Investable assets is obviously not the same thing as net worth and I don't think anyone has claimed otherwise. 2 different things. I think banks generally include home equity in net worth calculations.
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Last: 1 mo ago by jamey
To not include home equity in calculating net worth is silly and literally breaks the definition of net worth...
It is wise to disregard home equity when doing retirement planning or any type of planning that impacts the cash flow of your household but to ignore home equity when talking about "net worth" is ridiculous
It is wise to disregard home equity when doing retirement planning or any type of planning that impacts the cash flow of your household but to ignore home equity when talking about "net worth" is ridiculous
Agree...lots of people can't separate those things.
Yeah, I probably shouldn't have used the term net worth. That's not the metric that I'm measuring.
I'm looking at my savings - cash and retirement. I don't include my home equity in that because, as a previous poster said, I have to live somewhere. The value has absolutely no impact on my financial planning unless I sell it.
As a side note, housing is one of the things I "worry" about most when it comes to retirement.
I live in a Houston 'burb. I'm here for work. There is no way I would choose to live here otherwise. So, looking ahead to my retirement, moving somewhere else would be a priority.
However, moving is expensive. The cost of real estate, at least in desirable areas to live, is continually increasing.
My house will be paid off within the next 7-8 years, and it's going to be very hard to give up that financial freedom by taking on another mortgage.
I'm looking at my savings - cash and retirement. I don't include my home equity in that because, as a previous poster said, I have to live somewhere. The value has absolutely no impact on my financial planning unless I sell it.
As a side note, housing is one of the things I "worry" about most when it comes to retirement.
I live in a Houston 'burb. I'm here for work. There is no way I would choose to live here otherwise. So, looking ahead to my retirement, moving somewhere else would be a priority.
However, moving is expensive. The cost of real estate, at least in desirable areas to live, is continually increasing.
My house will be paid off within the next 7-8 years, and it's going to be very hard to give up that financial freedom by taking on another mortgage.
TXTransplant said:SoupNazi2001 said:
People include rentals because they produce cash flow. Many people don't include your primary residence because you have to live somewhere, it produces no cash flow and you only access it if you take out a home equity loan, sell it to rent or downsize.
This is exactly why I don't include the equity in my home.
Also, that equity is not "investable". I have a friend who is a financial planner who only works with high net worth single women - defined as women with $2 million or more in investable assets (specifically excluding home equity).
Only works with single, rich women huh? Your friend may be on to something!
Ha! My friend is a single woman herself. But, maybe she should change her focus to single rich men! Given the circles she runs in, I suspect she knows plenty of them, though.
Therein lies the conundrum. You will most likely have to move to a small town or rural area to get something roughly equivalent to what you have now that doesn't put you right back on a long-term mortgage (unless you willingly downgrade of course).
And even that is becoming not as easy anymore with so many folks moving out of cities now driving up the costs of homes in smaller towns. On top of that, you would probably have to build a house or gut an existing one and completely renovate it to get something updated.
And even that is becoming not as easy anymore with so many folks moving out of cities now driving up the costs of homes in smaller towns. On top of that, you would probably have to build a house or gut an existing one and completely renovate it to get something updated.
I agree with you if we're talking about the 40-50 cohort.mavsfan4ever said:You better be doing a lot more than maxing out retirement accounts to get to $10 million.94chem said:Two bachelor's degrees in engineering in the mid-90's, 1-2 children, maxing out 401(k) with corporate match, minimal giving, etc. $10 million would be a pretty easy number to reach.YouBet said:No kidding. I'm 46 and you have to have $10-11M net worth to be top 1%.Ed Carter said:
New net worth data is out...fascinating to see how much it takes to be in the top 1% these days
https://personalfinancedata.com/networth-percentile-calculator/
Let's say both spouses max out 401k (without company match), both max out IRA or backdoor Roth IRA, and then invest an additional $50k per year. That's about $100k per year for investments. Doing that for 30 years won't even get you to $10 million assuming a 6% rate of return.
I know you can mess with the numbers or the rate of return a little to get to the $10 million figure. But easy isn't how I would describe it.
