When calculating net worth, how do you value your house?
Re: When calculating net worth, how do you value your house?
I value my house (and rentals) at cost on my monthly net worth statements. When I make capital improvements (new HVAC, new flooring) then I add that to the cost. This makes it easy for me to track my cost basis over time, and it also keeps my net worth statement simpler so that I am not trying to guess at market values over time. At this point it's led to about a 10% discrepancy between my actual net worth (real value of RE) and what I have stated on my net worth statement, but I don't mind. I'm really trying to track how much difference I'm making to my net worth monthly, and inflating my net worth as RE increases in value would cloud that measurement anyway.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Re: When calculating net worth, how do you value your house?
Or because they have a number at which they have determined that they are financially independent and make life choices accordingly.chevca wrote: ↑Wed Sep 06, 2017 3:38 pm
But let's be honest, once someone's net worth gets into the hundreds of thousands of dollars, they're just tracking it to make themselves feel good or for bragging rights. They have a pretty good handle on finances at that point and there's really no need to track net worth. Other than to use it to figure out how much umbrella insurance to carry, maybe.
FI is goal and Net Worth is tracking mechanism to that goal.
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Re: When calculating net worth, how do you value your house?
I use my own rough estimate. I update that field in my spreadsheet infrequently.
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Re: When calculating net worth, how do you value your house?
I had an appraisal done for a refi two years ago and just use that less the 7% transaction cost if I were to sell it. Zillow is not useful for my city (they admit as much), and I see little value in tracking on a monthly or even annual basis. I will revisit in a few years if the market seems to have changed drastically. One has to recognize that you are only going to get an estimate until you actually close.
As for why include- because it paints an reasonably accurate picture of my overall financial situation. If I wanted to sell everything tomorrow and move to a tropical Island, the idea is my net worth number woudl tell me if I could do it, and how comfortably. Or, if I lost my job and wanted to downsize my lifestyle, my net worth number tells me where I stand without income.
Net worth isn't always the best metric for evaluating one's personal situation. For example, you may have a high net worth but be facing a liquidity crisis. In that case, net worth may not tell the whole story. Likewise, when a company reports its results, it may use different metrics. For example, you could look at GAAP Income, EBITDA, or Free Cash flow in evaluating a company's quarterly performance. Different metrics tell you different things. Arguing that net worth should not include primary residence equity is like saying EBITDA should include taxes. The whole point of that metric is that it doesn't include things like taxes. If you want to include them, use a different metric for your evaluation.
As for why include- because it paints an reasonably accurate picture of my overall financial situation. If I wanted to sell everything tomorrow and move to a tropical Island, the idea is my net worth number woudl tell me if I could do it, and how comfortably. Or, if I lost my job and wanted to downsize my lifestyle, my net worth number tells me where I stand without income.
Net worth isn't always the best metric for evaluating one's personal situation. For example, you may have a high net worth but be facing a liquidity crisis. In that case, net worth may not tell the whole story. Likewise, when a company reports its results, it may use different metrics. For example, you could look at GAAP Income, EBITDA, or Free Cash flow in evaluating a company's quarterly performance. Different metrics tell you different things. Arguing that net worth should not include primary residence equity is like saying EBITDA should include taxes. The whole point of that metric is that it doesn't include things like taxes. If you want to include them, use a different metric for your evaluation.
Re: When calculating net worth, how do you value your house?
Fair enough. If there's a goal number trying to be reached, that would be a reason to track it. But, I would venture a guess many out there don't track it for that reason.WhyNotUs wrote: ↑Wed Sep 06, 2017 3:52 pmOr because they have a number at which they have determined that they are financially independent and make life choices accordingly.chevca wrote: ↑Wed Sep 06, 2017 3:38 pm
But let's be honest, once someone's net worth gets into the hundreds of thousands of dollars, they're just tracking it to make themselves feel good or for bragging rights. They have a pretty good handle on finances at that point and there's really no need to track net worth. Other than to use it to figure out how much umbrella insurance to carry, maybe.
FI is goal and Net Worth is tracking mechanism to that goal.
Re: When calculating net worth, how do you value your house?
What similar houses nearby are actually selling for (sold price, not listing price), minus 7% for realtor commission and transfer taxes, minus mortgage balance.
