Counting home value in net worth

[Anonymous]

It depends. I worked at Brown Brothers Harriman years ago. That is where the really really really rich old money banks.

We focused on the metric "investable assets" to tell how rich and how much money you have to spend.

For instance. John has a three million home in Southampton he inherited from his grandfather, a six million town home he inherited his Mom in Manhattan and a two million condo in Palm Beach. All he will never sell. He also has one million in 529s tied up for kids IVY League educations and grad school. He and his wife have a 25 million trust fund with strick conditions on spending. He also had a few classic cars and art he will never sell. Cash wise he has 200k in his Chase bank account and a few hundred in his Fidelity retail account. He works at a non profit and wife is a part time worker at an art gallary.

To Brown Brothers these people are Poor. Their networth may add up to 40 million. But they have little income and most assets are tied up. They have little money to invest in anything.

Person B. Is a single guy 38 who just sold a piece of his start up for 40 million he has sitting in Bank looking to invest or spend. The company who bought his start up hired him on as new CEO at 5 million a year pay. He is rich according to Brown Brothers. The advisors can help him invest his 40 million. He can be more risk adverse as he is bringing in 5 million a year income. He wants to join country clubs, buy a Hampton House, buy a Park Ave condo, he is spending.

Both have 40 million but one is hanging on to old money squeezing every nickle barely covering their nut. The other is just getting started.

It is why we did not count RE in new worth as for most part dead money.

[Anonymous]

I can see why a company that makes money investing other people's money would not count home equity as part of net worth - that part of net worth is useless to the investment company. But it is not worthless to the person who owns it. It can also be leveraged via a loan - same as Bezos takes out loans on the value of his Amazon stock.

[Anonymous]

To Brown Brothers, who make their living skimming off the top of invested assets, it's important they they distinguish between people with invested assets and people without them. But that has nothing to do with net worth.

Net worth is a definition and it includes all assets minus all liabilities. So, yes, your home(s) is included. Now, whether you use that net worth number for anything is a different question. I do not. There is no value in counting my home equity or the value of the account I intend to annuitize when I calculate what withdrawal amount I can afford from my invested assets. First tell me what you are trying to do, then we'll tell you what you should count. Some who look to retire early (40s, early 50s) may not wish to count assets in retirement plans if those assets are unavailable. What you are trying to do matters.

Nothing to do with whether home equity is in your net worth--of course it is.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Puzzling that people think only assets that throw off income can be included in one's net worth.

What about gold bars, high value artwork, etc.?

When people ask about our NW, we only include our non-earmarked liquid assets. This is the truly meaningful amount and omits anything that provides utility or is set aside for a future expense: functional NW as opposed to technical NW.

In this functional NW number, we exclude our home, cars, personal property, 529 plans, retirement accounts, and HSAs. In our experience, the more affluent people all do the same thing. It is the upper middle class and below that tends to inflate their NW estimates using any means available to keep up with the Joneses.

We’re in our early 40s and have a functional NW – by our practical definition – of about $10M. If we include ALL ASSETS and ALL LIABILITIES, our technical NW is closer to $300M.

$10 vs $300 is a big difference!! For comparison my #s would be around $14 vs $18 M. Is your house worth $200 M?

I agree---their numbers do not add up/make much sense.

She’s saying that what she has in checking and stock accounts. I have no idea of her numbers add up (though seriously don’t someone with $300M is posting here) but I can read.

I can also read. And it is highly unlikely someone has only $10M in "functional net worth" and it goes to $300M when you add in homes. Highly unlikely

[Anonymous]

Anonymous wrote:It depends. I worked at Brown Brothers Harriman years ago. That is where the really really really rich old money banks.

We focused on the metric "investable assets" to tell how rich and how much money you have to spend.

