FYI: Don't include home equity in net worth

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think OP phrased it poorly. It’s not about asset making income or not, it’s about having to allocate the asset for personal consumption. You cannot be homeless. But this idea of OP still doesn’t hold because there is not definition of what shelter must be and how much it must cost. You absolutely should count your equity in a house you live in because you CAN sell it and exchange it for something less expensive or rent something instead. In this case this equity becomes a part of your NW in the definition OP wants to follow, as it is now investable. Investment income from this may go towards covering your living costs in a rental with the rest saved/reinvested. But according to the definition it is a part of your asset portfolio capable of earning income.

i also think OP and others who agree don’t really have much net worth to begin with and can’t see that this board skews wealthy. Many people have 2nd homes and have investment properties. People like myself purchased an investment in our early 40s with the intent for it to be a retirement home so our primary home in indeed money we will be able to cash in tax free and not need to use for another home. My retirement home is currently being paid down by renters. And if I decide I don’t want to live in that home? Who cares, I will 1031 exchange it into something else, but I’m definitely not using the funds from my primary home. Thats hitting my pocket. I’m certainly not alone in this.

Not sure if you read all the posts but several posters clarified that it's equity in a 'normal' primary residence that should be excluded and not investment property. I'm one of those that lives in a normal house (i.e. not a $5M house while I can easily live in a $1M one) and I don't include the equity in my assets for the purpose of retirement planning. The one rental I own, I certainly do.
Also, I think it's the relatively poor that clamor to include their primary home equity in their net worth so they appear rich. Someone whose home equity is less than 10% of their total worth won't need to.

The problem with you and OP is that you are misunderstanding and misusing the term “Net Worth”.
We understand what you are trying to define: Assets that you plan to draw income from to fund your retirement.

Nobody will disagree with you if you say, I’m not including home equity in the assets I plan to use to fund my retirement. Someone else may even decide to not include money in their brokerage account if they won’t use it. Their choice.

Everyone is free to choose which assets they want to exclude from their retirement planning.
But everyone doesn’t get to redefine Net Worth to their liking.

Money you plan to use to fund retirement IS NOT the same as your net worth.

Chill dude! Get your head out of your pedantic a**. Everyone is aware of textbook definitions. This is not a classroom discussion and goes beyond that. I use net worth to exclude primary residence and will continue to do so in future discussions on here because it makes sense to ME. Don't like it, don't use it. GTFO!

Words have meanings. If you decide they mean something other than the understood definition you are the one that is wrong. Not sure why you’re so worked up about that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm the one in "Net Worth Jail," a few comments above. While your home equity is an asset and officially counts towards net worth, I don't count it because I have no plans to ever draw money out of my house. I'm not going to borrow against it, use it as an investment property, or sell the property to increase my cash flow. The only thing I might do is sell it and invest the money in another primary residence which will be around the same or slightly higher price.

I see my home more as an avoidance of a cost than an asset. Without the mortgage, I will spend $1,500 a month on the condo fees, HOA, insurance, maintenance and repairs. To rent a similar place, it would cost $2,700 a month, so I've reduced my monthly expenses by $1,200 a month by owning.

not everyone is the same. I absolutely see my home as an investment. I have a few rental properties with sub 3% rates accross 3 states and will choose one to live in when I retire. I absolutely will be taking the 1.2M in equity I Will have in my current home and use it towards my nest egg. As a matter of fact this along with some other taxable investments and rental income will carry me from my target retirement age of 55 until I want/need to draw on my retirement accounts.

