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Old 12-03-2021, 06:28 PM   #21
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Part of Net Worth, but not part of an investment portfolio.
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Old 12-03-2021, 11:28 PM   #22
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Originally Posted by foxfirev5 View Post
Good point. While I don't count our primary residence or our second home it probably should be a factor. While not quite on your scale our lakehouse should be a plan C following the Roths for future calamities. If DW or I got that far we would certainly beat the odds.

A nice aspect of Zillow is that it shows sales prices over time of your very own home and neighborhood, unless you are the original owner, of course. I calculated that our house has grown, on average, 4.25%/year over the last 25-30 years, IIRC. That rate projected forward 24 years is how I got the $2M value for our house, though it is hard to imagine.
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Old 12-04-2021, 12:42 AM   #23
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No and Yes

As others have mentioned, your home is part of your Net Worth...and is not a part of your investable assets that you would split into stocks/bonds/cash.

However, your home equity could be part of your thinking when you decide your asset allocation. If you have a sizable home equity, you may be able to select your asset allocation to include more risk (more stocks) because you can use your home equity via a HELC, even sell your home and downsize, or rent a place to live (including assisted living) if your financial situation really crumbles.

If your home equity is more modest, then there may not be as many alternatives readily available to you, so it might not impact your asset allocation decision.
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Old 12-04-2021, 05:18 AM   #24
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When you calculate asset allocation, do you include your home value as an alternative asset? I tried to search and could not find this discussed.



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Old 12-04-2021, 05:21 AM   #25
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njhowie- thank you that makes a lot of sense to me.


What is an alternative in your portfolio?
What do you mean by "alternative in your portfolio"?
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Old 12-05-2021, 05:03 AM   #26
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RE considerations for NW

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Originally Posted by ecowtent View Post
When you calculate asset allocation, do you include your home value as an alternative asset? I tried to search and could not find this discussed.

As many have stated; we do count our primary home in net worth, but not investible assets.

For investible assets we only include our rental properties in the mix and I count them as bonds type assets.

So, while our IRA's may show 90% stocks/ETF's, the overall portfolio of investments (including rental properties) are more like 60/40. Most modeling tools don't have a mechanism to recognize rental properties so we just show that as cash in the tool.
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Old 12-05-2021, 07:49 AM   #27
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No and Yes



As others have mentioned, your home is part of your Net Worth...and is not a part of your investable assets that you would split into stocks/bonds/cash.



However, your home equity could be part of your thinking when you decide your asset allocation. If you have a sizable home equity, you may be able to select your asset allocation to include more risk (more stocks) because you can use your home equity via a HELC, even sell your home and downsize, or rent a place to live (including assisted living) if your financial situation really crumbles.
We bought our house for $360,000 seven years ago and it was appraised for $535,000 last year before we did some upgrades, so maybe $600,000 estimated today, conservatively, given the froth of late. Applying its 30-ish year past annual growth rate per Zillow of 4.25%, calculators project a $1M+ value in 15 years and $2M+ in 29 years when the new, low interest mortgage is paid off. YMMV but that’s too much dough to ignore, so I’m counting it as the investable asset that it is to me, even if it is a future liquidity event, similar to the sale of a rental property or business or some future income coming online in the plan, like SS or an annuity, etc. I don’t personally see the need to pretend it isn’t there, as some other overly-conservative investors (not you) seem to prefer.
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Old 12-05-2021, 08:33 AM   #28
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We bought our house for $360,000 seven years ago and it was appraised for $535,000 last year before we did some upgrades, so maybe $600,000 estimated today, conservatively, given the froth of late. Applying its 30-ish year past annual growth rate per Zillow of 4.25%, calculators project a $1M+ value in 15 years and $2M+ in 29 years when the new, low interest mortgage is paid off. YMMV but that’s too much dough to ignore, so I’m counting it as the investable asset that it is to me, even if it is a future liquidity event, similar to the sale of a rental property or business or some future income coming online in the plan, like SS or an annuity, etc. I don’t personally see the need to pretend it isn’t there, as some other overly-conservative investors (not you) seem to prefer.
Nobody is suggesting it be ignored; it is a component of your net worth.

But, it isn't part of your portfolio.
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Old 12-05-2021, 09:14 AM   #29
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... I don’t personally see the need to pretend it isn’t there, as some other overly-conservative investors (not you) seem to prefer.
Well, the nice thing about this question is that it is simply a matter of personal preference. Your preference appears to be in the minority. Re "overly-conservative" this is really just a gratuitous shot at those of us who disagree with you. As you like, I guess.
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Old 12-05-2021, 12:02 PM   #30
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I didn’t mean it as a gratuitous shot but as a challenge to think a little differently. We’ve had other strings exploring how the tendency on this board is for members to spend 2.5% when they could spend 4%, make sure their portfolios have 100% survivability when 90% would let them live a little better, work one more year, then another, then another. This is an early retirement forum, so I like to comment on strategies to help people retire earlier. Including a bit of future home equity in one’s long term projections can make a meaningful mathematical difference, so my point is legit, IMHO.
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Old 12-05-2021, 12:18 PM   #31
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Nobody is suggesting it be ignored; it is a component of your net worth.



