What percentage of your net worth is your home equity?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 5:53 pm

Artsdoctor wrote:
Tue Dec 11, 2018 5:33 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
I usually agree with you, but I don't know how to interpret your comment.
Artsdoctor,

If your home equity is insignificant as compared to your total asset, it is not worth counting. However, if someone needs to count the home equity in order to show that he/she is worth something, he/she has too much house.

KlangFool

User avatar
ResearchMed
Posts: 9457
Joined: Fri Dec 26, 2008 11:25 pm

Re: What percentage of your net worth is your home equity?

Post by ResearchMed » Tue Dec 11, 2018 5:55 pm

TomatoTomahto wrote:
Tue Dec 11, 2018 5:40 pm
ResearchMed wrote:
Tue Dec 11, 2018 5:24 pm
That makes us - and others like us - among the "lower savings/investments" group, who "need" the equity to "sound better"?

Really?
I’m sure ponyboy didn’t mean to include you. In fairness, it is common for young people, with little savings and just starting out, to count their home equity as a way to make themselves feel better; it’s easier to show progress in their financial journey.

As another example of why it should be counted: we are in the process of investing roughly 50% of what we bought our house for, in improvements. I count that as a wash financially. Omitting home equity would count it as a significant loss. That doesn’t make sense.
Thanks.
I wasn't taking it "personally"; hence the "and others like us".

I was only trying to point out that "including home equity" in "net worth" is NOT only for those who "need the equity to sound better"... as is clearly shown here in this thread.

I just never heard it phrased like that, and found it absurd.

It may be true that those starting out "like" to include their home equity, but I assume they also "like" to include their bank balances and their slowly growing IRA's or such, etc...

A few others have also suggested some ways that not including home equity can become silly.
I'll join the person who offered to pay one cent for a home as a kind gesture to help increase that persons sense of net worth. :happy

RM
This signature is a placebo. You are in the control group.

User avatar
ResearchMed
Posts: 9457
Joined: Fri Dec 26, 2008 11:25 pm

Re: What percentage of your net worth is your home equity?

Post by ResearchMed » Tue Dec 11, 2018 5:56 pm

KlangFool wrote:
Tue Dec 11, 2018 5:53 pm
Artsdoctor wrote:
Tue Dec 11, 2018 5:33 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
I usually agree with you, but I don't know how to interpret your comment.
Artsdoctor,

If your home equity is insignificant as compared to your total asset, it is not worth counting. However, if someone needs to count the home equity in order to show that he/she is worth something, he/she has too much house.

KlangFool
I didn't realize that the point of the exercise was to "show" that one is "worth something".
You could say that about the value of one's car, wardrobe, or kitchen equipment or ... whatever.
Why restrict it to "home"?

RM
This signature is a placebo. You are in the control group.

User avatar
CaliJim
Posts: 3050
Joined: Sun Feb 28, 2010 8:47 pm
Location: California, near the beach

Re: What percentage of your net worth is your home equity?

Post by CaliJim » Tue Dec 11, 2018 6:00 pm

As others have implied, I do not include home equity in calculating asset allocation.

Our home equity is a large pct (~25%) of our networth, but then... our non-house networth is quite a lot too.

We do not plan to sell the house or reverse mortgage to pay for the late retirement years.
-calijim- | | For more info, click this Wiki

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 6:02 pm

michaeljc70 wrote:
Tue Dec 11, 2018 5:11 pm
Sandtrap wrote:
Tue Dec 11, 2018 4:55 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
Actionably: I cannot pay my retirement expenses with the home I live in. And, it's not counted as net worth. And, is not related to my allocation nor IPS though it is paid for.

How is home equity as a percentage of net worth actionable toward financial planning?
Of course you can. Reverse mortgage. Alternatively it can be sold and you can move to a rental.
michaeljc70,

Or, the home equity/house value is too insignificant as compared to the investable asset that it is never a consideration in the first place.

Why count something when it does not matter at all?

Home equity/house value only matters to folks that have too much house as compared to their investable asset.

KlangFool

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 6:04 pm

ResearchMed wrote:
Tue Dec 11, 2018 5:56 pm
KlangFool wrote:
Tue Dec 11, 2018 5:53 pm
Artsdoctor wrote:
Tue Dec 11, 2018 5:33 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
I usually agree with you, but I don't know how to interpret your comment.
Artsdoctor,

If your home equity is insignificant as compared to your total asset, it is not worth counting. However, if someone needs to count the home equity in order to show that he/she is worth something, he/she has too much house.

