FYI: Don't include home equity in net worth

[Anonymous]

As someone who is selling my primary resid, splitting the equity with my soon to be ex, and renting for a while, I beg to differ with OP.

Home equity is an important part of Net Worth

[Anonymous]

This is all so stupid.

You are not counting "net worth" for a legal document. You are counting it for some other reason - to figure out if you have cash flow to retire, or to decide if you are a multi-millionaire, or to decide if you should take out a HELOC, or to decide if you can brag to your in-laws about it. Or for some other reason.

Figure out why you are calculating "net worth". Then either count your home equity accordingly - or don't count it accordingly.

[Anonymous]

The notion that home equity is null for “financial planning purposes” may have a shred of truth. For example, if your financial plan requires that you have no mortgage, then you can’t easily access the equity without changing the financial plan. Of course, that doesn’t change the fact that home equity is an asset and that financial plans can be changed (for example, downsize the house and liberate the equity or do a reverse mortgage).

[Anonymous]

Nonsense

[Anonymous]

FYI: OP is an idiot.

[Anonymous]

If you died today, what assets would be included in your estate? Tally the value of those assets, subtract your outstanding debts, and there's your net worth. Your home equity absolutely factors in there, and for many people it's their largest asset.

[Anonymous]

Anonymous wrote:This is all so stupid.

You are not counting "net worth" for a legal document. You are counting it for some other reason - to figure out if you have cash flow to retire, or to decide if you are a multi-millionaire, or to decide if you should take out a HELOC, or to decide if you can brag to your in-laws about it. Or for some other reason.

Figure out why you are calculating "net worth". Then either count your home equity accordingly - or don't count it accordingly.

+1

[Anonymous]

Anonymous wrote:I don’t count the home we need to have a roof over our heads but equity in other real estate absolutely counts. We have three homes - the one I don’t count in NW is the one we will live in when we retire.

But that roof over your head is part of your net worth by the Definition of net worth "total assets minus total liabilities". If you needed to, you could sell your home get the equity and use it for something else (and live in a rental). The fact is while it's not easily/smartly accessible money it is still part of your net worth.

[Anonymous]

The real way to do it would be to adjust the equity in the house for present value of anticipated upkeep. Like if you have 250K in equity but you know it needs a new roof and a new kitchen in the short term, it’s probably only really 150K in equity. But this is too hard for most people to figure/anticipate.

[Anonymous]

Posts like this are a reminder that this forum is a terrible place to get financial advice from.

[Anonymous]

That doesn't make any sense. You need a place to live. If you bought and build equity, some day you WILL make money selling your house. Obviously the amount is not fully clear, but with a house I bought for 450k and have 350k in equity into, now valued at 850k, there is no way I will not make money when I sell. And our expenses for the house will never be so high I won't make money selling when we do a few years from now. I could see that for people who keep doing a bunch of renos, but not with normal upkeep.

[Anonymous]

Of course primary housing counts in net worth. Now, whether net worth is a useful measure is a separate question.

[Anonymous]

This thread really just underscores the point that net worth is a fundamentally meaningless measure for most people — personally, I'd like to be able to plan not to have to sell my house in retirement (for instance), so I want my net worth to be whatever I need to retire on without calculating home equity at all.

Since it's also not a measure you ever really have to report to any official body in any way, it doesn't really matter whether you do or don't count your home equity in your planning.

It does seem pretty well beyond dispute that the definition of net worth includes your home equity. But it's also true that the value of your home really only exists on paper until you sell it, so it's inherently a bit arbitrary.

[Anonymous]

Anonymous wrote:Net Worth = investments that make money like saving accounts, bonds, stocks, brokerage and rental property (just the net income).

Here's why. NW is a calculation of assets that are making money for you. Your house is a cost center. Tax, repairs, ect. Even if you have equity, it still doesn't count because you don't really know what you'll earn until you get that check on closing day.

Feel free to argue all you want but it's true for financial planning purposes.

Net worth has an actual definition, which is not your made up definition. Your definition is nonsense. What does 'assets that are making money' even supposed to mean? By your definition, nondividend paying equities shouldn't be included in your net worth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Net Worth = investments that make money like saving accounts, bonds, stocks, brokerage and rental property (just the net income).

Here's why. NW is a calculation of assets that are making money for you. Your house is a cost center. Tax, repairs, ect. Even if you have equity, it still doesn't count because you don't really know what you'll earn until you get that check on closing day.

Feel free to argue all you want but it's true for financial planning purposes.

This is factually inaccurate. NW is a caculation of all assets minus all liabilities. It's not a calculation of investments or interest bearing assets. I don't understand why we have to have these posts every six weeks with a presumably new OP demanding that the definition of NW be ignored by everyone on Earth or redrafted to suit their preference instead of people just saying "I don't find NW as useful as invested assets, so that's the number I focus on in my planning".

100%. OP is ridiculous.

Agree.