Who counts part of their home value as "retirement savings" (conversation, dumped)
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Before I retired each home we lived in was an apartment building that paid us. Above the normal monthly bills [mortgage interest, taxes, insurance, sewage, etc. We also made a monthly principal-only payment to build equity a little faster.
Those homes I looked at as a part of my Net Worth.
I have never owned a Single-Family-Residence that had a mortgage on it. If you own real estate like that, who is paying you to own it?
It's funny now we practically expect the homes we owned will appreciate over time.
But how many of us realize that it was INFLATION that's causing that appreciation?
Technically speaking, the homes does not appreciate in value. It only catches up with inflation-adjusted prices.
It's funny now we practically expect the homes we owned will appreciate over time.
But how many of us realize that it was INFLATION that's causing that appreciation?
Technically speaking, the homes does not appreciate in value. It only catches up with inflation-adjusted prices.
But homes don't appreciate at the same rate. Where I live and invest property gains value 2,3,4 times that of inflation while others don't even keep up with inflation. That is why I consider that increase as money in the equity bank. Multiple ways to access that "savings" and it keeps getting refilled by more appreciation.
I think it's a BIG mistake to include one's home value as part of their net worth, mostly because of its illiquid properties. It doesn't help if you need income soon for any reason, it just took us 7 months to finalize the sale of my mother's house, admittedly during covid, despite getting a buyer the first weekend. But we never know what other obstacles could delay or devalue a complicated holding like your family home.
On the other hand it's value isn't completely irrelevant either especially if there are firm & imminent plans to downsize & hold on to some of the revenue. But I wouldn't consider a family home as part of one's net worth.
I think it's a BIG mistake to include one's home value as part of their net worth, mostly because of its illiquid properties. It doesn't help if you need income soon for any reason, it just took us 7 months to finalize the sale of my mother's house, admittedly during covid, despite getting a buyer the first weekend. But we never know what other obstacles could delay or devalue a complicated holding like your family home.
On the other hand it's value isn't completely irrelevant either especially if there are firm & imminent plans to downsize & hold on to some of the revenue. But I wouldn't consider a family home as part of one's net worth.
Net worth is a very different calculation then just counting liquid assets ….they mean different things and are used for different purpose and are two very different calculations.
A retirement draw is based on liquid assets …. For purposes of state or federal taxes or feel good calculations they includes liquid and non liquid
I think it's a BIG mistake to include one's home value as part of their net worth, mostly because of its illiquid properties. .
All properties do not have the same liquidity. That is why generic housing questions are mostly useless. Plus if the market is down I don't not have to liquidate to get cash. It can be as simple as writing a check. Properties in my area pretty much sell in a day or two. I have people that want to know when I am ready to sell. I don't see liquidity as a factor. As far as a "draw" I can pretty much count on 40 years of rent growth data and use that in my spending calculations.
Now if my properties were in Podunk then for sure I would treat them differently.
Right now, I have a $500K mortgage on a house worth $1.2M (so $700K equity). I have a 15 year mortgage, and my mortgage+taxes is about the same (probably more) than if I were to rent the same house.
So basically, if I sold my house and rented it back from the new owner, I would have around $600K in the bank AND the same $6K monthly payments (for at least the next 15 years or so). So why wouldn't I count that towards my retirement savings?
If I just plan to pay $6K/month (and adjust for inflation) for housing, it seems totally reasonable to count $600K towards my retirement goal (if I have enough other money to last me 15 or so years before I need that money).
Just seems silly not to count it just because I "own" the house
You don’t own the house outright
We owned two houses outright at same time in different states and when our financial guys did our net worth every year they always counted the value of the houses’ market value…
Any real estate with equity in it above the mortgage value is ripe for refinancing.
Mine sure was! Signed the papers yesterday. Debt-free now except my new mortgage. A good feeling.
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