KlangFool
I didn't realize that the point of the exercise was to "show" that one is "worth something".
You could say that about the value of one's car, wardrobe, or kitchen equipment or ... whatever.
Why restrict it to "home"?


RM
ResearchMed,

I don't. I do not count those things too.

KlangFool

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 6:07 pm

MiddleOfTheRoad wrote:
Tue Dec 11, 2018 4:53 pm
Bogleheads networth levels:

Level 1: include everything in one’s possessions in the net worth, including car equity, furnitures, bicycle etc. All investable/liquid assets.

Level 2: only include the “big items” ie. house, vacation home, collectibles. And all investable/liquid assets.

Level 3: only include investable/liquid assets

Level 4: only include investable assets. Don’t even count the emrgency fund or cash in bank accounts.

:D
+1.

Very good summary.

KlangFool

User avatar
ResearchMed
Posts: 9457
Joined: Fri Dec 26, 2008 11:25 pm

Re: What percentage of your net worth is your home equity?

Post by ResearchMed » Tue Dec 11, 2018 6:09 pm

KlangFool wrote:
Tue Dec 11, 2018 6:04 pm
ResearchMed wrote:
Tue Dec 11, 2018 5:56 pm
KlangFool wrote:
Tue Dec 11, 2018 5:53 pm
Artsdoctor wrote:
Tue Dec 11, 2018 5:33 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
I usually agree with you, but I don't know how to interpret your comment.
Artsdoctor,

If your home equity is insignificant as compared to your total asset, it is not worth counting. However, if someone needs to count the home equity in order to show that he/she is worth something, he/she has too much house.

KlangFool
I didn't realize that the point of the exercise was to "show" that one is "worth something".
You could say that about the value of one's car, wardrobe, or kitchen equipment or ... whatever.
Why restrict it to "home"?


RM
ResearchMed,

I don't. I do not count those things too.

KlangFool
Actually, we don't count any of the above other than the home equity.
We don't have such fantastic kitchen equpiment, for one thing. :D
Only the house is likely to continue to appreciate; most other things we own are depreciating assets.

But if someone *does* want to count things that do have some external value (e.g., could be sold), why your dismissive attitude about "them"?

It's just a different accounting ritual, and yours is one that doesn't match most conventional ways of calculating "net worth", as has been pointed out.

ETA: Along the lines of a recent post, we certainly don't include home equity in "investment assets". But that is not "all" of our net worth.
And didn't you contradict yourself above?

RM
This signature is a placebo. You are in the control group.

michaeljc70
Posts: 6079
Joined: Thu Oct 15, 2015 3:53 pm

Re: What percentage of your net worth is your home equity?

Post by michaeljc70 » Tue Dec 11, 2018 6:15 pm

KlangFool wrote:
Tue Dec 11, 2018 6:02 pm
michaeljc70 wrote:
Tue Dec 11, 2018 5:11 pm
Sandtrap wrote:
Tue Dec 11, 2018 4:55 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
Actionably: I cannot pay my retirement expenses with the home I live in. And, it's not counted as net worth. And, is not related to my allocation nor IPS though it is paid for.

How is home equity as a percentage of net worth actionable toward financial planning?
Of course you can. Reverse mortgage. Alternatively it can be sold and you can move to a rental.
michaeljc70,

Or, the home equity/house value is too insignificant as compared to the investable asset that it is never a consideration in the first place.

Why count something when it does not matter at all?

Home equity/house value only matters to folks that have too much house as compared to their investable asset.

KlangFool
So, if you have an emerging market allocation or some other small allocation, you don't count that either because it is small relative to your other investments?

There is a much better chance my equities will be worth 30% less next year than my home will be worth 30% less next year.

I am going to guess here, but I bet home equity is greater than 20% of the net worth of the vast majority of America (that owns a home).

Again, net worth has a definition. There are other terms like investable assets, retirement assets, etc. that are more fluid and appropriate.
Last edited by michaeljc70 on Tue Dec 11, 2018 6:18 pm, edited 1 time in total.

flyingaway
Posts: 2589
Joined: Fri Jan 17, 2014 10:19 am

Re: What percentage of your net worth is your home equity?