But, a couple that hammers 401(k) and Roth right of undergrad for 40 years (full career duration) does easily get you to $10mm.
My spouse and I have been full gas, i.e. DINK and 50% savings rate, for the first 10 years of our careers. We now have a 20 month old and still maintain a similar savings rate.
I'm a CE turned consultant (MBA route) and she's an NP. We joined the club (sans home equity) this year at 33 with hopes to hit our FI number ($2.5m) by 40. If we continue at this pace until 60, we're well past the $10mm mark. However, 1) we won't and 2) maxing savings asap in your early 20s is a must to do so (at least for the corporate route). Last year was the first time growth outpaced our contributions. The earlier you get that velocity effect, the higher your potential NW ceiling from the traditional corporate gig/401(k) route.
We certainly had many advantages to our journey: career selection; mentors that enabled us to save early; entering the workforce into the big bull; big enough taxable account that we cash flowed MBA through margin borrowing instead of student loans; and timing the Height's housing market in '13. But our route isn't exclusive and it is well defined. Many could follow it if they want to. So far I would say it feels easy.
YouBet said:
Therein lies the conundrum. You will most likely have to move to a small town or rural area to get something roughly equivalent to what you have now that doesn't put you right back on a long-term mortgage (unless you willingly downgrade of course).
And even that is becoming not as easy anymore with so many folks moving out of cities now driving up the costs of homes in smaller towns. On top of that, you would probably have to build a house or gut an existing one and completely renovate it to get something updated.
Yep, I want to travel, so being near an international airport is going to be important. I've lived in rural areas - no thanks.
And your point about new construction and remodeling is spot on. The cost of building supplies has gone through the roof (pun intended). Even if you get a "deal" on an older house, it's likely to need tens of thousands of dollars worth of work.
Couple that with the fact that big houses have become the norm in construction over the past 20-30 years. I'm not going to need 2000-3000 (or more) sq feet. Even when I moved to the 'burbs in 2012, it was hard to find anything under 3000 sq ft. Smaller square footage seems to come in the form of an apartment and/or lesser quality construction, because the industry assumption is you are buying a smaller house because you can't afford anything bigger.
I've actually been thinking lately that I may be one of those people who moves to a 55+ "luxury" community. And that scares the bejeezus out of me.
This is our exact problem when we try to plan our next move. We are DINKs and have two scenarios for that next move. One of which is we want a modern, 1 story home no bigger than 3,000 sq ft that is in an exurb or further out and on acreage.TXTransplant said:YouBet said:
Therein lies the conundrum. You will most likely have to move to a small town or rural area to get something roughly equivalent to what you have now that doesn't put you right back on a long-term mortgage (unless you willingly downgrade of course).
And even that is becoming not as easy anymore with so many folks moving out of cities now driving up the costs of homes in smaller towns. On top of that, you would probably have to build a house or gut an existing one and completely renovate it to get something updated.
Yep, I want to travel, so being near an international airport is going to be important. I've lived in rural areas - no thanks.
And your point about new construction and remodeling is spot on. The cost of building supplies has gone through the roof (pun intended). Even if you get a "deal" on an older house, it's likely to need tens of thousands of dollars worth of work.
Couple that with the fact that big houses have become the norm in construction over the past 20-30 years. I'm not going to need 2000-3000 (or more) sq feet. Even when I moved to the 'burbs in 2012, it was hard to find anything under 3000 sq ft. Smaller square footage seems to come in the form of an apartment and/or lesser quality construction, because the industry assumption is you are buying a smaller house because you can't afford anything bigger.
I've actually been thinking lately that I may be one of those people who moves to a 55+ "luxury" community. And that scares the bejeezus out of me.
You might as well hunt for unicorns on I35. Would have to build this if we wanted it.
TXTransplant said:YouBet said:
Therein lies the conundrum. You will most likely have to move to a small town or rural area to get something roughly equivalent to what you have now that doesn't put you right back on a long-term mortgage (unless you willingly downgrade of course).
And even that is becoming not as easy anymore with so many folks moving out of cities now driving up the costs of homes in smaller towns. On top of that, you would probably have to build a house or gut an existing one and completely renovate it to get something updated.