For instance. John has a three million home in Southampton he inherited from his grandfather, a six million town home he inherited his Mom in Manhattan and a two million condo in Palm Beach. All he will never sell. He also has one million in 529s tied up for kids IVY League educations and grad school. He and his wife have a 25 million trust fund with strick conditions on spending. He also had a few classic cars and art he will never sell. Cash wise he has 200k in his Chase bank account and a few hundred in his Fidelity retail account. He works at a non profit and wife is a part time worker at an art gallary.

To Brown Brothers these people are Poor. Their networth may add up to 40 million. But they have little income and most assets are tied up. They have little money to invest in anything.

Person B. Is a single guy 38 who just sold a piece of his start up for 40 million he has sitting in Bank looking to invest or spend. The company who bought his start up hired him on as new CEO at 5 million a year pay. He is rich according to Brown Brothers. The advisors can help him invest his 40 million. He can be more risk adverse as he is bringing in 5 million a year income. He wants to join country clubs, buy a Hampton House, buy a Park Ave condo, he is spending.

Both have 40 million but one is hanging on to old money squeezing every nickle barely covering their nut. The other is just getting started.

It is why we did not count RE in new worth as for most part dead money.

For most people on DCUM, that is not the case. Most people it is their primary home and maybe a a 2nd beach home/condo. Not family homes passed down for generations

[Anonymous]

Anonymous wrote:

Anonymous wrote:It depends. I worked at Brown Brothers Harriman years ago. That is where the really really really rich old money banks.

We focused on the metric "investable assets" to tell how rich and how much money you have to spend.

For instance. John has a three million home in Southampton he inherited from his grandfather, a six million town home he inherited his Mom in Manhattan and a two million condo in Palm Beach. All he will never sell. He also has one million in 529s tied up for kids IVY League educations and grad school. He and his wife have a 25 million trust fund with strick conditions on spending. He also had a few classic cars and art he will never sell. Cash wise he has 200k in his Chase bank account and a few hundred in his Fidelity retail account. He works at a non profit and wife is a part time worker at an art gallary.

To Brown Brothers these people are Poor. Their networth may add up to 40 million. But they have little income and most assets are tied up. They have little money to invest in anything.

Person B. Is a single guy 38 who just sold a piece of his start up for 40 million he has sitting in Bank looking to invest or spend. The company who bought his start up hired him on as new CEO at 5 million a year pay. He is rich according to Brown Brothers. The advisors can help him invest his 40 million. He can be more risk adverse as he is bringing in 5 million a year income. He wants to join country clubs, buy a Hampton House, buy a Park Ave condo, he is spending.

Both have 40 million but one is hanging on to old money squeezing every nickle barely covering their nut. The other is just getting started.

It is why we did not count RE in new worth as for most part dead money.

For most people on DCUM, that is not the case. Most people it is their primary home and maybe a a 2nd beach home/condo. Not family homes passed down for generations

When I worked at Brown Brothers at our Vault we had Confererate Bonds and CBS Cuba Broadcasting bonds holding for clients. I recall one client said in 1996 my Grandpappy said hold onto the Confederate Bonds as one day the South will rise again and these will be worth a lot of money.

My wife, however does not count our primary home, rental property, three cars in driveway, our 401ks/IRAs, Brokerage Accounts, RSUS etc as money at all. She cant spend it. Meaningless to her. Cash at Chase or Bank of America she can spend is how she guages net worth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We bought with a 400K down payment a few years back. Our house has appreciated a little bit. If I wanted to sell tomorrow I'd get that 400K + more back in a month or two (yes, even taking closing costs and commissions into account). So yeah, it's as much a part of my NW as my investments are, neither of which are 100% guaranteed returns until they're liquidated.

Yeah but don’t you need that money to find another place to live?

DP here. Yes, they need a place to live but they’re wealthier with a home worth $400k than if they were just renting a place and had no assets. In an emergency they could sell the house and use the money for rent.

I don't know what you are saying but my point was that since NW = total asset - total liability, if you include your house, you also have to include cost of your future house (future unrealized liability).