Post by flyingaway » Tue Dec 11, 2018 6:17 pm

19% and paid off. Hope to make it to less than 15% at retirement.

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 6:19 pm

ResearchMed wrote:
Tue Dec 11, 2018 6:09 pm

But if someone *does* want to count things that do have some external value (e.g., could be sold), why your dismissive attitude about "them"?

RM
RM,

Because many of my peers were financially destroyed by their houses. They felt great because most of their "net worth" is in the home equity. Then, 2008/2009 happened.

KlangFool

User avatar
ResearchMed
Posts: 9457
Joined: Fri Dec 26, 2008 11:25 pm

Re: What percentage of your net worth is your home equity?

Post by ResearchMed » Tue Dec 11, 2018 6:22 pm

KlangFool wrote:
Tue Dec 11, 2018 6:19 pm
ResearchMed wrote:
Tue Dec 11, 2018 6:09 pm

But if someone *does* want to count things that do have some external value (e.g., could be sold), why your dismissive attitude about "them"?

RM
RM,

Because many of my peers were financially destroyed by their houses. They felt great because most of their "net worth" is in the home equity. Then, 2008/2009 happened.

KlangFool
Then what you *mean* applies to a certain subset of homeowners, those who spent too much and/or mortgaged too much.

You've got it a bit backwards.
It's not all of those who "count the equity" that you are dismissive of... I assume (per your comment above).

RM
This signature is a placebo. You are in the control group.

Cycle
Posts: 1534
Joined: Sun May 28, 2017 7:57 pm
Location: Minneapolis

Re: What percentage of your net worth is your home equity?

Post by Cycle » Tue Dec 11, 2018 6:23 pm

13.4% is home equity to net worth. Zero debt. Age 35.

Goal is to keep that as tiny a percent as possible without incurring debt.
Never look back unless you are planning to go that way

smitcat
Posts: 4642
Joined: Mon Nov 07, 2016 10:51 am

Re: What percentage of your net worth is your home equity?

Post by smitcat » Tue Dec 11, 2018 6:31 pm

KlangFool wrote:
Tue Dec 11, 2018 6:07 pm
MiddleOfTheRoad wrote:
Tue Dec 11, 2018 4:53 pm
Bogleheads networth levels:

Level 1: include everything in one’s possessions in the net worth, including car equity, furnitures, bicycle etc. All investable/liquid assets.

Level 2: only include the “big items” ie. house, vacation home, collectibles. And all investable/liquid assets.

Level 3: only include investable/liquid assets

Level 4: only include investable assets. Don’t even count the emrgency fund or cash in bank accounts.

:D
+1.

Very good summary.

KlangFool
We include everything when using net worth - all assets and all obligations.
Its not necessary to do so but that is net worth after all.

Xrayman69
Posts: 312
Joined: Fri Jun 01, 2018 8:52 pm

Re: What percentage of your net worth is your home equity?

Post by Xrayman69 » Tue Dec 11, 2018 6:35 pm

40%. HCOL area. Mortgage is 1/3 of the before cost of the home.

User avatar
Artsdoctor
Posts: 4199
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: What percentage of your net worth is your home equity?

Post by Artsdoctor » Tue Dec 11, 2018 6:37 pm

Klang,

Please try to broaden your way of thinking. It is true that, especially in a HCOLA, home equity can be a frighteningly large portion of someone's net worth. But what's "too high" or "too much house"? Those are judgmental terms.

If I have a house that's worth $8M and an investment portfolio which is worth $16M, my equity may well be over 33% of my net worth. Is that too high? No. Did I buy too much house when I purchased it for $2M 20 years earlier? No. Am I going to include the value of the house in estate planning? You bet.

Obviously, the sums are very large above. But everyone's case may be different and labeling something as "too much" decreases your credibility because a whole picture has not been painted.

User avatar
Atomic
Posts: 85
Joined: Sat Mar 13, 2010 12:14 am
Location: Minnesota

Re: What percentage of your net worth is your home equity?

Post by Atomic » Tue Dec 11, 2018 6:38 pm

Currently 19%
Edit to include a history since I've owned my home:
2005, 13% (4,800 of 35,900)
2006, 25%
2007, 19%
2008, 5%
2009 -1%
2010, 3%
2011, 5%
2012 10%
2013,12%
2014, 17%
2015, 20%
2016, 16%
2017, 17%
2018, 19% (167,000 of 880,000)
Last edited by Atomic on Tue Dec 11, 2018 6:50 pm, edited 1 time in total.