Re: When calculating net worth, how do you value your house?
I average the fair market value that Zillow, Redfin, and Home.com give.
Gordon
Re: When calculating net worth, how do you value your house?
As you might already know, there's also NYC DOB public info that would be useful when you assess your neighbor's sale: the estimated cost of the renovations your neighbor made when the work permit was acquired.
You can review all your building's past work permits at: http://a810-bisweb.nyc.gov/bisweb/bispi00.jsp
One of the A2 jobs will be your neighbor's and it will have an "Estimated Cost" listed in the top right corner.
You can review all your building's past work permits at: http://a810-bisweb.nyc.gov/bisweb/bispi00.jsp
One of the A2 jobs will be your neighbor's and it will have an "Estimated Cost" listed in the top right corner.
Re: When calculating net worth, how do you value your house?
I include home value in networth, since that becomes important for estate planning.
We will probably sell and move when I retire, so at some point the value of the home does matter.
I used to average the values suggested by various sites. But I decided there was no reason to think this was more accurate. I watch zillow for its accuracy in my neighborhood. It wanders from amazingly good to amazingly bad. If I used more sites, I would have to watch more sites to have an opinion about accuracy.
We will probably sell and move when I retire, so at some point the value of the home does matter.
I used to average the values suggested by various sites. But I decided there was no reason to think this was more accurate. I watch zillow for its accuracy in my neighborhood. It wanders from amazingly good to amazingly bad. If I used more sites, I would have to watch more sites to have an opinion about accuracy.
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Re: When calculating net worth, how do you value your house?
I offset the equity in my home by the need for a place to live. Perfect balance!cadreamer2015 wrote: ↑Wed Sep 06, 2017 8:30 am I don't usually think much about the value of my house in a net worth calculation - we've got to live somewhere.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Re: When calculating net worth, how do you value your house?
I take the average of redfin, zillow, and trulia and then multiply by 0.94 to account for liquidating value after commission. Good enough for my purposes.
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Re: When calculating net worth, how do you value your house?
If your networth approaches the estate tax limit for your state or the federal limit you better include your home in your NW calculation. Or you don't have to if you enjoy having your money go to tax instead of your heirs/charity of choice.
If you are just calculating NW to keep score/track progress then do whatever you feel best represent your situation.
If you are just calculating NW to keep score/track progress then do whatever you feel best represent your situation.
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Re: When calculating net worth, how do you value your house?
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Last edited by letsgobobby on Wed Oct 23, 2019 12:30 am, edited 1 time in total.
Re: When calculating net worth, how do you value your house?
No I might save money living in my house but I can not use the money in the house. The only way I could use it is to downsize since I don't like to rent.
Disclaimer: You might lose money doing anything I say. Although that was not my intent. |
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Re: When calculating net worth, how do you value your house?
I guess when I paid off my house a few years ago with a lump sum of mid five figures or so my net worth magically decreased by that amount according to some. Maybe when I buy my next house I'll just finance it and instantly increase my net worth a few hundred thousand.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
Re: When calculating net worth, how do you value your house?
+1 to letsgobobby, there are valid reasons to understand net worth. It is not about bragging rights.letsgobobby wrote: ↑Fri Sep 08, 2017 4:45 pmit can be very important to track net worth for estate planning. unless you consider estate planning "bragging" or "making oneself feel good."chevca wrote: ↑Wed Sep 06, 2017 4:42 pmFair enough. If there's a goal number trying to be reached, that would be a reason to track it. But, I would venture a guess many out there don't track it for that reason.WhyNotUs wrote: ↑Wed Sep 06, 2017 3:52 pmOr because they have a number at which they have determined that they are financially independent and make life choices accordingly.chevca wrote: ↑Wed Sep 06, 2017 3:38 pm
But let's be honest, once someone's net worth gets into the hundreds of thousands of dollars, they're just tracking it to make themselves feel good or for bragging rights. They have a pretty good handle on finances at that point and there's really no need to track net worth. Other than to use it to figure out how much umbrella insurance to carry, maybe.
FI is goal and Net Worth is tracking mechanism to that goal.
