Rent versus Buy

[RunningBum]

Why is it that some people don't consider their home part of their net worth?

I took the question to mean do you use it in your SWR calculation.

I don't, because I don't plan to liquidate it before I die.

My mindset is so much attuned right now to how much do I need to accumulate before I can safely retire, that I'm just not thinking of my home as an asset.

I do think of it as a safety net, in case the plan doesn't work. And it does affect my aggressiveness in investing in equities, because I do have the safety net.

And of course I keep in mind in my budget that since it's paid off, my housing expenses are limited to taxes and upkeep, not mortgage or rent.

Yeah, once in awhile if I think of my total net worth, I include it. And I'm behind in my estate planning, and definitely will consider it there.

But basically it's just something I have that I don't plan to sell or replace, so it really doesn't matter what it's worth in many respects.

 

[brewer12345]

Not to be nitpicky, but where's MMND today? What, 30 posts yesterday and 0 today?

Congrats: you've been trolled/ spammed/spamtrolled.

 

[REWahoo]

Let's not be too hasty here. MMND may not have posted today but she's been looking at this thread.

 

[twaddle]

Best entertainment in months. I hope she comes back.

 

[brewer12345]

Let's not be too hasty here. MMND may not have posted today but she's been looking at this thread.

Perhaps. Spamtroll kind of works, though.

 

[Purron]

Best entertainment in months. I hope she comes back.

I agree. Having just ERed this month, I was starting to miss the office drama.

 

[Bestwifeever]

I wonder what her and her husband's net worth is today--her website shows it through November 1, 2007, it looks like. Mine and DH's bought-and-helds is down 6.5 percent since the end of November (not including my house, which I leave out of our net worth).

When you come back, MMND, can you update us? I would love to see if your investment strategy overcame the drop--hope it did!

 

[FinanceDude]

I know you know the answer to your own question

 

[clifp]

Own
Still have a mortgage and recently took out a PenFed HEL. If interest rates continue to drop I may pay them off (both below 5%)
Yes I count it in my net worth
I rent the downstair portion so provides some income but primarily I count it a reducing my future living expenses.

 

[Moemg]

1- Own
2- Paid cash
3- Yes , I consider it in my net worth
4- Not considering it for retirement funds unless I downsize .

I've always owned but I would consider renting in certain circumstances . I'd love to spend a few years living walking distance to a beach and for that I'd rent since it would be short term .

 

[rs0460a]

Yes, from an estate and accounting perspective your home equity counts and is traditionally part of net worth.

From a planning perspective, it is often assumed that until/unless you determine to sell, reverse, or refinance your home, it is not fruitful to include it (you'll always need a house, mortgage payment are accounted for under expenses, etc).

In my own planning, I ignore home equity until a projected downsizing which will free up the balance for general investment. Firecalc handles that just fine, by the way.

Well said!

- Ron

 

[Martha]

Only some of use seem to have the need to post every day.

 

[retire@40]

...Why is it that some people don't consider their home part of their net worth?

The book definition states that it is part of net worth, but in practical terms, if your house will never be tapped for cash flow, then it is a cost. Cash flow would come from selling it, renting it, doing a reverse mortgage, etc.

The pencil on your desk would also be part of your net worth, but since you will probably never sell it, it is also a cost not to be included in your net worth for retirement calculation purposes.

 

[Notmuchlonger]

The book definition states that it is part of net worth, but in practical terms, if your house will never be tapped for cash flow, then it is a cost. Cash flow would come from selling it, renting it, doing a reverse mortgage, etc.

The pencil on your desk would also be part of your net worth, but since you will probably never sell it, it is also a cost not to be included in your net worth for retirement calculation purposes.

We own a house. Since I cant really put an accurate value on it I do not bother including it. When it sells sure then I can put a tangible amount on it. Otherwise its a place to slap my hide in.

 

[cute fuzzy bunny]

Hmm. So "emergency cash" isnt actually valuable, and investments I dont plan on liquidating in the next couple of decades have no business being in my plan?

Anyone here have a pen worth $500,000?

 

[W2R]

Anyone here have a pen worth $500,000?

Sure, want to buy it? I've got such a deal for you... for you, only $498,500! Such a deal. Cashier's check only, please.

 

[clifp]

For us the true advantage of buying would come once we were 65. Pensions are means-tested in Australia, it has nothing to do with how much you put in. So based on our current portfolio, with 20 years to go, it is unlikely we will qualify for a pension. However, when we were 65 we could buy a house using all our investments, leaving a balance of $300,000 and we would qualify for a full pension. .

Dangermouse raises an interesting point. Eventhough pension/SS aren't (currently) based on assets in the US, home equity is treated differently than financial equity in many different scenarios.

For example when comes time to qualify for college assistant a couple who rents but has a $1 million portfolio and high income almost certainly going to be expected to contribute more than a couple with little saving, but a $1 million in home equity.

Similar many place give property and income tax breaks to seniors, at least here in Hawaii those tax break are means test on income not assets so two seniors each with a net worth of $1 million are likely to be treated differently. The senior with $1 million dollar portfolio will probably result in losing the tax break where as a senior with $1 million house will get the tax break.