Jags4186
Posts: 4094
Joined: Wed Jun 18, 2014 7:12 pm

Re: What percentage of your net worth is your home equity?

Post by Jags4186 » Tue Dec 11, 2018 6:42 pm

KlangFool wrote:
Tue Dec 11, 2018 5:53 pm
Artsdoctor wrote:
Tue Dec 11, 2018 5:33 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
I usually agree with you, but I don't know how to interpret your comment.
Artsdoctor,

If your home equity is insignificant as compared to your total asset, it is not worth counting. However, if someone needs to count the home equity in order to show that he/she is worth something, he/she has too much house.

KlangFool
KlangFool, you are wrong. Net worth is assets - liabilities. Sure it’s not part of your *liquid* net worth but it is part of your net worth. If you don’t think so, your heirs and the government will certainly think so when it comes to computing state and/or federal inheritance tax.

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 6:42 pm

michaeljc70 wrote:
Tue Dec 11, 2018 6:15 pm
KlangFool wrote:
Tue Dec 11, 2018 6:02 pm
michaeljc70 wrote:
Tue Dec 11, 2018 5:11 pm
Sandtrap wrote:
Tue Dec 11, 2018 4:55 pm
KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
Actionably: I cannot pay my retirement expenses with the home I live in. And, it's not counted as net worth. And, is not related to my allocation nor IPS though it is paid for.

How is home equity as a percentage of net worth actionable toward financial planning?
Of course you can. Reverse mortgage. Alternatively it can be sold and you can move to a rental.
michaeljc70,

Or, the home equity/house value is too insignificant as compared to the investable asset that it is never a consideration in the first place.

Why count something when it does not matter at all?

Home equity/house value only matters to folks that have too much house as compared to their investable asset.

KlangFool
So, if you have an emerging market allocation or some other small allocation, you don't count that either because it is small relative to your other investments?

There is a much better chance my equities will be worth 30% less next year than my home will be worth 30% less next year.

I am going to guess here, but I bet home equity is greater than 20% of the net worth of the vast majority of America (that owns a home).

Again, net worth has a definition. There are other terms like investable assets, retirement assets, etc. that are more fluid and appropriate.
michaeljc70,

<<So, if you have an emerging market allocation or some other small allocation, you don't count that either because it is small relative to your other investments? >>

I do not have any small allocation. Either I invest 10% or more of my allocation or I do not invest.

<<There is a much better chance my equities will be worth 30% less next year than my home will be worth 30% less next year. >>

Even if my house worth nothing, it won't matter to me.

<< I am going to guess here, but I bet home equity is greater than 20% of the net worth of the vast majority of America (that owns a home).>>

And, doing the same thing as the majority of American is usually a bad idea in term of personal finance.

<<Again, net worth has a definition. There are other terms like investable assets, retirement assets, etc. that are more fluid and appropriate.>>

Why count and use a definition that is harmful to your personal finance?

KlangFool

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 6:50 pm

Artsdoctor wrote:
Tue Dec 11, 2018 6:37 pm
Klang,

Please try to broaden your way of thinking. It is true that, especially in a HCOLA, home equity can be a frighteningly large portion of someone's net worth. But what's "too high" or "too much house"? Those are judgmental terms.
Artsdoctor,

Who is judging here?

It is up to the individual to count or not to count the home equity. The act of counting or not counting tells us something about the person.

<<home equity can be a frighteningly large portion of someone's net worth. >>
<<If I have a house that's worth $8M and an investment portfolio which is worth $16M, >>

If the home equity is large enough that someone has to count it, the person has too much house. As per your example, the person may not count the 8M house at all. With 16M, even if the house is worth nothing, it may not matter to this person.

I have a 400K house, 100K home equity, and 1.2 million investable assets. I do not care even if my house is worth nothing.

KlangFool

Bigfish
Posts: 141
Joined: Wed May 07, 2014 5:41 pm

Re: What percentage of your net worth is your home equity?

Post by Bigfish » Tue Dec 11, 2018 6:52 pm

Blueskies123 wrote:
Tue Dec 11, 2018 4:20 pm
My house is paid off. I do not think of my house as part of my portfolio. I cannot spend it to buy food, I would have to move.
+1

Red Spot
Posts: 23
Joined: Tue Feb 13, 2018 6:15 pm

Re: What percentage of your net worth is your home equity?