I'll mention the list for reasons to include home in your net worth, though for some reason, I cannot get bogleheads to acknowledge any of these points ... it baffles me, they are not unique to me, and recommended writers such as Jane Bryant Quinn make these points.
- For estate planning, as noted above. The house is part of the estate, maybe a big part.
- As a means to help pay for long term care, via downsizing, a reverse mortgage, or a sale followed by move to retirement community. Given the periodic questions about "do I need LTCI" it's puzzling to me people don't consider home value/their net worth when doing retirement planning
Re: When calculating net worth, how do you value your house?
We take the Zillow value and subtract 15-20%. Helps account for realtor fees, comp/pricing inaccuracies, and repair costs that might be necessary when getting the house ready for sale. We pay less attention to net worth each year and focus more on invested assets & cash as we'll always need a place to live.
Re: When calculating net worth, how do you value your house?
It's really not the majority of Bogleheads who torture the definition of net worth. The definition is incontrovertible but there is a contingent of folks who insist on their own home brewed recipe. Frankly, it's a head-scratcher.TN_Boy wrote: ↑Fri Sep 08, 2017 10:04 pmI'll mention the list for reasons to include home in your net worth, though for some reason, I cannot get bogleheads to acknowledge any of these points ... it baffles me, they are not unique to me, and recommended writers such as Jane Bryant Quinn make these points.
Re: When calculating net worth, how do you value your house?
A great quote by Daniel Patrick Moynihan comes to mind while reading this thread.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
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Re: When calculating net worth, how do you value your house?
I use the price similar homes sell for. Over the years, Zillow has provided a decent estimate for our home but has probably underestimated a bit some years and overestimated other years.
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Re: When calculating net worth, how do you value your house?
We use Airbnb for part of the house and value it as net income before taxes÷2.5 as that is how much I would have in a CD to earn the same income. It is pretty close to the Zillow value, incidentally.
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I don't
At zero$.
We have to live somewhere.
You ask me my net worth and I will reply with the sum of: stocks, bonds, cash.
No car. No house.
We have to live somewhere.
You ask me my net worth and I will reply with the sum of: stocks, bonds, cash.
No car. No house.
Re: I don't
You don't have to live in your current house and if you have $0 elsewhere but (relatively) significant value in your house you would probably be a fool to not consider it as part of your assets and re-evaluate if you aren't spending too much on housing relative to your other needs.FraggleRock wrote: ↑Sat Sep 09, 2017 12:49 pm At zero$.
We have to live somewhere.
You ask me my net worth and I will reply with the sum of: stocks, bonds, cash.
No car. No house.
All hiding it does is make it more difficult to make rational decisions.
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Re: I don't
I agree. As the years have gone on, we don't include vehicles, kids college funds, or the HSA account. I stopped calculating or including home equity. Most financial applications or agreements may say Net Worth excluding home equity.FraggleRock wrote: ↑Sat Sep 09, 2017 12:49 pm At zero$.
We have to live somewhere.
You ask me my net worth and I will reply with the sum of: stocks, bonds, cash.
No car. No house.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: When calculating net worth, how do you value your house?
I was just going to come here and say something similar. I just sold my house and I'm using about $40k of the proceeds to refi & pay down the mortgage of the condo I am living in to get my payments down. Does my net worth suddenly drop my $40K when I refinance?Candor wrote: ↑Fri Sep 08, 2017 7:40 pm I guess when I paid off my house a few years ago with a lump sum of mid five figures or so my net worth magically decreased by that amount according to some. Maybe when I buy my next house I'll just finance it and instantly increase my net worth a few hundred thousand.
The idea that the value of your house isn't included in net worth makes no sense to me.
Re: When calculating net worth, how do you value your house?
Since something is worth only what someone will pay for it: I use comps from what similar homes have recently sold for in my neighborhood MINUS a 6% realtor commission.
Re: When calculating net worth, how do you value your house?
Just because something is not immediately liquid doesn't mean it has no value. That's why we have markets (stock, real estate, autos): to tell us what things should be worth at any given moment.
If you would not use your home equity (estimated value - mortgage balance) in your net worth calculation, then by the same token you should not use your stocks, either, because they are just numbers on a computer screen...and these numbers may drop by half tomorrow. Or my $1 share of Widgetco may be worth a nickel, or ten dollars.