Not everyone is the same. I couldn't wait to sell two properties that were had bought for living. Sold them few years ago, put the money in the market, and I retired as every stock 4x'ed. I could buy a home now, but not interested at all.
Renting would have been cheaper and we missed out on the money not being in the market already.
Third home was sold last year and that money is inherited by young kid. Relatives offered to rent it out for the child's benefit;
I thought they crazy.
To PP, I know you are saving $1200 a month, but the money stuck in the condo ($300-$500k my guess) could be used to make $20k few times a year in the market and that's me being conservative.

oh bless your heart. Some of us diversify. Not everyone’s has to choose between real estate or “the market” as you call it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm the one in "Net Worth Jail," a few comments above. While your home equity is an asset and officially counts towards net worth, I don't count it because I have no plans to ever draw money out of my house. I'm not going to borrow against it, use it as an investment property, or sell the property to increase my cash flow. The only thing I might do is sell it and invest the money in another primary residence which will be around the same or slightly higher price.

I see my home more as an avoidance of a cost than an asset. Without the mortgage, I will spend $1,500 a month on the condo fees, HOA, insurance, maintenance and repairs. To rent a similar place, it would cost $2,700 a month, so I've reduced my monthly expenses by $1,200 a month by owning.

not everyone is the same. I absolutely see my home as an investment. I have a few rental properties with sub 3% rates accross 3 states and will choose one to live in when I retire. I absolutely will be taking the 1.2M in equity I Will have in my current home and use it towards my nest egg. As a matter of fact this along with some other taxable investments and rental income will carry me from my target retirement age of 55 until I want/need to draw on my retirement accounts.

Not everyone is the same. I couldn't wait to sell two properties that were had bought for living. Sold them few years ago, put the money in the market, and I retired as every stock 4x'ed. I could buy a home now, but not interested at all.
Renting would have been cheaper and we missed out on the money not being in the market already.
Third home was sold last year and that money is inherited by young kid. Relatives offered to rent it out for the child's benefit;
I thought they crazy.
To PP, I know you are saving $1200 a month, but the money stuck in the condo ($300-$500k my guess) could be used to make $20k few times a year in the market and that's me being conservative.

oh bless your heart. Some of us diversify. Not everyone’s has to choose between real estate or “the market” as you call it.

This sophisticated poster buys real estate, the market, AND crypto. She's going to be so rich!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm the one in "Net Worth Jail," a few comments above. While your home equity is an asset and officially counts towards net worth, I don't count it because I have no plans to ever draw money out of my house. I'm not going to borrow against it, use it as an investment property, or sell the property to increase my cash flow. The only thing I might do is sell it and invest the money in another primary residence which will be around the same or slightly higher price.

I see my home more as an avoidance of a cost than an asset. Without the mortgage, I will spend $1,500 a month on the condo fees, HOA, insurance, maintenance and repairs. To rent a similar place, it would cost $2,700 a month, so I've reduced my monthly expenses by $1,200 a month by owning.

not everyone is the same. I absolutely see my home as an investment. I have a few rental properties with sub 3% rates accross 3 states and will choose one to live in when I retire. I absolutely will be taking the 1.2M in equity I Will have in my current home and use it towards my nest egg. As a matter of fact this along with some other taxable investments and rental income will carry me from my target retirement age of 55 until I want/need to draw on my retirement accounts.

Not everyone is the same. I couldn't wait to sell two properties that were had bought for living. Sold them few years ago, put the money in the market, and I retired as every stock 4x'ed. I could buy a home now, but not interested at all.
Renting would have been cheaper and we missed out on the money not being in the market already.
Third home was sold last year and that money is inherited by young kid. Relatives offered to rent it out for the child's benefit;
I thought they crazy.
To PP, I know you are saving $1200 a month, but the money stuck in the condo ($300-$500k my guess) could be used to make $20k few times a year in the market and that's me being conservative.

Ah, yes, that conservative ~12-25% annual return that has been consistently made by almost no one ever over any meaningful period of time.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I'm the one in "Net Worth Jail," a few comments above. While your home equity is an asset and officially counts towards net worth, I don't count it because I have no plans to ever draw money out of my house. I'm not going to borrow against it, use it as an investment property, or sell the property to increase my cash flow. The only thing I might do is sell it and invest the money in another primary residence which will be around the same or slightly higher price.