Post by Red Spot » Tue Dec 11, 2018 7:03 pm

KlangFool wrote:
Tue Dec 11, 2018 4:28 pm
OP,

I do not count my house as part of my net worth. If someone is counting the house as part of their net worth, they had bought too much house.

KlangFool
Apparently we have bought too much house - at 30% of our net worth.
However as our budget is only just over 50% of our combined income from pensions and SS only - we would beg to differ

pdavi21
Posts: 1296
Joined: Sat Jan 30, 2016 4:04 pm

Re: What percentage of your net worth is your home equity?

Post by pdavi21 » Tue Dec 11, 2018 7:06 pm

That guy was obviously trolling.
Please stop arguing with him.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

J295
Posts: 2246
Joined: Sun Jan 01, 2012 11:40 pm

Re: What percentage of your net worth is your home equity?

Post by J295 » Tue Dec 11, 2018 7:07 pm

So entertaining a thread like this again…

Waiting for someone to write — I don’t count my index funds in my net worth or as part of my equity, because years ago I had friends that worked for Lehman Brothers and others that worked for Enron and they owned equity and their stock became worthless and since all of the companies that comprise the index funds could also become insolvent and someday be worth zero I’m going to make up my own definitions of net worth and equity and not count them. My bonds and cash are enough for me to live on so it just seems to make sense to make my own definitions of equity and net worth. Anyone who uses in the other definitions are just showing off.

Nothing however, matches a tipping thread… 😃

User avatar
Kenkat
Posts: 5502
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: What percentage of your net worth is your home equity?

Post by Kenkat » Tue Dec 11, 2018 7:18 pm

I like to count my baseball card collection as part of my equity allocation because, what the heck, we can define things however we like, right? I count the coin collection as part of my bond allocation and split foreign coins out as international bonds. Whoopee! This is fun.

Oh, it’s around 25%. That’s equity, not what the house is worth. You’ve got to count any mortgage also. My house is about 80% paid off.

ponyboy
Posts: 816
Joined: Fri Feb 06, 2015 10:39 am

Re: What percentage of your net worth is your home equity?

Post by ponyboy » Tue Dec 11, 2018 7:20 pm

I have a friend who also includes his automobiles in his net worth. Wut?? At some point, you have to stop including every single thing you own in your net worth.

A house is something you live in, you raise offspring in, you form lifetime memories in...which is the reason I never include it in my net worth. Im not going to put my house on the same level as my savings account or retirement account. Its so much more than that.

Fire2030
Posts: 49
Joined: Mon Jul 17, 2017 9:03 am

Re: What percentage of your net worth is your home equity?

Post by Fire2030 » Tue Dec 11, 2018 7:24 pm

This is an interesting thread indeed. We recently did our Estate Planning and the attorney's worksheet included a networth calculation.
Networth = Assets - Liabilites
Whether it's useful or not that's how the term is defined. This was the first time we actually counted the value of jewellery my wife has and it was a surprise to both of us :twisted: We chose not to add Car/Jewellery to the worksheet.

Personally I keep track of both Networth (Investable+RealEstate) and Investable assets. For retirement planning I only use the investable assets, to me this is a personal choice and this works for me.

But I always struggled with paying off the house vs investing. Now that I have 24x my expenses saved in Investable assets, plan to pay off the mortgage next year. It's about 7/10 % of Net/Invest assets. Once paid off it will be 17/25%, more than I am comfortable with , would like it to be < 10% eventually.

User avatar
unclescrooge
Posts: 4198
Joined: Thu Jun 07, 2012 7:00 pm

Re: What percentage of your net worth is your home equity?

Post by unclescrooge » Tue Dec 11, 2018 7:30 pm

KlangFool wrote:
Tue Dec 11, 2018 6:19 pm
ResearchMed wrote:
Tue Dec 11, 2018 6:09 pm

But if someone *does* want to count things that do have some external value (e.g., could be sold), why your dismissive attitude about "them"?

RM
RM,

Because many of my peers were financially destroyed by their houses. They felt great because most of their "net worth" is in the home equity. Then, 2008/2009 happened.