Yep, I want to travel, so being near an international airport is going to be important. I've lived in rural areas - no thanks.
And your point about new construction and remodeling is spot on. The cost of building supplies has gone through the roof (pun intended). Even if you get a "deal" on an older house, it's likely to need tens of thousands of dollars worth of work.
Couple that with the fact that big houses have become the norm in construction over the past 20-30 years. I'm not going to need 2000-3000 (or more) sq feet. Even when I moved to the 'burbs in 2012, it was hard to find anything under 3000 sq ft. Smaller square footage seems to come in the form of an apartment and/or lesser quality construction, because the industry assumption is you are buying a smaller house because you can't afford anything bigger.
I've actually been thinking lately that I may be one of those people who moves to a 55+ "luxury" community. And that scares the bejeezus out of me.
This made me laugh. I'm nowhere near retirement but in my last house buying search, I ended up in a number of 55+ neighborhoods because I was looking for a nice, but small home (3 bed/2k sq ft range). Apparently the only neighborhoods in my area that have relatively new homes this size are retirement communities. Kept driving into neighborhoods to go look at houses, and seeing all the banners of white haired folks doing all the fun activities the neighborhood offers. Damnit. U-turn.
Another reason I exclude it is because I can log into my financial accounts and see exactly how much $ is in them. Can't do that with a house. Best I can do is see how much I still owe on the mortgage. Any equity is an estimate at best.
And how many people truly have significant equity (for argument's sake, let's define "significant" as six figures or more) in their homes? I know I didn't, at least until the last couple of years. I've been able to build equity because I put 20% down, I have a 15 year mortgage at a low interest rate, and I've been in this house for 7+ years. My area has appreciated in value, but not by some crazy amount. I might be able to list it for 20-25% more than what I paid.
It's much harder to build equity if you have a 30 year mortgage, some sort of 80/10/10 loan, or if you take out some sort of home equity loan to remodel or put in a pool, or if you move and upgrade every few years.
If you bought in a hot area, sold, and then used that money to pay cash for the next house, then that's great. But I wonder how many young (30-40-ish), middle class families are really able to do this.
I live in a neighborhood full of $500k-$700k homes, most built in the last 5-7 years, and most with pools. That's the norm. I doubt very many of my neighbors paid cash or have 15 year mortgages.
And how many people truly have significant equity (for argument's sake, let's define "significant" as six figures or more) in their homes? I know I didn't, at least until the last couple of years. I've been able to build equity because I put 20% down, I have a 15 year mortgage at a low interest rate, and I've been in this house for 7+ years. My area has appreciated in value, but not by some crazy amount. I might be able to list it for 20-25% more than what I paid.
It's much harder to build equity if you have a 30 year mortgage, some sort of 80/10/10 loan, or if you take out some sort of home equity loan to remodel or put in a pool, or if you move and upgrade every few years.
If you bought in a hot area, sold, and then used that money to pay cash for the next house, then that's great. But I wonder how many young (30-40-ish), middle class families are really able to do this.
I live in a neighborhood full of $500k-$700k homes, most built in the last 5-7 years, and most with pools. That's the norm. I doubt very many of my neighbors paid cash or have 15 year mortgages.
About the only efficient way you can incorporate an estimate of your home is to import Zillow figures and I have no idea how accurate those are (Quicken will automatically do this and Chase does it if you have your mortgage with them). I'm guessing Zillow is +- 25% of reality, but that is a swag on my part as I have zero experience with them other than looking at their numbers like every other consumer. I do not think we could get our current Zillow value without spending $10-15k in reno and upgrades which we plan to do anyway.
We have about 50% equity in our home after five years, but that is primarily because we rolled all of the proceeds from our first home into this one. It was an upgrade in house, but we made out pretty well from first home being in hot ass East Dallas.
We have about 50% equity in our home after five years, but that is primarily because we rolled all of the proceeds from our first home into this one. It was an upgrade in house, but we made out pretty well from first home being in hot ass East Dallas.
