Do you include your home equity in net worth ?

[Anonymous]

Just trying to get an idea. Thanks

[Anonymous]

Of course. This is what makes up the bulk of the average American's nw.

[Anonymous]

Yes, of course.

[Anonymous]

Thank you. But how do you calculate the value of your house ? Do you take it from county assessments or sites like Zillow or Redfin ? Or is there any other source we can use ?

[Anonymous]

I understand academically it’s part of our net worth. But when we discuss our “number” (to retire) we don’t include it because we need a place to live and it’s also not throwing off income.

[Anonymous]

Anonymous wrote:I understand academically it’s part of our net worth. But when we discuss our “number” (to retire) we don’t include it because we need a place to live and it’s also not throwing off income.

Exactly. That’s my concern. I’m not comparing or competing with others. But would really like to know when people post their 1 million NW achieved here do they include their home equity or no ?

[Anonymous]

I track my finances fairly closely, and here is how I approach it.

First, for purposes of my calculations (I have a spreadsheet to record my asset values at set intervals), I value my house at roughly 90% of what I anticipate I could sell it at on the open market, informed mostly by an average of Zillow/Redfin/Trulia. I do this to take into account the equity value if I were to sell, as I'd need to cover commission, seller-side transaction taxes, other sale expenses that may arise, and a bit of buffer for sale price.

Second, using that value, I calculate my "net worth"--which is really just the total value of all our assets. Over the years, the categories have grown, and real estate value net of mortgage is one category.

Third, I also calculate where I stand with respect to my retirement-goal "walk-away" number. This number is a sub-set of net worth. It does not include any of our real estate assets, 529s, cars, personal property, etc. Rather, the walk-away number is based on investment + retirement accounts.

While I don't post numbers here often, if I were to post my "net worth," I would include all real estate equity (calculated as above), including principal residence. If I were to post my goal towards my "walk away" number, it would exclude real estate, among other things. So, for me at least, the answer to your question is a bit nuanced.

I'd presume that when most folks post their "NW," they are including home equity.

[Anonymous]

Anonymous wrote:Thank you. But how do you calculate the value of your house ? Do you take it from county assessments or sites like Zillow or Redfin ? Or is there any other source we can use ?

I use the Redfin Home Sale Earnings tool.

[Anonymous]

Anonymous wrote:I track my finances fairly closely, and here is how I approach it.

First, for purposes of my calculations (I have a spreadsheet to record my asset values at set intervals), I value my house at roughly 90% of what I anticipate I could sell it at on the open market, informed mostly by an average of Zillow/Redfin/Trulia. I do this to take into account the equity value if I were to sell, as I'd need to cover commission, seller-side transaction taxes, other sale expenses that may arise, and a bit of buffer for sale price.

Second, using that value, I calculate my "net worth"--which is really just the total value of all our assets. Over the years, the categories have grown, and real estate value net of mortgage is one category.

Third, I also calculate where I stand with respect to my retirement-goal "walk-away" number. This number is a sub-set of net worth. It does not include any of our real estate assets, 529s, cars, personal property, etc. Rather, the walk-away number is based on investment + retirement accounts.

While I don't post numbers here often, if I were to post my "net worth," I would include all real estate equity (calculated as above), including principal residence. If I were to post my goal towards my "walk away" number, it would exclude real estate, among other things. So, for me at least, the answer to your question is a bit nuanced.

I'd presume that when most folks post their "NW," they are including home equity.

Np.
Thank you; very helpful.

[Anonymous]

Anonymous wrote:I understand academically it’s part of our net worth. But when we discuss our “number” (to retire) we don’t include it because we need a place to live and it’s also not throwing off income.

This.

OP - I don't include the home equity of my primary residence in my number (aka net worth) for the exact reason stated above. Academically, the definition of Net Worth does include all your assets less all your liabilities, but life is not an academic exercise and you need to do what makes sense to you.

Including the value of your my primary home's equity gives you a false sense of security that you have more than what you really can realistically tap into. Not including is a more conservative and practical way to track 'net worth'.

At the end of the day, do what makes sense to you. Follow the text book or follow common sense.

[Anonymous]

Thank you

[Anonymous]

Anonymous wrote:I understand academically it’s part of our net worth. But when we discuss our “number” (to retire) we don’t include it because we need a place to live and it’s also not throwing off income.

I count it because I could always sell it and rent instead. Some assets that you own help you save money, but of course they are still convertible to cash. And what if it was worth $25MM? You would leave that off your net worth calc?

[Anonymous]

Yes, because that is how accountants calculate net worth.

Everything else is just content generation for clicks.

[Anonymous]

Anonymous wrote:I track my finances fairly closely, and here is how I approach it.

First, for purposes of my calculations (I have a spreadsheet to record my asset values at set intervals), I value my house at roughly 90% of what I anticipate I could sell it at on the open market, informed mostly by an average of Zillow/Redfin/Trulia. I do this to take into account the equity value if I were to sell, as I'd need to cover commission, seller-side transaction taxes, other sale expenses that may arise, and a bit of buffer for sale price.

Second, using that value, I calculate my "net worth"--which is really just the total value of all our assets. Over the years, the categories have grown, and real estate value net of mortgage is one category.

Third, I also calculate where I stand with respect to my retirement-goal "walk-away" number. This number is a sub-set of net worth. It does not include any of our real estate assets, 529s, cars, personal property, etc. Rather, the walk-away number is based on investment + retirement accounts.

While I don't post numbers here often, if I were to post my "net worth," I would include all real estate equity (calculated as above), including principal residence. If I were to post my goal towards my "walk away" number, it would exclude real estate, among other things. So, for me at least, the answer to your question is a bit nuanced.

I'd presume that when most folks post their "NW," they are including home equity.

What do you do with this very precise info?

[Anonymous]

If you notice posts around here, there are two sets of numbers that typically get reported: (1) net worth which includes home equity and (2) financial account totals at the "line item" level (e.g., retirement, brokerage, savings). Posters are right that if these two sets of numbers are out of balance, they can paint a deceptive picture. For example, a $1M net worth sounds solid...but if $900K of that's tied up in your house, you have a problem. I keep a simple spreadsheet that breaks it out as such balance sheet style. So, essentially how much my financial accounts contribute to my net worth and how much my home equity adds onto that.