KlangFool
Maybe you just need better peers? :mrgreen:

User avatar
unclescrooge
Posts: 4198
Joined: Thu Jun 07, 2012 7:00 pm

Re: What percentage of your net worth is your home equity?

Post by unclescrooge » Tue Dec 11, 2018 7:34 pm

62.5% of my network is in my home equity.

Although, in lean times I could rent out part of the house and generate $2000/mo in income.

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 7:37 pm

Folks,

It up to the individual to decide whether to include the "Home Equity" into the net worth calculation. For some people, the house/home equity is insignificant in term of their overall asset and financial health. Hence, they do not count it. It is a choice.

Meanwhile, some people believe that they must count the home equity/house in the net worth calculation. For those people, they probably have too much house.

If you feel like you must count the house, you have too much house. This is a self-test. You get to decide yourself. No debate required. You know your own answer.

KlangFool

User avatar
Kenkat
Posts: 5502
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: What percentage of your net worth is your home equity?

Post by Kenkat » Tue Dec 11, 2018 7:46 pm

KlangFool wrote:
Tue Dec 11, 2018 7:37 pm
If you feel like you must count the house, you have too much house.
If you don’t count the house, does that then mean you don’t have enough house?

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 7:49 pm

Kenkat wrote:
Tue Dec 11, 2018 7:46 pm
KlangFool wrote:
Tue Dec 11, 2018 7:37 pm
If you feel like you must count the house, you have too much house.
If you don’t count the house, does that then mean you don’t have enough house?
No. I am oblivious to the house. Aka, do not care.

KlangFool

Cash is King
Posts: 87
Joined: Sun Dec 10, 2017 9:04 am

Re: What percentage of your net worth is your home equity?

Post by Cash is King » Tue Dec 11, 2018 7:52 pm

Fire2030 wrote:
Tue Dec 11, 2018 7:24 pm
This is an interesting thread indeed. We recently did our Estate Planning and the attorney's worksheet included a networth calculation.
Networth = Assets - Liabilites
Whether it's useful or not that's how the term is defined.
This was the first time we actually counted the value of jewellery my wife has and it was a surprise to both of us :twisted: We chose not to add Car/Jewellery to the worksheet.

Personally I keep track of both Networth (Investable+RealEstate) and Investable assets. For retirement planning I only use the investable assets, to me this is a personal choice and this works for me.

But I always struggled with paying off the house vs investing. Now that I have 24x my expenses saved in Investable assets, plan to pay off the mortgage next year. It's about 7/10 % of Net/Invest assets. Once paid off it will be 17/25%, more than I am comfortable with , would like it to be < 10% eventually.
This thread is entertaining but the bolded comments above sum it nicely. :sharebeer
Last edited by Cash is King on Tue Dec 11, 2018 7:54 pm, edited 1 time in total.

bradshaw1965
Posts: 761
Joined: Tue Jul 31, 2007 9:36 pm

Re: What percentage of your net worth is your home equity?

Post by bradshaw1965 » Tue Dec 11, 2018 7:52 pm

ponyboy wrote:
Tue Dec 11, 2018 7:20 pm
I have a friend who also includes his automobiles in his net worth. Wut?? At some point, you have to stop including every single thing you own in your net worth.

A house is something you live in, you raise offspring in, you form lifetime memories in...which is the reason I never include it in my net worth. Im not going to put my house on the same level as my savings account or retirement account. Its so much more than that.
You can certainly liquidate an automobile. I think Bogleheads sometimes forget or never experienced having things a little lean. I think it's perfectly fine to only count investable assets but it comes from a place of privilege to be able to do so.

GibsonL6s
Posts: 296
Joined: Tue Aug 29, 2017 12:17 pm

Re: What percentage of your net worth is your home equity?

Post by GibsonL6s » Tue Dec 11, 2018 7:55 pm

I had never thought to calculate until now. It is 16%. House has a 43% loan on it. Percent of value not interest rate :happy

User avatar
Nate79
Posts: 5326
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: What percentage of your net worth is your home equity?

Post by Nate79 » Tue Dec 11, 2018 7:59 pm

It's the same argument every time this topic comes up. There are two types of Bogleheads. Those that know how to calculate net worth and those that don't..... :P

User avatar
Kenkat
Posts: 5502
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: What percentage of your net worth is your home equity?

