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Old 02-25-2018, 06:49 PM   #21
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Is that figure based on a 1 or 1.5% of value type formula ?
Nope. My house is not near that value.

It is based on 20 years of my own data, with inflation, which includes HVAC, roof and misc maintenance. Some years I've had $1k of maintenance/repair, another year I had $18k.

This does not include taxes or utilities, etc.
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Old 02-25-2018, 06:55 PM   #22
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If you can retire comfortably without counting your house in the equation, then you can always use the house as a backup plan if things go horribly wrong. But if you need to count on a portion of the equity in your home to feel comfortable retiring, you are probably cutting it too close.

This topic comes up frequently, and for those of us who live in a HCOLA, it's hard to ignore, since the homes can often be a very sizable portion of total net worth.
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Old 02-25-2018, 06:59 PM   #23
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My 2 homes are 21% of my networth. Used to be a higher percentage, but the portfolio growth has been better than home appreciation.

Together, their operating costs consume 30% of my living expenses, computed over the last 8 years since I started to keep data.
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Old 02-25-2018, 07:12 PM   #24
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Since my house was paid off, for retirement planning purposes I considered my house to simply represent a permanent lowering of my spending requirements. In my case, I would never, ever get another mortgage because I hate them. So this was a fair way to look at it.

Since I don't live in a high COL area with high home prices, I never considered my house to be part of my retirement funding. I also never considered it to be an investment; to me it is a place to live.

I guess it is about 14%-17% of my net worth, but the ONLY use I ever have for the net worth number, is posting in threads like this. It just is not relevant to my retirement calculations. If I decided to rent, I'd consider the proceeds as an increase in my portfolio size, but also my planned expenses would need to change, up or down depending on the expected rent.

As for long term care, I plan to fund that myself from my portfolio although the proceeds from selling my house could make those arrangements more luxurious (if/when needed). Not counting on the house for that, either.
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Old 02-25-2018, 07:13 PM   #25
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I live in a place with a market value that is about 4% of my net worth but I can't count it because it belongs to my landlord. Even as an owner I still wouldn't include it in my numerator, but my denominator would shrink because total ownership cost would be about half what I pay in rent. Buying would reduce my WR, so I'm open to it if I can get one exactly where I want.

I'd value a rental unit at 20x average annual rent received minus all taxes and expenses, and this I would count as an investment asset.
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Old 02-25-2018, 07:23 PM   #26
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We plan to downsize, but move to a higher-cost housing state...so even though we get less house, we will pay about the same...so we don't count it.

Currently 2,750 sqft main level with 1,300 sqft basement (mostly finished), estimate it's worth about $430k

Will move to about 2,200 sqft with no finished basement or no basement at all...but probably will spend a bit over $400k

Take out the realtor fees for selling and moving costs, and it's a wash for us.
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Old 02-25-2018, 07:51 PM   #27
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I don't consider my home part of my investment assets and don't consider it part of my withdrawal rate. However, it is part of my net worth and I count the equity in it as such. That said - downsizing may or may not result in a less expensive house.

We did one cut of downsizing about 7 years ago. At that time, our housing costs did go down. We moved from a very large, expensive house to a smaller property. We still had some kids at home but not as many as before. Anyway, that downsize cut our housing related costs about in half.

However, we are about to downsize again now that the kids are entirely gone. This may not help us much with housing costs because of where we are moving to. We will indeed be moving to a smaller house probably 25% to 33% the size of what we have now. So, yes, I expect to have lesser utility and maintenance costs. However, this smaller house will probably cost about the same as what we are selling our current house for and may cost a little more (maybe 10% more). So, in that sense and in terms of property taxes our expenses may go up a little.

When I first started thinking of downsizing again I assumed the new house would be less money. But, when I looked at what we really wanted in terms of location it really doesn't work out that way for us.
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Old 02-25-2018, 08:07 PM   #28
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[...]However, this smaller house will probably cost about the same as what we are selling our current house for and may cost a little more (maybe 10% more). So, in that sense and in terms of property taxes our expenses may go up a little.

When I first started thinking of downsizing again I assumed the new house would be less money. But, when I looked at what we really wanted in terms of location it really doesn't work out that way for us.
I ended up paying more for a smaller house too, although it does have a large detached garage that isn't included in the square footage. I am in a much nicer neighborhood than before, in a 1500 sf home instead of 1600 sf. But the selling price was 119% of the selling price for my prior home. Now that doesn't sound bad, but when you consider all the costs of moving, closing, inspections, repairs, my landscaping project (gargantuan trees removed, jungle of bushes removed, regrading, new topsoil, sodding, concrete work, etc), and so on, the final amount was 149% of what I got for my prior home.