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I see a lot of folks saying not to do this. IMO, the main issues would be whether a) you live in a very expensive home vs cheap home (or HCOL vs LCOL) and b) willingness to relocate or downsize in retirement. It's much easier to utilize the equity in an expensive multi million dollar house than a cheap 500k house for living purposes. If you live in a city like DC, NYC, SF you can easily find a bigger property in a cheaper area for a fraction of the cost. What's the harm in including a 3M townhouse in your NW if you intend to sell it eventually and downsize to a 500k property in another state (or country)?

I know some people can't imagine not living in a major city, but many of us are only here for economic opportunities and couldn't care less for the culture or amenities.

This topic has been rehashed a thousand times here.

I personally don't since I live in a house valued at about $1m, with a $250K remaining mortgage. If I do choose to sell, I may net $650K which will go right into another house. Kinda pointless tracking value and mortgage balance year over year for things to net out.

If I were living in a house valued at $4M with zero mortgage AND I definitely plan on moving to a low cost area into a nice house worth $1M, then I would include the excess RE ($3M) in my net worth. Same goes for any rental properties.

The pedantic among us will always want to include primary residence as part of net worth and show the remaining mortgage as a liability, because "that's what the textbooks say". If that makes you happy, go for it. I have $10M+ financial assets so adding or not adding the $650K RE ain't gonna make my d*ck any bigger. But you do you.

It’s not pedantic. It’s correct.

You simply don’t care to do a net worth calculation, which is fine of course. I just don’t understand why you insist on pretending you’re calculating your net worth rather than whatever it is you’re calculating…

Thanks for proving my point. As to why I don't care to include my RE, please re-read my post.

[Anonymous]

Anonymous wrote:I can see why a company that makes money investing other people's money would not count home equity as part of net worth - that part of net worth is useless to the investment company. But it is not worthless to the person who owns it. It can also be leveraged via a loan - same as Bezos takes out loans on the value of his Amazon stock.

This. They collect no management fees on real estate.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Puzzling that people think only assets that throw off income can be included in one's net worth.

What about gold bars, high value artwork, etc.?

When people ask about our NW, we only include our non-earmarked liquid assets. This is the truly meaningful amount and omits anything that provides utility or is set aside for a future expense: functional NW as opposed to technical NW.

In this functional NW number, we exclude our home, cars, personal property, 529 plans, retirement accounts, and HSAs. In our experience, the more affluent people all do the same thing. It is the upper middle class and below that tends to inflate their NW estimates using any means available to keep up with the Joneses.

We’re in our early 40s and have a functional NW – by our practical definition – of about $10M. If we include ALL ASSETS and ALL LIABILITIES, our technical NW is closer to $300M.

$10 vs $300 is a big difference!! For comparison my #s would be around $14 vs $18 M. Is your house worth $200 M?

I thought she was referring to her $290 million art collection

[Anonymous]

Anonymous wrote:It matters because once you can prove a million of investable assets you can get an accredited investor tag on your account that can get you access to some different asset types. I would have thought all the high powered lawyers on dcum would have already known that, strange.

Yes--you can become an accredited investor so brokers can convince you to invest in private credit that the non-accredited don't have access to. Lucky them!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I see a lot of folks saying not to do this. IMO, the main issues would be whether a) you live in a very expensive home vs cheap home (or HCOL vs LCOL) and b) willingness to relocate or downsize in retirement. It's much easier to utilize the equity in an expensive multi million dollar house than a cheap 500k house for living purposes. If you live in a city like DC, NYC, SF you can easily find a bigger property in a cheaper area for a fraction of the cost. What's the harm in including a 3M townhouse in your NW if you intend to sell it eventually and downsize to a 500k property in another state (or country)?

I know some people can't imagine not living in a major city, but many of us are only here for economic opportunities and couldn't care less for the culture or amenities.

This topic has been rehashed a thousand times here.

I personally don't since I live in a house valued at about $1m, with a $250K remaining mortgage. If I do choose to sell, I may net $650K which will go right into another house. Kinda pointless tracking value and mortgage balance year over year for things to net out.