Post by Kenkat » Tue Dec 11, 2018 8:02 pm

KlangFool wrote:
Tue Dec 11, 2018 7:49 pm
Kenkat wrote:
Tue Dec 11, 2018 7:46 pm
KlangFool wrote:
Tue Dec 11, 2018 7:37 pm
If you feel like you must count the house, you have too much house.
If you don’t count the house, does that then mean you don’t have enough house?
No. I am oblivious to the house. Aka, do not care.

KlangFool
Ok, well I would suspend judgement as to whether those who count their house in their net worth, following the accepted definition of net worth after all, as having “too much house”. Warren Buffet has a $250,000 house, a $39 billion net worth but if he follows normal accounting definition and principles, he has too much house.

KlangFool
Posts: 14696
Joined: Sat Oct 11, 2008 12:35 pm

Re: What percentage of your net worth is your home equity?

Post by KlangFool » Tue Dec 11, 2018 8:07 pm

Kenkat wrote:
Tue Dec 11, 2018 8:02 pm
KlangFool wrote:
Tue Dec 11, 2018 7:49 pm
Kenkat wrote:
Tue Dec 11, 2018 7:46 pm
KlangFool wrote:
Tue Dec 11, 2018 7:37 pm
If you feel like you must count the house, you have too much house.
If you don’t count the house, does that then mean you don’t have enough house?
No. I am oblivious to the house. Aka, do not care.

KlangFool
Ok, well I would suspend judgement as to whether those who count their house in their net worth, following the accepted definition of net worth after all, as having “too much house”. Warren Buffet has a $250,000 house, a $39 billion net worth but if he follows normal accounting definition and principles, he has too much house.
Kenkat,

You are wrong. As per my definition, only Warren Buffet can decide whether he has too much house. It is not up to anyone else. He can choose to count or not to count the house.

KlangFool

User avatar
Kenkat
Posts: 5502
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: What percentage of your net worth is your home equity?

Post by Kenkat » Tue Dec 11, 2018 8:14 pm

KlangFool wrote:
Tue Dec 11, 2018 8:07 pm
Kenkat wrote:
Tue Dec 11, 2018 8:02 pm
KlangFool wrote:
Tue Dec 11, 2018 7:49 pm
Kenkat wrote:
Tue Dec 11, 2018 7:46 pm
KlangFool wrote:
Tue Dec 11, 2018 7:37 pm
If you feel like you must count the house, you have too much house.
If you don’t count the house, does that then mean you don’t have enough house?
No. I am oblivious to the house. Aka, do not care.

KlangFool
Ok, well I would suspend judgement as to whether those who count their house in their net worth, following the accepted definition of net worth after all, as having “too much house”. Warren Buffet has a $250,000 house, a $39 billion net worth but if he follows normal accounting definition and principles, he has too much house.
Kenkat,

You are wrong. As per my definition, only Warren Buffet can decide whether he has too much house. It is not up to anyone else. He can choose to count or not to count the house.

KlangFool
That is like me saying that Vanguard Primecap is an index fund because it is low cost and low turnover, so I chose to call it as such. My definition of an index fund. It’s up to me after all.

You have a definition; if you called it “KlangFool’s measure of wealth”, it would be fine, but calling it net worth is using something that is already defined. It’s like me mixing up a batch of lemonade and calling it a sprite. My definition of “sprite” is up to me, the Coca-Cola company notwithstanding.

GCD
Posts: 1003
Joined: Tue Sep 26, 2017 7:11 pm

Re: What percentage of your net worth is your home equity?

Post by GCD » Tue Dec 11, 2018 8:18 pm

Nate79 wrote:
Tue Dec 11, 2018 7:59 pm
It's the same argument every time this topic comes up. There are two types of Bogleheads. Those that know how to calculate net worth and those that don't..... :P
Amazing isn't it? Given the generally high level of financial education here and the simplicity of the definition of net worth.

Last time I checked it was 10.77%.
Last edited by GCD on Tue Dec 11, 2018 8:22 pm, edited 1 time in total.

Jetlag
Posts: 1
Joined: Sun Nov 25, 2018 7:29 am

Re: What percentage of your net worth is your home equity?

Post by Jetlag » Tue Dec 11, 2018 8:19 pm

approx 10%

User avatar
Artsdoctor
Posts: 4199
Joined: Thu Jun 28, 2012 3:09 pm
Location: Los Angeles, CA

Re: What percentage of your net worth is your home equity?