SO worth it, though! I hope your dream home will make you as happy as mine has made me. Just living here still adds joy to every day.
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Old 02-25-2018, 08:11 PM   #29
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I don’t include mine in my net worth and like others think of it as a long term care resource. It will be paid off by the time I need care hopefully - now worth approx $250k. If I had concrete plans of downsizing I might think differently.
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Old 02-25-2018, 08:26 PM   #30
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Personal residences don't count towards anything until you sell them and cash in the equity imo. Until then, you may have "plans" to get "some" of the equity out, but you're unlikely to have a good idea of how much you'll get until you actually do it, and until you do it the house is generating no income for you to consider in retirement planning.
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Old 02-25-2018, 08:58 PM   #31
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I count my house in my net worth. I consider it as a "bond" type investment. It reduces my expenses (compared to renting) and yeah, you need to live somewhere eh?
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Old 02-25-2018, 09:02 PM   #32
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I technically count my house in my net worth - since that is how net worth is defined.

But... Like most others here I do not consider it in my 'portfolio' that I use for determining withdrawals/spending/etc.

Home is paid off. We have a detached rental unit on the same parcel. (Granny flat). Rental income has netted 17% of our annual spending. Home expenses are much lower (thanks in part to Prop 13.) Home represents about 35% of our total net worth.

I would not buy a place with a rental unit - we built it as a solution to the increased needs of my in-laws... to give them privacy and their own space, but still be able to offer support. That is no longer needed and we were fortunate to get great tenants. The income is definitely part of our budget - it helps keep my WR nice and low (<3%).

We will probably downsize to a less expensive place in the future just so we can "lock and go" travel. We'll have to completely evaluate it to make sure that the loss of income is fully accounted for.
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Old 02-25-2018, 09:27 PM   #33
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You asked how this fit in with a proposed 3.5% SWR. I'll note that historical SWR studies have only looked at financial market assets, not direct real estate holdings. So the best way to look at landlordship is to probably consider it an ongoing income stream that reduces your needed portfolio withdrawal. And then you can liquidate if you need to. But don't forget the caveats that folks here have mentioned about variability of real estate markets, rents, and occupancy. Of course such variance applies to equity and fixed income markets too.

But that is more of an in-retirement issue. If looking at retirement a few or more years out, your investment in rental properties is certainly part of your investment portfolio. You can expect both capital gains and dividends (rent minus expenses) in the long term, which will provide the assets needed for ER.
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Old 02-25-2018, 09:39 PM   #34
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My 2 homes are 21% of my networth. Used to be a higher percentage, but the portfolio growth has been better than home appreciation.

Together, their operating costs consume 30% of my living expenses, computed over the last 8 years since I started to keep data.
For simplicity, let's say that the homes are about the same in value, and require the same in annual expenses.

Then, if I sell one and invest the proceed, my investable assets will increase to 113% of the current value. My expenses will reduce to 85% of what they are. This means my WR will reduce to 75% of the current WR.

Or I can use that 25% for something else. Something to think about.
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Old 02-25-2018, 09:56 PM   #35
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I include our house (personal residence) at the same value in our net worth as my socks.
You need to live somewhere and you need to keep your feet warm.
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Old 02-25-2018, 10:17 PM   #36
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Both homes and socks may be overrated.

One can sell both, and go live barefoot on a sailboat in the Caribbean.

Not a choice for me, but many have done the above.
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Old 02-25-2018, 10:36 PM   #37
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If I had to do it over again I would have bought a smaller house - no more than 3 bedrooms and 2 bathrooms. Downsizing sounds like a good plan but the reality is it is a lot of work to declutter and fix up a big house to sell, and you might not want to leave your neighbors and neighborhood when you are older. Bigger houses usually cost more to insure, upgrade, heat, cool, repair, furnish, pay property taxes on, etc.
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Old 02-25-2018, 10:37 PM   #38
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How people calculate their funds from which they withdraw is fine and left up to the individual.

As far as counting property as part of your net worth, I think you're doing yourself a disservice to not count it.

The value of owning bigger / more property has a strong impact on one's personal wealth. To ignore that would be counterproductive I feel.
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Old 02-25-2018, 10:49 PM   #39
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The standard accounting definition of Net Worth is Assets minus Liabilities. Therefore I always include my home equity in my Net Worth. However, my investable assets, and the numbers on which I base my retirement decisions, do not include my home. As a LBYM single person, I have never bought “too much house”. If I move again, it won’t be to downsize, and I might very well end up buying a more expensive home. In the event that I need long term care, I can sell my home to help pay for it, but I am not counting on that.
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Old 02-26-2018, 01:19 AM   #40
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It helps to use two definitions, IMO. Your investable assets and your net worth. I think many people on this form consider home equity part of their net worth, but not their investable assets.

When planning your retirement, think of the income you can generate, not asset base. If you have a rental that returns a net of $1,000 a month, you will need less 3%-4% withdrawal money, right? (In essence, $1,000 a month in rentals, is worth $250k at 4% withdrawn, if that helps).

Our rental property returns a net average of just under 7%, not including tax benefits. As a result, we do not need as much in assets as a 4% withdrawal type scenario.

And you can use this same thinking when putting SS retirement benefits or a part time job into the mix.
Focus on the income you need in retirement, and work from there.
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