the government takes?

Or reduce 401k balances by 10 - 20% to account for the amount of ordinary income tax you'll pay in retirement?

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Re: Do you include your house in your net worth if you own it outright?

Post by oldcomputerguy » Fri Dec 22, 2017 9:32 am

I include home equity in my net worth.

I do not include my home as part of my investment portfolio.
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Re: Do you include your house in your net worth if you own it outright?

Post by MikeWillRetire » Fri Dec 22, 2017 9:42 am

Your heirs sure will.

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Re: Do you include your house in your net worth if you own it outright?

Post by dbr » Fri Dec 22, 2017 9:48 am

The question would be why are you asking? More specifically what would it mean to you if you did or if you didn't.

One circumstance where it is most definitely included is when people divorce. Another circumstance is what is included in the estate when people die.

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Re: Do you include your house in your net worth if you own it outright?

Post by p0nyboy » Fri Dec 22, 2017 9:52 am

People like to include their homes in their NW so it makes it look better. Then they can say they're in the 2 comma club earlier than they really are. I dont really blame them. If I included my house id be in the "2 comma club." Another year or two and ill be there without home equity or whatever people use.

Unless you own a home and rent it out...I wouldnt count it. I know for me I just having my home costs me close to $8k/year between taxes, insurance and utilities...this doesnt even include upkeep.

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Re: Do you include your house in your net worth if you own it outright?

Post by chisey » Fri Dec 22, 2017 10:06 am

It counts. We're selling our house and will be renting for awhile starting early next year. If we hadn't been counting the house in our net worth it would look like we had a huge gain in assets in January, which doesn't make much sense to me.

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Re: Do you include your house in your net worth if you own it outright?

Post by chevca » Fri Dec 22, 2017 10:09 am

harrington wrote:
Thu Dec 21, 2017 3:58 pm
I have read several articles and opinions on this through the years. Some say yes and others say no. Thoughts?
Yes... and, no. You will get opinions from both sides of the fence here too. :happy

I say, yes, include it.... assets - liabilities = net worth.

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Re: Do you include your house in your net worth if you own it outright?

Post by randomizer » Fri Dec 22, 2017 10:09 am

The answer is easy: yes AND no. I calculate it both ways.
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Re: Do you include your house in your net worth if you own it outright?

Post by dbr » Fri Dec 22, 2017 10:13 am

randomizer wrote:
Fri Dec 22, 2017 10:09 am
The answer is easy: yes AND no. I calculate it both ways.
But why? I don't mean to disagree at all rather to help the OP with what his purpose might be.

I include value of house in net worth so I know roughly total wealth I have access to for whatever reason. It is entirely possible a house could be sold and other arrangements made for where to live.

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Re: Do you include your house in your net worth if you own it outright?

Post by HomerJ » Fri Dec 22, 2017 10:15 am

There is only one definition of net worth, and yes your house equity should be included.

Now, that said, I ignore my house equity when making financial plans.

With my house paid off, I want to generate $80,000 a year in retirement, which requires $2 million in investable assets. I basically ignore the worth of my house when calculating how close I am to my goal.

But... I also don't plan on down-sizing in retirement. If someone lives in a HCOL area, and is locating to a LCOL area, then keeping track of your house's value is important. Because the difference could be a huge part of your financial plan.

But for me, I basically ignore my house. But it's still part of my net worth. I just don't think "net worth" is very important when planning for retirement. Besides, I already account for that money tied up in my paid-off house because my required monthly retirement expenses are lower.

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