From bankruptcy cases to Medicare home equity is treated more favorably than liquid assets, with possible exception of tax advantaged saving accounts.

 

[clifp]

Sure, want to buy it? I've got such a deal for you... for you, only $498,500! Such a deal. Cashier's check only, please.

If you'd like to move up in the pen world, I've been somewhat disappointed in my latest pen purchase. I'll let you have my pen at the bargain price of $750K, I had to pay list price last year.
It writes beautiful but I wish had picked up the ruby version (show) instead of the emerald so I am hoping to trade.

 

[Notmuchlonger]

If you'd like to move up in the pen world, I've been somewhat disappointed in my latest pen purchase. I'll let you have my pen at the bargain price of $750K, I had to pay list price last year.
It writes beautiful but I wish had picked up the ruby version (show) instead of the emeralds.

But to purchase your pen do I need to get an estimate, make sure it works properly and put it on a market that is fairly volatile? The pen industry has been extremely volatile. People are just throwing down their pens and giving them to the banks you know.

 

[cute fuzzy bunny]

Sure, want to buy it? I've got such a deal for you... for you, only $498,500! Such a deal. Cashier's check only, please.

I'm sure "twaddle" has some made-up chart showing pen value against inflation, which clearly demonstrates that pen prices are at an unsupported level, and that in the absence of all the other massive contributing factors involved, clearly means that pen prices will drop, the economy will stumble, and the world will end.

 

[Notmuchlonger]

I'm sure "twaddle" has some made-up chart showing pen value against inflation, which clearly demonstrates that pen prices are at an unsupported level, and that in the absence of all the other massive contributing factors involved, clearly means that pen prices will drop, the economy will stumble, and the world will end.

Crap i didn't think about that The pen value part anyways

 

[SteveR]

1- Own
2- Mortgage on 20% of current market value
3- I have several different calculations for different views of my "worth". One of them includes all assets including the house, RV, cars, etc. Another has only investment assets while another has a combination of various assets which "normally" appreciate. My real estate holdings are less than 20% of the whole enchalada.
4- Not counting on equity in the house to live on but it will buy the next house where I won't have a mortgage. Got to live somewhere.

 

[whitestick]

The taxes and ongoing costs are the deciding factor for me.
In this locale, North Texas, where housing hasn't appreciated greatly over the last 20 years, yet property taxes and utilities have, my situation is thus:
1-Own: Currently, just retired, looking to sell MegaMansion within year to downsize
2-Currently paid off, as remaining payments of interest were not high enough to generate tax benefits.
3-In Net Worth: Yes, as converting to cash
4-Part of RE Plan: Yes, as currently in this area - new, unlived in houses, 3 bedroom, 2700 sq ft. desirable neighborhood, can be rented for $1200 - $1600. Apartments are slightly smaller, but rents are about the same.
Current MegaMansion - no mortgage, only taxes, insurance, excess utilities, upkeep, maintenance, HOA, = $1200.
Equity from sold house invested in current portfolio schema generates about double that per month. (topic for another thread). Covers rent and possible future increases, based on last 20 years here, break even should be somewhere around 30 years out. No hassle with upkeep, yardwork, middle of the night branches blowing off of trees, et.al. = priceless.

Oh, and the average time I have spent in a house was 5 years before moving here, so the flexibility of moving somewhere else, without the hassle of selling, makes it better. Kids and Grandkids will likely move around with their jobs, like we did when we were younger, so we can follow them, easily, if we so choose.

 

[mathjak107]

Hmm. So "emergency cash" isnt actually valuable, and investments I dont plan on liquidating in the next couple of decades have no business being in my plan?

Anyone here have a pen worth $500,000?

i wouldnt count taking a loan an asset whether the collatoral was my house, my car , my jewelry or my art work. when i stop using it as a consumption item and sell it, ill count it. of course if its a rental id count the income.

i have a few fine art paintings, i enjoy them, wont sell them and dont count them ,same with a fine watch i have but if i do then ill count them.

we can count anything we want but i only count the things that seem to make the most sense for the reason im counting them.

i guess if i wanted to see if i was the one with the most toys id count everything but otherwise for retirement planning and income draw i see no point.

 

[mathjak107]

if you live in a house forever does it matter if its worth a 100,000 or a hundred million.? its a moot point except to your heirs.

a reverse mortgage is just a loan with a balloon payment due when you die or sell. hardley something id cound as an asset. besides any loan you take from equity has to be subtracted off net worth any way. again a moot point

stocks ,bonds , real estate other than your home etc are assets that when you sell them dont require a replacement. if you sell a home you still need a place to live. you either need a lifetime of rent or a replacement home and a lifetime of taxes,maintence and associated costs.. unlike any other assets we have a home needs to always be traded for somewhere else to live.

if your living in a home you also cant rebalance it to add cash to a bucket when needed. you cant sell off your dinning room. you can take an equity loan or reverse mortage but then you have to pay that amount back plus interest so its not really added anything to your cash bucket, now its taking more out in payments

of course you can argue if you sell your house and rent you can blow thru the cash paying the extra rent for decades so even selling a house and getting cash is tough to figure its place but again i know people who pay less rent than taxes, maintaince and the costs associated long term with a house. i just find it simpler to leave it out until sold and i can re-evaluate the cash left over