If you wanted a compromise on including home equity, I would propose taking the Zillow amount, discount it by some factor (say 10%), further discount for closing costs of what it would take to outright sell the house, then further discount by what it would take to acquire minimally acceptable residence for cash.
So if you lived in a $500k house with $300k equity, then take the $300k less the 10% discount of value ($50k) less potential selling costs (another$50K) then determine your minimally acceptable residence value. Thats probably $150k to $200k for most people.
That results in the house contributing at most $50k to you "net worth", hence why others say its just best to exclude. Including the full value of $300k in equity would be woefully inadequate for financial planning but perfectly acceptable if you were putting together a personal financial statement for a bank.
So if you lived in a $500k house with $300k equity, then take the $300k less the 10% discount of value ($50k) less potential selling costs (another$50K) then determine your minimally acceptable residence value. Thats probably $150k to $200k for most people.
That results in the house contributing at most $50k to you "net worth", hence why others say its just best to exclude. Including the full value of $300k in equity would be woefully inadequate for financial planning but perfectly acceptable if you were putting together a personal financial statement for a bank.
Zillow is so worthless I honestly would not even waste your time with it Easiest thing to do would be call one of your realtor buddies to run comps on what has sold in your neighborhood and then compare it to your house.
Lol at those closing costs. Unless you have a very unusual real estate situation that involves professional help it is very easy to sell a house these days paying minimal closing costs. With regards to realtor commissions I've never understood why people just blindly accept that they have to give away 6% of their sales price to realtors. Incredibly negotiable and easy to find
Ed Carter said:
Lol at those closing costs. Unless you have a very unusual real estate situation that involves professional help it is very easy to sell a house these days paying minimal closing costs. With regards to realtor commissions I've never understood why people just blindly accept that they have to give away 6% of their sales price to realtors. Incredibly negotiable and easy to find
Zillow will automatically import to quicken which is why I use it. Total approximation only for me.
The $50k closing cost number above threw me for a loop. Never heard of such a number for closing costs. Lol.
The Zillow estimates for my 'hood are SO bad. My house doesn't even have one.
But, I stay up on the market, and I've protested my property taxes a couple of times, so I think I have a good feel for what the market has been. But nothing has sold on my street in almost a year, so I can't count on market stability. And since I have no intention of cashing out, it's irrelevant to me anyway.
But, I stay up on the market, and I've protested my property taxes a couple of times, so I think I have a good feel for what the market has been. But nothing has sold on my street in almost a year, so I can't count on market stability. And since I have no intention of cashing out, it's irrelevant to me anyway.
Wouldn't you place the value of a residence as what you paid for it in your NW calculation and not factor in market conditions as those fluctuate over time. Capture realized gains/losses when you sell. Similar to vehicles unless your running a depreciation schedule on that which seems like a lot of work.
https://www.bankrate.com/real-estate/how-much-does-it-cost-to-sell-house/YouBet said:Ed Carter said:
Lol at those closing costs. Unless you have a very unusual real estate situation that involves professional help it is very easy to sell a house these days paying minimal closing costs. With regards to realtor commissions I've never understood why people just blindly accept that they have to give away 6% of their sales price to realtors. Incredibly negotiable and easy to find
Zillow will automatically import to quicken which is why I use it. Total approximation only for me.
The $50k closing cost number above threw me for a loop. Never heard of such a number for closing costs. Lol.
Just putting a figure out there at 10%. Yes you could and should expect lower, but the point was to be most conservative when estimating.
You add in any sort of repairs to prep house for sale and then any repairs that come up during inspection, then 10% is not far fetched at all.
If your house is a completely rundown sh^thole, then yes. I've never heard of anyone spending $50k in closing costs that remotely kept their house maintained.fka ftc said:https://www.bankrate.com/real-estate/how-much-does-it-cost-to-sell-house/YouBet said:Ed Carter said:
Lol at those closing costs. Unless you have a very unusual real estate situation that involves professional help it is very easy to sell a house these days paying minimal closing costs. With regards to realtor commissions I've never understood why people just blindly accept that they have to give away 6% of their sales price to realtors. Incredibly negotiable and easy to find
Zillow will automatically import to quicken which is why I use it. Total approximation only for me.