If I were living in a house valued at $4M with zero mortgage AND I definitely plan on moving to a low cost area into a nice house worth $1M, then I would include the excess RE ($3M) in my net worth. Same goes for any rental properties.

The pedantic among us will always want to include primary residence as part of net worth and show the remaining mortgage as a liability, because "that's what the textbooks say". If that makes you happy, go for it. I have $10M+ financial assets so adding or not adding the $650K RE ain't gonna make my d*ck any bigger. But you do you.

It’s not pedantic. It’s correct.

You simply don’t care to do a net worth calculation, which is fine of course. I just don’t understand why you insist on pretending you’re calculating your net worth rather than whatever it is you’re calculating…

Thanks for proving my point. As to why I don't care to include my RE, please re-read my post.

DP but why is it important to you to *call* what you're calculating your Net Worth, when that is a term of art with a real definition? Why not just say you're talking about investable assets? This is the perplexing thing about this whole unnecessary debate.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We bought with a 400K down payment a few years back. Our house has appreciated a little bit. If I wanted to sell tomorrow I'd get that 400K + more back in a month or two (yes, even taking closing costs and commissions into account). So yeah, it's as much a part of my NW as my investments are, neither of which are 100% guaranteed returns until they're liquidated.

Yeah but don’t you need that money to find another place to live?

DP here. Yes, they need a place to live but they’re wealthier with a home worth $400k than if they were just renting a place and had no assets. In an emergency they could sell the house and use the money for rent.

I don't know what you are saying but my point was that since NW = total asset - total liability, if you include your house, you also have to include cost of your future house (future unrealized liability).

No. That is completely stupid. You count your equity, which would be your home’s value minus your mortgage. You don’t count the rocketship you plan to buy in 20 years as a liability.

Can you even tie your own shoes?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I see a lot of folks saying not to do this. IMO, the main issues would be whether a) you live in a very expensive home vs cheap home (or HCOL vs LCOL) and b) willingness to relocate or downsize in retirement. It's much easier to utilize the equity in an expensive multi million dollar house than a cheap 500k house for living purposes. If you live in a city like DC, NYC, SF you can easily find a bigger property in a cheaper area for a fraction of the cost. What's the harm in including a 3M townhouse in your NW if you intend to sell it eventually and downsize to a 500k property in another state (or country)?

I know some people can't imagine not living in a major city, but many of us are only here for economic opportunities and couldn't care less for the culture or amenities.

This topic has been rehashed a thousand times here.

I personally don't since I live in a house valued at about $1m, with a $250K remaining mortgage. If I do choose to sell, I may net $650K which will go right into another house. Kinda pointless tracking value and mortgage balance year over year for things to net out.

If I were living in a house valued at $4M with zero mortgage AND I definitely plan on moving to a low cost area into a nice house worth $1M, then I would include the excess RE ($3M) in my net worth. Same goes for any rental properties.

The pedantic among us will always want to include primary residence as part of net worth and show the remaining mortgage as a liability, because "that's what the textbooks say". If that makes you happy, go for it. I have $10M+ financial assets so adding or not adding the $650K RE ain't gonna make my d*ck any bigger. But you do you.

It’s not pedantic. It’s correct.

You simply don’t care to do a net worth calculation, which is fine of course. I just don’t understand why you insist on pretending you’re calculating your net worth rather than whatever it is you’re calculating…

Thanks for proving my point. As to why I don't care to include my RE, please re-read my post.

Your point is that words have no meaning other than what YOU give them.

i.e. you don’t actually understand the meaning of the words “net worth”, but are too stubborn and/or stupid to admit that you’re wrong.

I guess that’s one way to “make your d*ck bigger”?

[Anonymous]

Yes, I count it. Because it helps me when thinking about planning in retirement years and considering all my options. Based on equity (after mortgage), do I have the option to sell and rent and invest, sell and move to a cheaper COLA, downsize and get a little cottage in Portugal? The only assets I don't count are the college funds.