But, here is a real-world example of why it can be tricky when it comes to real estate:
I have a home in [Key West, Naples, Marco Island] that, last week, I owned outright. It was "worth" $1m, according to Zillow. But, I did not have flood insurance. Or, I didn't have enough.
Today, that $1m home is "worth" a lot less. Maybe it's not zero, since land has value, not just structures. But, the value of my assets has decreased.
Here's a similar example, but with stocks.
Let's say last week I owned $1m in shares of Insurer X, a company that last week had a stock price of $10. Today, after paying out all their flood claims, the company becomes insolvent and has declared bankruptcy and the share are now worthless.
Is there a material difference, to me?
If you would not use your home equity (estimated value - mortgage balance) in your net worth calculation, then by the same token you should not use your stocks, either, because they are just numbers on a computer screen...and these numbers may drop by half tomorrow. Or my $1 share of Widgetco may be worth a nickel, or ten dollars.
But, here is a real-world example of why it can be tricky when it comes to real estate:
I have a home in [Key West, Naples, Marco Island] that, last week, I owned outright. It was "worth" $1m, according to Zillow. But, I did not have flood insurance. Or, I didn't have enough.
Today, that $1m home is "worth" a lot less. Maybe it's not zero, since land has value, not just structures. But, the value of my assets has decreased.
Here's a similar example, but with stocks.
Let's say last week I owned $1m in shares of Insurer X, a company that last week had a stock price of $10. Today, after paying out all their flood claims, the company becomes insolvent and has declared bankruptcy and the share are now worthless.
Is there a material difference, to me?
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Re: When calculating net worth, how do you value your house?
In the rare times that I calculate my NW (my focus is usually on either college saving or retirement savings; NW is somewhat irrelevant in my opinion) I just look at Zillow and round down to the nearest 100K
Re: I don't
FraggleRock (and others with the same viewpoint),FraggleRock wrote: ↑Sat Sep 09, 2017 12:49 pm At zero$.
We have to live somewhere.
You ask me my net worth and I will reply with the sum of: stocks, bonds, cash.
No car. No house.
I'm genuinely curious, of the arguments advanced above about why you need to think about your housing as part of your net worth, do you find those arguments totally incorrect, unconvincing, or simply irrelevant?
Here is a current thread where the equity in a house might be used as part of paying for long term care:
viewtopic.php?f=1&t=227384&newpost=3527 ... ead#unread
You have to live somewhere. It might not be where you think.
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Can I really plan ahead for 20+ years?
Irrelevant in that the earliest projected sell date of our house (to move to the old folks home) is 27 years from now.
It has no impact on asset distribution and spending plans for 20+ years.
Re: When calculating net worth, how do you value your house?
I find these discussions on net worth calculations confusing. Net worth is legally defined as including home equity. There is no fuzz on this.
Definition references:
* https://www.merriam-webster.com/legal/net%20worth
* IRS considers net worth as inclusive of home equity. For example, IRS Form 8854 at https://www.irs.gov/pub/irs-pdf/f8854.pdf . There is a worksheet on page 5: schedule A that shows how IRS calculates net worth which includes home equity.
Is there any source of legal significance where net worth is defined without being inclusive of home equity? I haven't seen any.
It’s fine if you don’t see value in the net worth and want to use something else. But please don’t use the net worth terminology for something that isn't net worth. Net investable assets or retirement savings is a fine metric to use in some scenarios. For some folks net worth is a key metric (moving from VHCOL to LCOL for retirement; estate planning; etc), if you plan to stay in the house for next few decades it could be less useful.
Definition references:
* https://www.merriam-webster.com/legal/net%20worth
* IRS considers net worth as inclusive of home equity. For example, IRS Form 8854 at https://www.irs.gov/pub/irs-pdf/f8854.pdf . There is a worksheet on page 5: schedule A that shows how IRS calculates net worth which includes home equity.
Is there any source of legal significance where net worth is defined without being inclusive of home equity? I haven't seen any.
It’s fine if you don’t see value in the net worth and want to use something else. But please don’t use the net worth terminology for something that isn't net worth. Net investable assets or retirement savings is a fine metric to use in some scenarios. For some folks net worth is a key metric (moving from VHCOL to LCOL for retirement; estate planning; etc), if you plan to stay in the house for next few decades it could be less useful.