The $50k closing cost number above threw me for a loop. Never heard of such a number for closing costs. Lol.
Just putting a figure out there at 10%. Yes you could and should expect lower, but the point was to be most conservative when estimating.
You add in any sort of repairs to prep house for sale and then any repairs that come up during inspection, then 10% is not far fetched at all.
Lived in our first home 15 years. We did not do any remodeling or other updates so we had to spend some to get the house ready to sell. Or we could have dropped the sales price.
Live in a house for a length of time, have kids and dogs, particularly on a starter home / 1st move up and you will spend some money to sell it.
You miss the part where I clearly indicate its an overestimate, but that is the most conservative view when you are simply estimating value.
Simple point was that unless you have significant equity in a home, then no particular reason to include it in your financial planning. I stand by that.
Live in a house for a length of time, have kids and dogs, particularly on a starter home / 1st move up and you will spend some money to sell it.
You miss the part where I clearly indicate its an overestimate, but that is the most conservative view when you are simply estimating value.
Simple point was that unless you have significant equity in a home, then no particular reason to include it in your financial planning. I stand by that.
My net worth has gone up but my percentile has gone down since I last ran this a couple years ago...it must be brokenEd Carter said:
New net worth data is out...fascinating to see how much it takes to be in the top 1% these days
https://personalfinancedata.com/networth-percentile-calculator/
TXTransplant said:
And how many people truly have significant equity (for argument's sake, let's define "significant" as six figures or more) in their homes? I know I didn't, at least until the last couple of years. I've been able to build equity because I put 20% down, I have a 15 year mortgage at a low interest rate, and I've been in this house for 7+ years. My area has appreciated in value, but not by some crazy amount. I might be able to list it for 20-25% more than what I paid.
I purchased my current home in 2012 in Denver suburbs, and the value has increased ~$250k, or about 60%.
Today I have $320k+ in equity. I absolutely include this in my net worth and retirement planning, because when my kids are on their own here in 20 years, maybe 5 years later in our mid 60s, wife and I will very likely be selling this house to buy a condo or whatever has much less maintenance so we can travel. So, in today's dollars, I have $320k for retirement to do that.
In 20-25 years, it will probably be closer to a $1m in equity because it will be paid off and worth about that much. (house is ~$630k now) Say I spend half that (this is 2045 dollars) on a condo, I have $500k left over.
You're looking at it too much in the 'now'. No, you can't access that money now, or if you move across the street.. but someday, nearly every single person sells that home they live in to significantly downsize.. or when you die, your grown kids are gonna sell that house and cash it out. For me to not think that in my 60s I'll have $700k-$1m worth of a house that I can sell, buy something much cheaper, and put the rest in my bank is silly.
My first house in NW burbs grew a whopping 10%, or $10k, in 7 years we've lived there. Most of Houston burbs sucks for appreciation, because the sprawl never ends. Just plop a new neighborhood another mile or two out.
TXTransplant said:
It's much harder to build equity if you have a 30 year mortgage, some sort of 80/10/10 loan, or if you take out some sort of home equity loan to remodel or put in a pool, or if you move and upgrade every few years.
You build much more equity in your house with the luck of appreciation, not by paying the balance down.
I have a neighbor that bought a house in san diego in late 90s, sold it for double about 7 years later. Then he moved to Arizona, paid cash for a house, it appreciated 30% in 5 years, then sold and moved to Denver. He just sold this week down the street with 50% appreciation (same floor plan as mine, so an easy comp), and moving back to CA to buy a condo cash with left over money (retiring)
This happens all over the county to a lot of people, and it is absolutely real money. He now has a place to live in retirement plus several hundred grand made in the process.
All the rich guys with $10mm liquid laughing at the lolpoors debating for multiple pages if their home equity should be included in net worth
Yep, that was kind of my point. Appreciation builds equity, and if you happen to live in an area that doesn't appreciate much, well...