But, it isn't part of your portfolio.


Umm, says who? The Personal Finance Board?
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Old 12-05-2021, 06:00 PM   #32
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I didn’t mean it as a gratuitous shot but as a challenge to think a little differently. We’ve had other strings exploring how the tendency on this board is for members to spend 2.5% when they could spend 4%, make sure their portfolios have 100% survivability when 90% would let them live a little better, work one more year, then another, then another. This is an early retirement forum, so I like to comment on strategies to help people retire earlier. Including a bit of future home equity in one’s long term projections can make a meaningful mathematical difference, so my point is legit, IMHO.
+1 a lot of the “advice” on this site is comically conservative.
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Old 12-05-2021, 06:43 PM   #33
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It's like "the rock" yeah, upkeep and taxes and insurance, but still cheaper than rent. And you don't get a 30 day notice because the owner is selling.

I don't consider it part of the portfolio, but it is a part of my stability. Which could be considered "fixed income" of a sort as I don't have fixed outgo "rent" or mortgage.

Another reason I have an 80-20 AA.
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Old 12-05-2021, 06:49 PM   #34
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... I don’t personally see the need to pretend it isn’t there, as some other overly-conservative investors (not you) seem to prefer.
I don't see where anyone said pretend that it isn't there. I include it in net worth, but since it doesn't produce cash flows that can be used for spending and I can't use it for withdrawals I don't consider it part of my retirement nestegg.

Might we sell it someday? Perhaps.

Include it if you wish to, but in my experience most people on this forum don't.
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Old 12-05-2021, 07:34 PM   #35
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It's like "the rock" yeah, upkeep and taxes and insurance, but still cheaper than rent. And you don't get a 30 day notice because the owner is selling.

I don't consider it part of the portfolio, but it is a part of my stability. Which could be considered "fixed income" of a sort as I don't have fixed outgo "rent" or mortgage.

Another reason I have an 80-20 AA.
I think along those lines too. If owning a home influences the AA of your stock/bond/cash portfolio, then your home is indirectly a part of your AA.

My modest home is a tiny part of my net worth, so it really isn't a significant part of my rationale in choosing a 60/40 AA. But if my home were worth millions, I'd definitely go heavier on equities in my brokerage account.

Perhaps we might say that our homes are not included in the calculation of the AA of our "investible" FIRE portfolio. But, the value of our home definitely influences our target AA.
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Old 12-05-2021, 07:42 PM   #36
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It's like "the rock" yeah, upkeep and taxes and insurance, but still cheaper than rent. And you don't get a 30 day notice because the owner is selling.

I don't consider it part of the portfolio, but it is a part of my stability. Which could be considered "fixed income" of a sort as I don't have fixed outgo "rent" or mortgage.

Another reason I have an 80-20 AA.


Yeah, I agree with the stability and fixed income comments. To me, home equity is, firstly, part of my SHTF Insurance someday when we’re older. Second, it is indeed a sort of “fixed income”, such as when we have periodically refinanced our appreciated houses, gotten a lower interest rate, and pulled out cash to pay off DW’s higher interest student loans way back when, but otherwise fixed up the houses to enjoy more and increase value when we’ve sold later. We bought a home in Atlanta in 2011 for a steal at the absolutely trough and sold it in 2014 for 30% more. That, friends, is an investment in my book. Treating an appreciating home this way (I’m on #4) seems like a better asset in my investment portfolio than does a pile of inert cash losing money to inflation, which is not even an investment. We’re splitting hairs, but this is what makes the most sense to me based on my experience owning houses and I can’t help what others do. Cheers.
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Old 12-05-2021, 07:47 PM   #37
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When you calculate asset allocation, do you include your home value as an alternative asset? I tried to search and could not find this discussed.



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Is the value of your home a significant portion of your total assets? If not, don't worry about it. If yes, do the calculation both ways and see if the difference between the two seems to matter. If it does seem to matter, give some thought to what your home is. A condo on the upper floor of a luxury urban high-rise? A modest home sitting on thousands of acres of prime farmland? An eight-flat where you live in one apartment and rent the rest? An expensive suburban home in a bedroom community you plan to sell and downsize when you FIRE?

"Home value" isn't a homogeneous term. It depends on what you mean by "home" and what percentage of your total worth it represents.

Note that the responses you're getting here are all correct........ based on the poster's particular circumstances, which might not apply to you at all.
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Old 12-06-2021, 05:56 AM   #38
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I do not count it in my net worth but am aware of the imputed rent "income" I get from not having to pay rent or have a mortgage payment. If I ever decide to move it would become an income producing property for me and at that point I would count it. It's an off-balance sheet asset that I treat the same as my HSA that I also do not count - essentially self-insurance reserves for SHTF.


It's all mental accounting, treat it the way that makes sense for you. If you are into comparing yourself to the Jonses most articles include home equity and often even other personal property.
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Old 12-06-2021, 06:38 AM   #39
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I do not consider the home I live in as an investible asset, so no. If someone has rental properties, I would think it appropriate to include them in the asset mix. Nevertheless, I'd consider it as part of ones net worth.
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Old 12-06-2021, 06:44 AM   #40
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Part of Net Worth, but not part of an investment portfolio.
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