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Re: When calculating net worth, how do you value your house?
Not in favor of including primary home's equity in net worth calculation - can't sell part of the house to pay for an emergency. Gotta live somewhere.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
Re: When calculating net worth, how do you value your house?
Can rent/buy a place anywhere, you can't sell parts of shares either - so what?Sunny Sarkar wrote: ↑Mon Sep 11, 2017 10:19 pmNot in favor of including primary home's equity in net worth calculation - can't sell part of the house to pay for an emergency. Gotta live somewhere.
Re: When calculating net worth, how do you value your house?
That reference actually supports the legal definition. See https://en.wikipedia.org/wiki/Accredite ... ted_States
Ref: "In the United States, to be considered an accredited investor, one must have a net worth of at least $1,000,000, excluding the value of one's primary residence"
The metric they're using is "net worth excluding primary residence". They're using the standard definition of "net worth" which is inclusive of home equity and then adding on a formula to take it away.
Having metrics such as "net worth excluding primary residence" , "net investable assets", "retirement assets" is consistent with legal definitions, just don't call them "net worth"
Last edited by mchriton on Mon Sep 11, 2017 11:01 pm, edited 2 times in total.
Re: When calculating net worth, how do you value your house?
That's not how it is described in the regs.mchriton wrote: ↑Mon Sep 11, 2017 10:31 pmThat reference actually supports the legal definition. See https://en.wikipedia.org/wiki/Accredite ... ted_States
Ref: "In the United States, to be considered an accredited investor, one must have a net worth of at least $1,000,000, excluding the value of one's primary residence"
The metric they're using is "net worth excluding primary residence". They're using the standard definition of "net worth" which is inclusive of home equity and then adding on a formula to take it away.
Having metrics such as "net worth excluding primary residence" , "net investable assets", "retirement assets" is consistent with legal definitions, just don't call them "net worth"
Seriously, this isn't really relevant to the broader question of whether including real estate in your net worth is the right thing to do - but rather than acknowledge that I provided you with an example where the law uses 'net worth' in a way that excludes home equity you try and make a hermenutical exegesis of Wikipedia's entry when a simple look at the legal definition should have satiated your curiosity.(5) Any natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1,000,000.
(i) Except as provided in paragraph (a)(5)(ii) of this section, for purposes of calculating net worth under this paragraph (a)(5):
(A) The person's primary residence shall not be included as an asset;
Re: When calculating net worth, how do you value your house?
A cash out refinance or reverse mortgage does allow you to pull equity out of a home if you needed the cash. Not always optimal but it can be done.Sunny Sarkar wrote: ↑Mon Sep 11, 2017 10:19 pmNot in favor of including primary home's equity in net worth calculation - can't sell part of the house to pay for an emergency. Gotta live somewhere.
Re: When calculating net worth, how do you value your house?
What is the broader question? There are two points of contention in this thread:avalpert wrote: ↑Mon Sep 11, 2017 10:56 pm Seriously, this isn't really relevant to the broader question of whether including real estate in your net worth is the right thing to do - but rather than acknowledge that I provided you with an example where the law uses 'net worth' in a way that excludes home equity you try and make a hermenutical exegesis of Wikipedia's entry when a simple look at the legal definition should have satiated your curiosity.
1.) Terminology - whether net worth is defined as inclusive or exclusive of primary residence (see many of the first comments on this thread).
2.) Planning - what metric is best used for planning purposes (e.g.: net worth vs net investable assets)
It's hard to get to #2 without using the same language
For #1, I think too much time has been spent arguing on terminology. I haven't seen anything that disputes definition at https://www.merriam-webster.com/legal/net%20worth which defines NW as inclusive of primary residence. The regs you linked to are interesting, thanks! My read of the them is aligned with the wikipedia summary, that is the calculation and metric produced is "net worth excluding primary residence" (to summarize the four bullets in the regs).
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Re: When calculating net worth, how do you value your house?
Of course the equity of your home should be included in your net worth calculations. If you owed $200,000 on your home and you withdrew $200,000 from your investment to pay off your home, your net worth shouldn't be down $200,000 in one day; you would have $200K less in investable assets but $200K more in your home equity.
