Do you include your home equity in net worth ?

[Anonymous]

Of course. Our fully paid off 2 homes (in the 2-3M range each) are about 25% of our net worth.
They are not liquid assets but certainly part of our net worth. When we die, the kids/estate can choose to sell them and distribute the cash.

[Anonymous]

Anonymous wrote:

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 ?

You may need a place to live, but you likely don't need a 5 bedroom, 4 bath 3500sq ft+ home to live in. You can choose to downsize to a 1-2bedroom condo/townhome that costs less.

[Anonymous]

Anonymous wrote:

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.

You can always sell it and buy a cheaper place or invest money and live in a studio rental.

But that’s exactly why I don’t factor it into my calculations. I want to make sure I have enough other money that I don’t have to do that.

[Anonymous]

Thought experiment - if your home doubled in value, would you consider your net worth to be higher? What if your home value plummeted, would you consider yourself to be poorer or would you not care because you are still deriving value from living in it?

[Anonymous]

I don’t, event thought it’s paid off. I do consider paid off rentals in the equation.

[Anonymous]

Anonymous wrote:Thought experiment - if your home doubled in value, would you consider your net worth to be higher? What if your home value plummeted, would you consider yourself to be poorer or would you not care because you are still deriving value from living in it?

No neither. Until I sell it, it’s only worth that on paper. It’s an unrealized gain. And if I’m selling in an up market, the next place I buy costs more too.

[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.

Yes this is how I do it too. If asked for my NW I include my home value but when asked for my number for retirement, I don't include it.

[Anonymous]

Anonymous wrote:

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.

ARGHH, CALCULATE WHATEVER THE HELL YOU WANT, BUT WORDS HAVE MEANINGS — NET WORTH INCLUDES HOME EQUITY! This is such a pet peeve of mine.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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.

ARGHH, CALCULATE WHATEVER THE HELL YOU WANT, BUT WORDS HAVE MEANINGS — NET WORTH INCLUDES HOME EQUITY! This is such a pet peeve of mine.

Very true but person A has home equity of $800k and cash of $200k and person B has equity of $200k and cash of $800k. Their net worth is exactly the same at $1 million. Which would you choose? It’s like looking at a company’s earnings. Two companies could have the same earnings but savvy investors will look at the quality of earnings in terms of their valuation.

[Anonymous]

I bought a condo to live in with cash a few months ago. I don't consider it a part of my net worth because it doesn't produce any income and I don't plan on selling it anytime soon. That also helps me avoid the issue of trying to value the condo each month when I update my net worth spreadsheet.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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.

ARGHH, CALCULATE WHATEVER THE HELL YOU WANT, BUT WORDS HAVE MEANINGS — NET WORTH INCLUDES HOME EQUITY! This is such a pet peeve of mine.

You must be fun to be around.. BTW, you've been outvoted here. Buh-bye!

[Anonymous]

Anonymous wrote:Of course. Our fully paid off 2 homes (in the 2-3M range each) are about 25% of our net worth.
They are not liquid assets but certainly part of our net worth. When we die, the kids/estate can choose to sell them and distribute the cash.

It's not a function of liquidity. Only one of them is your 'home', the other is an investment and should be included in your NW.

For your primary residence, include the portion of your home equity that you think is excessive. e.g. If the HE is $3M and you can sell that house and buy another for $1.2 and that's enough, then the $1.8 can be included in your NW if that's what makes you happy.

[Anonymous]

I include it. I have 2 fully paid off homes, about $4m value. It’s part of my estate for estate tax purposes, and we have now hit the current threshold so need to start doing some planning. We also plan to downsize one of the houses at some point.

I do a separate calculation of retirement income based on the income generation of investments and potential drawdown. Obviously that doesn’t include the houses.

[Anonymous]

I definitely include it but I don’t include it in my liquid asset spending bucket. In that same bucket I also don’t include 529’s.

[Anonymous]

What do all of you people use your "net worth" calculation for?