Does net worth include equity in your house?

[Anonymous]

There seems to be some disagreement on this topic. Do you count house equity in your net worth calculations. If so, is the equity based on house value or the amount you paid for the house?

[Anonymous]

Yes

[Anonymous]

Yes

[Anonymous]

Value of the house lesser amount you owe on it and any fees you'd have to pay to sell it.

[Anonymous]

Anonymous wrote:There seems to be some disagreement on this topic. Do you count house equity in your net worth calculations. If so, is the equity based on house value or the amount you paid for the house?

Technically, yes (proper accounting principle). Practically, no (you'll need a roof to live under at all times so best to keep it out of your net worth for "how much do I need to retire on" calculation).

[Anonymous]

Yes

[Anonymous]

Yes.

[Anonymous]

Anonymous wrote:

Anonymous wrote:There seems to be some disagreement on this topic. Do you count house equity in your net worth calculations. If so, is the equity based on house value or the amount you paid for the house?

Technically, yes (proper accounting principle). Practically, no (you'll need a roof to live under at all times so best to keep it out of your net worth for "how much do I need to retire on" calculation).

Well, no, not really. If you cash out your equity and rent in retirement, it would be a different calculation.

[Anonymous]

In any case, the fact that you might not want to count it for retirement doesn't make it bit part of your net worth. There's lots of things that go into net worth that I wouldn't count as retirement income. E.g. The equity in my car, which will be long gone by the time I retire. Or the money in my son's 529, which I still technically have title to. I wouldn't confuse "net worth" for "money available for retirement."

[Anonymous]

Yes, value less mortgage and transaction costs. I expect to downsize in retirement, or possible sell here altogether and move to our second house, so it's a real asset.

[Anonymous]

Anonymous wrote:Yes, value less mortgage and transaction costs. I expect to downsize in retirement, or possible sell here altogether and move to our second house, so it's a real asset.

I don't think you substract transaction costs when you calculate net worth, do you? Would you subtract the cost of an early withdrawal fee from an investment vehicle? I think its just the total value of your possessions minus your debt load, and for purposes of calculating it you ignore that it would cost money to make all of your assests liquid.

[Anonymous]

I'm not sure why you subtract transaction costs when calculating your equity in your house. Do you subtract the taxes you will have to pay from the value of you 401k when you add that into your net worth? Chances are that the taxes on withdrawing money from your 401k are going to be a lot higher than the transaction costs for selling your house and unless you were one of those lucky people who made a killing in the Washington real estate market you are not going to owe any taxes when you sell your house.

[Anonymous]

Anonymous wrote:I'm not sure why you subtract transaction costs when calculating your equity in your house. Do you subtract the taxes you will have to pay from the value of you 401k when you add that into your net worth? Chances are that the taxes on withdrawing money from your 401k are going to be a lot higher than the transaction costs for selling your house and unless you were one of those lucky people who made a killing in the Washington real estate market you are not going to owe any taxes when you sell your house.

By transaction costs I mean the RE commission and transfer taxes, which add up to about 8%. I do factor that in because the liquid value of the house is the sale price less the direct cost to sell it.