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Re: When calculating net worth, how do you value your house?
I use the purchase/appraisal price. The house is not a very liquid asset, so I don't mind if the figure it a little "stale". I also look at price indexes for the area on a yearly basis to get a rough idea of how the value is probably evolving.
87.5:12.5, EM tilt — HODL the course!
Re: When calculating net worth, how do you value your house?
I'd say that captures the broader question, but you are the one who introduced definitions of legal significance - a category that very often will deviate from common usage and even consistent usage across the law. I showed you that there is a legal definition of significance that explicitly defines 'net worth' as excluding primary residence. You then twist yourself in knots to say the regs aren't defining 'net worth' (despite literally saying 'for purpose of calculating net worth', not for purpose of calculating 'net worth excluding primary residence') rather than just acknowledge there is a legal definition out there that does so. I could have thrown in other regulatory definitions that were similar (VA's definition for the purpose of calculating it also excluding primary residences on less than 2 acres of land - I believe they scrapped net worth as a criteria altogether a couple of years ago).mchriton wrote: ↑Tue Sep 12, 2017 12:03 amWhat is the broader question? There are two points of contention in this thread:avalpert wrote: ↑Mon Sep 11, 2017 10:56 pm Seriously, this isn't really relevant to the broader question of whether including real estate in your net worth is the right thing to do - but rather than acknowledge that I provided you with an example where the law uses 'net worth' in a way that excludes home equity you try and make a hermenutical exegesis of Wikipedia's entry when a simple look at the legal definition should have satiated your curiosity.
1.) Terminology - whether net worth is defined as inclusive or exclusive of primary residence (see many of the first comments on this thread).
2.) Planning - what metric is best used for planning purposes (e.g.: net worth vs net investable assets)
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Re: When calculating net worth, how do you value your house?
Just a reminder, real estate commissions can be killer... i would recommend that you value your house at 94% (or some other number) of the "value" that you come up with.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Re: When calculating net worth, how do you value your house?
I can't believe we're even having this discussion. Anyone with a day of financial/accounting experience knows Net Worth is Assets - Liabilities. To argue otherwise is ignorant. If you want to exclude home equity in your personal situation, fine, just don't call it your Net Worth----call it something like Investable Assets.
Re: When calculating net worth, how do you value your house?
I suspect part of the reason people want to exclude home value is their emotional attachment to their home.
Personally, my situation was different. I bought a home with cash that I really would have preferred not to buy. I needed to be in a particular school district and there were pretty much no rentals to be had. When we "age out" of personally having kids in k12 we will likely move.
If I rented I would have the SWR of the proceeds of the house plus no property taxes and cheaper renters vs homeowners insurance. This amount would produce an exceptable housing budget IMO.
Also our house is only 10-12% of the total. I don't feel much richer with it included or poorer without it included
Personally, my situation was different. I bought a home with cash that I really would have preferred not to buy. I needed to be in a particular school district and there were pretty much no rentals to be had. When we "age out" of personally having kids in k12 we will likely move.
If I rented I would have the SWR of the proceeds of the house plus no property taxes and cheaper renters vs homeowners insurance. This amount would produce an exceptable housing budget IMO.
Also our house is only 10-12% of the total. I don't feel much richer with it included or poorer without it included
Re: When calculating net worth, how do you value your house?
Or a HELOC. There are lots of ways to use the equity in one's house. Most of them would not be my first choice of funding -- but the option is there. Sort of like an emergency fund; you'd rather not use it, but you know its there ... and how big it is ..... if you track that sort of thing ....mervinj7 wrote: ↑Mon Sep 11, 2017 11:13 pmA cash out refinance or reverse mortgage does allow you to pull equity out of a home if you needed the cash. Not always optimal but it can be done.Sunny Sarkar wrote: ↑Mon Sep 11, 2017 10:19 pmNot in favor of including primary home's equity in net worth calculation - can't sell part of the house to pay for an emergency. Gotta live somewhere.
For non-emergency uses, a HELOC can sometimes be used to avoid a contingency sale when you are buying another house.