And that's where I am. I don't expect my home to be worth $600k when I retire (and God help us all if it is). And downsizing isn't really an option, as I only have 2300 ft. I suppose I could move into something smaller, but it's not likely to cost less than what I already have.
And I sure as heck don't calculate my net worth based on what I might leave to my kid. I don't expect an inheritance from my parents (I hope they spend every penny), and I'm not actively trying to leave one to my kid.
It would be fantastic if I could do so, but realistically, I've got another 40 years (at least) to live off a good (but far from executive-level) corporate America salary and retirement. We aren't the Waltons, the Trumps, or the Gates. I'm just trying to build enough so that I'm not DEPENDENT on my son in my old age and he can build his own wealth.
And that's where I am. I don't expect my home to be worth $600k when I retire (and God help us all if it is). And downsizing isn't really an option, as I only have 2300 ft. I suppose I could move into something smaller, but it's not likely to cost less than what I already have.
And I sure as heck don't calculate my net worth based on what I might leave to my kid. I don't expect an inheritance from my parents (I hope they spend every penny), and I'm not actively trying to leave one to my kid.
It would be fantastic if I could do so, but realistically, I've got another 40 years (at least) to live off a good (but far from executive-level) corporate America salary and retirement. We aren't the Waltons, the Trumps, or the Gates. I'm just trying to build enough so that I'm not DEPENDENT on my son in my old age and he can build his own wealth.
I think home equity should be accounted for in net worth. I think more in terms of required future cash flows and needs.
I think Net Worth is very important but I keep it a little more granular.
Let's say I want to have $200K in cash flow off of investments to either retire or change careers to a less stressful setup.
That is made up of after tax investments (stocks and bonds), real estate (cash flowing rentals and vacant property which can be converted to cash flowing assets) and any ancillary business income (in my cash, small ranching income, small oil and gas royalties) and any direct investments.
I model out what that cash flow looks like and what I need to do to get to a level where I have a nice stable mix to generate cash but not overexpose my situation to sequence of return risk.
So- having $1MM with $200K house equity, $400K in retirement accounts and the rest in various after tax would likely not kick off much pre 60 income. Sure, it is aspirational for most but house equity is tied up and just reduces expenses with down the line optionality to toggle both cash needs and cash generation.
I think Net Worth is very important but I keep it a little more granular.
Let's say I want to have $200K in cash flow off of investments to either retire or change careers to a less stressful setup.
That is made up of after tax investments (stocks and bonds), real estate (cash flowing rentals and vacant property which can be converted to cash flowing assets) and any ancillary business income (in my cash, small ranching income, small oil and gas royalties) and any direct investments.
I model out what that cash flow looks like and what I need to do to get to a level where I have a nice stable mix to generate cash but not overexpose my situation to sequence of return risk.
So- having $1MM with $200K house equity, $400K in retirement accounts and the rest in various after tax would likely not kick off much pre 60 income. Sure, it is aspirational for most but house equity is tied up and just reduces expenses with down the line optionality to toggle both cash needs and cash generation.
that's not what I said at all.. I said that if you do croak before retiring/downsizing occurs, your equity will go to your (hopefully) already setup trust/estate, which goes to your child.. and hopefully they are grown when this happens. Whether it's $30k or $300k.TXTransplant said:
And I sure as heck don't calculate my net worth based on what I might leave to my kid. I don't expect an inheritance from my parents (I hope they spend every penny), and I'm not actively trying to leave one to my kid.
Point being, the net worth calculation includes home equity, because for many, many people, it is and will be a significant sum when they retire/downsize or die. really the only ones that don't have a decent sum are those that continue to keep up with the Jones' and buy 3/4/5 houses in their 30-40 years of living in one. There is no arbitrary number that says ok, this is low enough, you don't have to include it.
To further prove the point, let's look at the flip side. You buy a house in AZ for $300k in 2007. In 2010 you're forced to move for any number of reasons, and you owe $100k more than it sells for.
Is not real debt? If you simply chose to not include it in your net worth, does it magically disappear?
Blah blah blah.. home equity is real money, no matter how you slice it, + or -
I edited my previous post, then you replied, so I'm moving my edits here.