I see my home more as an avoidance of a cost than an asset. Without the mortgage, I will spend $1,500 a month on the condo fees, HOA, insurance, maintenance and repairs. To rent a similar place, it would cost $2,700 a month, so I've reduced my monthly expenses by $1,200 a month by owning.

So you’re not going to sell it if you need to move into a retirement home? You aren’t going to leave it to anyone when you die? You have a clause in your will stating it shouldn’t be included as part of your estate, and instead should be left to rot?

You don’t have to use your home in retirement planning. You shouldn’t be calculating a 4% rule with its value. But there’s no debate that it should be included among your assets (and mortgage among your liabilities) in your net worth.

DP -- I guess this is why I don't really think net worth is a useful metric for me. Obviously, yes, your home equity is part of your net worth. But who cares what my net worth is if it includes assets I have no intention of doing anything with except living in them for the foreseeable future? I'm well aware of my mortgage as a liability, but the value of my house as an asset is sort of meaningless. Does it mean I'm underestimating how wealthy I am? Yes, but so what?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think OP phrased it poorly. It’s not about asset making income or not, it’s about having to allocate the asset for personal consumption. You cannot be homeless. But this idea of OP still doesn’t hold because there is not definition of what shelter must be and how much it must cost. You absolutely should count your equity in a house you live in because you CAN sell it and exchange it for something less expensive or rent something instead. In this case this equity becomes a part of your NW in the definition OP wants to follow, as it is now investable. Investment income from this may go towards covering your living costs in a rental with the rest saved/reinvested. But according to the definition it is a part of your asset portfolio capable of earning income.

i also think OP and others who agree don’t really have much net worth to begin with and can’t see that this board skews wealthy. Many people have 2nd homes and have investment properties. People like myself purchased an investment in our early 40s with the intent for it to be a retirement home so our primary home in indeed money we will be able to cash in tax free and not need to use for another home. My retirement home is currently being paid down by renters. And if I decide I don’t want to live in that home? Who cares, I will 1031 exchange it into something else, but I’m definitely not using the funds from my primary home. Thats hitting my pocket. I’m certainly not alone in this.

Not sure if you read all the posts but several posters clarified that it's equity in a 'normal' primary residence that should be excluded and not investment property. I'm one of those that lives in a normal house (i.e. not a $5M house while I can easily live in a $1M one) and I don't include the equity in my assets for the purpose of retirement planning. The one rental I own, I certainly do.
Also, I think it's the relatively poor that clamor to include their primary home equity in their net worth so they appear rich. Someone whose home equity is less than 10% of their total worth won't need to.

The problem with you and OP is that you are misunderstanding and misusing the term “Net Worth”.
We understand what you are trying to define: Assets that you plan to draw income from to fund your retirement.

Nobody will disagree with you if you say, I’m not including home equity in the assets I plan to use to fund my retirement. Someone else may even decide to not include money in their brokerage account if they won’t use it. Their choice.

Everyone is free to choose which assets they want to exclude from their retirement planning.
But everyone doesn’t get to redefine Net Worth to their liking.

Money you plan to use to fund retirement IS NOT the same as your net worth.

Chill dude! Get your head out of your pedantic a**. Everyone is aware of textbook definitions. This is not a classroom discussion and goes beyond that. I use net worth to exclude primary residence and will continue to do so in future discussions on here because it makes sense to ME. Don't like it, don't use it. GTFO!

Words have meanings. If you decide they mean something other than the understood definition you are the one that is wrong. Not sure why you’re so worked up about that.