Re: When calculating net worth, how do you value your house?
mnnice wrote: ↑Tue Sep 12, 2017 8:11 am I suspect part of the reason people want to exclude home value is their emotional attachment to their home.
Personally, my situation was different. I bought a home with cash that I really would have preferred not to buy. I needed to be in a particular school district and there were pretty much no rentals to be had. When we "age out" of personally having kids in k12 we will likely move.
If I rented I would have the SWR of the proceeds of the house plus no property taxes and cheaper renters vs homeowners insurance. This amount would produce an exceptable housing budget IMO.
Also our house is only 10-12% of the total. I don't feel much richer with it included or poorer without it included
In addition to your reason, I think when people consider retirement funding, they correctly plan on using their investable assets + SS + pensions to fund spending. Use of the home equity tends to be a later stage situation (downsizing, LTC, or a financial disaster). Though I mention one situation above where a HELOC might be useful in a non-emergency situation. It's wise to know your net worth, rather than ignore it.
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Re: When calculating net worth, how do you value your house?
Agreed. For what it is worth, I understand the desire to EXCLUDE home value from calculations because it is illiquid and values can be a bit squishy. BUT, that is why I do a separate calculation on Investable Assets. I see them as two different things, both worthy of calculation tracking.Flashes1 wrote: ↑Tue Sep 12, 2017 7:33 am I can't believe we're even having this discussion. Anyone with a day of financial/accounting experience knows Net Worth is Assets - Liabilities. To argue otherwise is ignorant. If you want to exclude home equity in your personal situation, fine, just don't call it your Net Worth----call it something like Investable Assets.
Re: When calculating net worth, how do you value your house?
If you don't think your home should be valued as an asset that can be exchanged for currency, I suggest calling your insurance company and telling them you want to cancel your policy. Or do the same thing with your mortgage co. I think they'd give you an argument.
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Re: When calculating net worth, how do you value your house?
I've never understood why I'd need to know my net worth, other than to feel smug or to convince some advisory services to let me pay them fees. What's it good for, exactly?
But, sure, I've calculated my net worth from time to time. Our local laws require that houses be assessed at their full value, so I've just used the assessed value on the real estate tax bill. Nowadays I guess I might also consider using Zillow. In the years when I hadn't paid off my mortgage, I always treated what was owing on my mortgage is negative net worth, i.e. I always deducted major debts from my net worth.
It's never happened, but if someone needed to know my net worth and I wanted to tell them, I'd just ask them how they wanted it calculated.
Sure, my house has a dollar value but there's no way to find out what it is except to sell it and see what someone will pay for it. It's highly illiquid, and it can't be bought or sold fractionally, it can't be rebalanced, and we need it to live in. It's not an investment, it's shelter. Just because you can assign a dollar value to something as some kind of bull-session thought experiment doesn't mean it's a sensible thing to do. Why does it make sense to include the number of dollars you think you might get for your house if you sold it, when you aren't going to sell it, in your net worth... and not include the net present value of your future earned income?
But, sure, I've calculated my net worth from time to time. Our local laws require that houses be assessed at their full value, so I've just used the assessed value on the real estate tax bill. Nowadays I guess I might also consider using Zillow. In the years when I hadn't paid off my mortgage, I always treated what was owing on my mortgage is negative net worth, i.e. I always deducted major debts from my net worth.
It's never happened, but if someone needed to know my net worth and I wanted to tell them, I'd just ask them how they wanted it calculated.
Sure, my house has a dollar value but there's no way to find out what it is except to sell it and see what someone will pay for it. It's highly illiquid, and it can't be bought or sold fractionally, it can't be rebalanced, and we need it to live in. It's not an investment, it's shelter. Just because you can assign a dollar value to something as some kind of bull-session thought experiment doesn't mean it's a sensible thing to do. Why does it make sense to include the number of dollars you think you might get for your house if you sold it, when you aren't going to sell it, in your net worth... and not include the net present value of your future earned income?
Last edited by nisiprius on Tue Sep 12, 2017 9:37 am, edited 1 time in total.
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Re: When calculating net worth, how do you value your house?
Glances through this thread - what's interesting is that I don't think (unless I missed it) anyone asked the OP what his/her/their "Purpose" of calculating networth is. The answer certainly depends upon the goal on whether or not it should be included.