I can't predict the future, but I just don't see a scenario where I'll ever have $500k equity in my home (much less $700k-$1 million), even once it's paid off. If I get lucky and can sell it for north of $400k (I paid $315k when I bought it), I'll still have to turn around and buy (or rent) something else. Best case scenario, that equity pays for my living expenses for the rest of my life and I break even. I don't expect to come out ahead.
As a previous poster pointed out, unless I move to a rural area, housing is still going to be a considerable expense for me well into retirement. I will probably be better off just staying put - which means I won't benefit from that equity until my kid has to put me in a nursing home. If I croak before then, well, sure, my kid will get a $400k windfall.
I am certainly aware of people who have benefited from significant real estate appreciation. Because of where I live, I will likely not experience that.
At best, if I stay where I am and pay off my house, it won't be an "expense" when I retire and have to live on a fixed income.
It's all splitting hairs. I'm just in a situation where I'm not going to rely on any home equity to help me during retirement. I just don't have enough of it.
But, if I do count it, then I guess I should have posted in this thread a long time ago!
I can't predict the future, but I just don't see a scenario where I'll ever have $500k equity in my home (much less $700k-$1 million), even once it's paid off. If I get lucky and can sell it for north of $400k (I paid $315k when I bought it), I'll still have to turn around and buy (or rent) something else. Best case scenario, that equity pays for my living expenses for the rest of my life and I break even. I don't expect to come out ahead.
As a previous poster pointed out, unless I move to a rural area, housing is still going to be a considerable expense for me well into retirement. I will probably be better off just staying put - which means I won't benefit from that equity until my kid has to put me in a nursing home. If I croak before then, well, sure, my kid will get a $400k windfall.
I am certainly aware of people who have benefited from significant real estate appreciation. Because of where I live, I will likely not experience that.
At best, if I stay where I am and pay off my house, it won't be an "expense" when I retire and have to live on a fixed income.
It's all splitting hairs. I'm just in a situation where I'm not going to rely on any home equity to help me during retirement. I just don't have enough of it.
But, if I do count it, then I guess I should have posted in this thread a long time ago!
And I'm going to disagree with the thought that the ~only~ people who don't have equity are those who continually try to keep up with the Jones.
If you don't live in a major US city or (maybe) one of its suburbs, 6-7 figure home appreciation is something you just hear about on TV.
My first house, I purchased in 2004 for $155k. Sold it in 2011 for $179k. It sold in 2017 for $155k (I think it went into foreclosure) and again in 2019 for $192k.
It's a nice house...2000 sq ft on 1/2 an acre! But it's outside of Huntsville, AL. In another 15 years, it's not going to appreciate much more. If I still lived there, it would be paid off, so sure, I'd have $200k in equity, which is a substantial sum, but compared to the rest of my retirement, it's not much. And $200k in equity wouldn't get me much if I sold it and moved. It would be a nice down payment, but $200k doesn't get you much anymore - even in rural areas.
To make money on real estate, you have to take a risk - buy in an up and coming area, do renovations, maybe spend more than you really want to, etc. I will freely admit that I have NOT done that.
If you don't live in a major US city or (maybe) one of its suburbs, 6-7 figure home appreciation is something you just hear about on TV.
My first house, I purchased in 2004 for $155k. Sold it in 2011 for $179k. It sold in 2017 for $155k (I think it went into foreclosure) and again in 2019 for $192k.
It's a nice house...2000 sq ft on 1/2 an acre! But it's outside of Huntsville, AL. In another 15 years, it's not going to appreciate much more. If I still lived there, it would be paid off, so sure, I'd have $200k in equity, which is a substantial sum, but compared to the rest of my retirement, it's not much. And $200k in equity wouldn't get me much if I sold it and moved. It would be a nice down payment, but $200k doesn't get you much anymore - even in rural areas.
To make money on real estate, you have to take a risk - buy in an up and coming area, do renovations, maybe spend more than you really want to, etc. I will freely admit that I have NOT done that.