Me worked up? You are the one dictating what they should call their collection of assets. Get a life.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I think OP phrased it poorly. It’s not about asset making income or not, it’s about having to allocate the asset for personal consumption. You cannot be homeless. But this idea of OP still doesn’t hold because there is not definition of what shelter must be and how much it must cost. You absolutely should count your equity in a house you live in because you CAN sell it and exchange it for something less expensive or rent something instead. In this case this equity becomes a part of your NW in the definition OP wants to follow, as it is now investable. Investment income from this may go towards covering your living costs in a rental with the rest saved/reinvested. But according to the definition it is a part of your asset portfolio capable of earning income.

i also think OP and others who agree don’t really have much net worth to begin with and can’t see that this board skews wealthy. Many people have 2nd homes and have investment properties. People like myself purchased an investment in our early 40s with the intent for it to be a retirement home so our primary home in indeed money we will be able to cash in tax free and not need to use for another home. My retirement home is currently being paid down by renters. And if I decide I don’t want to live in that home? Who cares, I will 1031 exchange it into something else, but I’m definitely not using the funds from my primary home. Thats hitting my pocket. I’m certainly not alone in this.

Not sure if you read all the posts but several posters clarified that it's equity in a 'normal' primary residence that should be excluded and not investment property. I'm one of those that lives in a normal house (i.e. not a $5M house while I can easily live in a $1M one) and I don't include the equity in my assets for the purpose of retirement planning. The one rental I own, I certainly do.
Also, I think it's the relatively poor that clamor to include their primary home equity in their net worth so they appear rich. Someone whose home equity is less than 10% of their total worth won't need to.

The problem with you and OP is that you are misunderstanding and misusing the term “Net Worth”.
We understand what you are trying to define: Assets that you plan to draw income from to fund your retirement.

Nobody will disagree with you if you say, I’m not including home equity in the assets I plan to use to fund my retirement. Someone else may even decide to not include money in their brokerage account if they won’t use it. Their choice.

Everyone is free to choose which assets they want to exclude from their retirement planning.
But everyone doesn’t get to redefine Net Worth to their liking.

Money you plan to use to fund retirement IS NOT the same as your net worth.

Chill dude! Get your head out of your pedantic a**. Everyone is aware of textbook definitions. This is not a classroom discussion and goes beyond that. I use net worth to exclude primary residence and will continue to do so in future discussions on here because it makes sense to ME. Don't like it, don't use it. GTFO!

Words have meanings. If you decide they mean something other than the understood definition you are the one that is wrong. Not sure why you’re so worked up about that.

Me worked up? You are the one dictating what they should call their collection of assets. Get a life.

You're a f cking troll. Shut the f ck up.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

Whether or not an asset is liquid doesn't change whether you should include it in your net worth.

[Anonymous]

OP is objectively correct. It is not a matter of perspective or individualized. You can google this fact.

[Anonymous]

Anonymous wrote:OP is objectively correct. It is not a matter of perspective or individualized. You can google this fact.

But not factually.

[Anonymous]

Anonymous wrote:OP is objectively correct. It is not a matter of perspective or individualized. You can google this fact.

OP is objectively incorrect.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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.

Even the value of your 401k only exists on paper until you sell your investments.
Does that mean you shouldn’t include your 401k in your planning?

It's a lot easier to sell the assets in your 401(k) at basically the value they're listed at whenever you're looking at it than it is to do the same with your house, though. Even though I can't access my 401(k) at my current age without paying a tax penalty, if I wanted to lock in its current value, I could liquidate all the funds and just have it as cash. The current prices aren't an estimate, they're an actual price. If I wanted to do the same with my house, there's no way of knowing whether I'd be able to sell it for what I think it's worth, and it wouldn't exactly be an instantaneous transaction, either.

Whether or not an asset is liquid doesn't change whether you should include it in your net worth.

"Should" is sort of a meaningless concept with net worth, since it's not like you ever have to report that to anyone. If you want to count your net worth as only half of what it actually is, so what?

I agree with various posters about the DEFINITION of net worth, which is just the sum total of your assets minus your liabilities. I also agree with various posters who say they find it useful to think of their overall financial picture using different metrics.

[Anonymous]

If you know one - it’s easy to calculate the other. It’s helpful to know both.

[Anonymous]

Why is Net Worth value helpful?

We’ve done financial planning with and now without a CFP and never once has net worth been brought up.