Post by Artsdoctor » Tue Dec 11, 2018 8:19 pm

The OP is a new poster who is presumably trying to gauge what a reasonable percentage of a home's worth is part of the person's net worth. The answers are of course going to vary, and you can Google this easily; it's going to be 10-35% for most people but there are so many variables that it probably doesn't help anyone.

The tangents regarding home equity always create a lively conversation on the forum. Many people don't really count home equity but are simply "aware" of what their house might be worth. Others take a different approach and factor the home's value in portfolio allocation.

Like nearly all financial decisions, this is often going to be influenced by your state. In California, we are in an upside-down world when it comes to real estate and many people factor in their houses' values when making financial decisions now and in the future. Why? I'll share a colleague's plan and acknowledge that it's unique to California because of taxes here.

Person A buys a home in 1972 for $200,000. Currently, it's worth $5.5M. The real estate tax is based on the purchase price, increasing by a tiny percentage each year, and is never based on the value. The home is paid for and represents 60% of the person's net worth. If the owner sells the house, capital gains would be exorbitant. The decision is made to pass the house to the kids who inherit the owner's real estate tax amount (!) and the stepped up basis of the house. Quite a nice inheritance and the real estate taxes are extraordinarily manageable.

Person A's inheritance plan is taken care of. He and spouse can live comfortably on the $3.5M investment portfolio and invests it conservatively because the plan is spend it all down and not pass on a penny, all because of the home equity.

So although the numbers here are a bit eye-popping, I can assure you home equity is factored into many, many people's investment plans, but it all depends on location, tax law, and real estate values.

Dontridetheindexdown
Posts: 92
Joined: Sat Feb 14, 2015 10:08 pm

Re: What percentage of your net worth is your home equity?

Post by Dontridetheindexdown » Tue Dec 11, 2018 8:23 pm

Fully paid for, 4.3% of total net worth, 4.5% of liquid net worth.

racy
Posts: 242
Joined: Sun Mar 30, 2008 7:38 am
Location: Nebraska

Re: What percentage of your net worth is your home equity?

Post by racy » Tue Dec 11, 2018 8:38 pm

10% of net-worth. House paid off. In my view, net-worth is kind of meaningless.

BrooklynInvest
Posts: 187
Joined: Sun Jul 28, 2013 9:23 am

Re: What percentage of your net worth is your home equity?

Post by BrooklynInvest » Tue Dec 11, 2018 8:39 pm

More than 60% of net worth.

I guess I bought too much house ;-)

wootwoot
Posts: 414
Joined: Tue Jan 27, 2009 7:37 pm

Re: What percentage of your net worth is your home equity?

Post by wootwoot » Tue Dec 11, 2018 8:39 pm

My home equity isn't part of my net worth. Why would you count it?

TLB
Posts: 68
Joined: Wed Nov 30, 2016 5:04 pm

Re: What percentage of your net worth is your home equity?

Post by TLB » Tue Dec 11, 2018 8:58 pm

The reason I have always used my real estate in my net worth was for my business. When you ask a bank for a line of credit and have to personally guarantee the loan, the bank wants to know all your net-worth.

There are other reasons to include real estate, Umbrella insurance, asset protection, estate planning.

I probably have too much of a house right now, it’s only 3.25% of my net worth and paid for.

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: What percentage of your net worth is your home equity?

Post by Bacchus01 » Tue Dec 11, 2018 9:04 pm

Blueskies123 wrote:
Tue Dec 11, 2018 4:20 pm
My house is paid off. I do not think of my house as part of my portfolio. I cannot spend it to buy food, I would have to move.
The question was about net worth, not investable assets. Your house is part of your net worth

GoldenFinch
Posts: 2006
Joined: Mon Nov 10, 2014 11:34 pm

Re: What percentage of your net worth is your home equity?

Post by GoldenFinch » Tue Dec 11, 2018 9:15 pm

About 11%.

GCD
Posts: 1003
Joined: Tue Sep 26, 2017 7:11 pm

Re: What percentage of your net worth is your home equity?

Post by GCD » Tue Dec 11, 2018 9:16 pm

wootwoot wrote:
Tue Dec 11, 2018 8:39 pm
My home equity isn't part of my net worth.
Bacchus01 wrote:
Tue Dec 11, 2018 9:04 pm
Your house is part of your net worth
Fight! Fight! Fight! :twisted: :beer

Locked