This is similar to how I look at it. Bucket number one is existing cash flow from passive assets with no age restriction. Then I take my restricted accounts, reduce the amount by the penalty for early withdrawal, and multiply by the yield I get from bucket 1.
That gives me an annual income. When the annual income hits a certain number, I'll probably ease up in the rat race; when it hits another number I'll disappear into the mountains.
I have quite a bit of equity in my house thanks to buying right and a little appreciation. As I get closer to exiting (hopefully 10 years from now in my early 40s), I'll start working out whether that equity is available to reuse on my retirement property or if I will need to dig into the nest egg. I just don't see much point trying to figure it out now, I don't know what real estate will do next month let alone in 2030.
That gives me an annual income. When the annual income hits a certain number, I'll probably ease up in the rat race; when it hits another number I'll disappear into the mountains.
I have quite a bit of equity in my house thanks to buying right and a little appreciation. As I get closer to exiting (hopefully 10 years from now in my early 40s), I'll start working out whether that equity is available to reuse on my retirement property or if I will need to dig into the nest egg. I just don't see much point trying to figure it out now, I don't know what real estate will do next month let alone in 2030.
Yep, it's net worth is a huge complement but sources and uses is more important imo
Again; you either die in the 6000sf house and your estate gets the $500k in equity, or you downsize and you pocket half of it. The grandkids aren't gonna wanna come over for ever.. you maybe have 10-15 years out of itSoupNazi2001 said:62strat said:TXTransplant said:
And how many people truly have significant equity (for argument's sake, let's define "significant" as six figures or more) in their homes? I know I didn't, at least until the last couple of years. I've been able to build equity because I put 20% down, I have a 15 year mortgage at a low interest rate, and I've been in this house for 7+ years. My area has appreciated in value, but not by some crazy amount. I might be able to list it for 20-25% more than what I paid.
I purchased my current home in 2012 in Denver suburbs, and the value has increased ~$250k, or about 60%.
Today I have $320k+ in equity. I absolutely include this in my net worth and retirement planning, because when my kids are on their own here in 20 years, maybe 5 years later in our mid 60s, wife and I will very likely be selling this house to buy a condo or whatever has much less maintenance so we can travel. So, in today's dollars, I have $320k for retirement to do that.
In 20-25 years, it will probably be closer to a $1m in equity because it will be paid off and worth about that much. (house is ~$630k now) Say I spend half that (this is 2045 dollars) on a condo, I have $500k left over.
You're looking at it too much in the 'now'. No, you can't access that money now, or if you move across the street.. but someday, nearly every single person sells that home they live in to significantly downsize.. or when you die, your grown kids are gonna sell that house and cash it out. For me to not think that in my 60s I'll have $700k-$1m worth of a house that I can sell, buy something much cheaper, and put the rest in my bank is silly.
My first house in NW burbs grew a whopping 10%, or $10k, in 7 years we've lived there. Most of Houston burbs sucks for appreciation, because the sprawl never ends. Just plop a new neighborhood another mile or two out.TXTransplant said:
It's much harder to build equity if you have a 30 year mortgage, some sort of 80/10/10 loan, or if you take out some sort of home equity loan to remodel or put in a pool, or if you move and upgrade every few years.
You build much more equity in your house with the luck of appreciation, not by paying the balance down.
I have a neighbor that bought a house in san diego in late 90s, sold it for double about 7 years later. Then he moved to Arizona, paid cash for a house, it appreciated 30% in 5 years, then sold and moved to Denver. He just sold this week down the street with 50% appreciation (same floor plan as mine, so an easy comp), and moving back to CA to buy a condo cash with left over money (retiring)
This happens all over the county to a lot of people, and it is absolutely real money. He now has a place to live in retirement plus several hundred grand made in the process.
That's great if you intend to downsize. Both of my brothers have 5K and 6K square foot houses with pools. Both of them wanted to downsize. Wives didn't want to because of the 3-4 times a year the grandkids come over. Guess who won that disagreement in both cases.
Either way, assuming you aren't completely financially irresponsible and still owe 50% of your mortgage balance (plausible if you're the keeping up with the Jones' type), you have the value of your home in equity, and it's wealth for someone at some point.
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