how do you include home equity/value in your net worth?

[scfr]

What if there is another real estate boom and the value of your home doubles in a short period of time?

Right - how you choose to value your home is very important. After purchasing my home (in a minor trough for my local real estate market), I shaved 8% off of the purchase price to account for eventual sales costs, and now adjust by CPI-U. That eliminates the need to worry about the ups and downs of the real estate market.

[siggy_freud]

I count it only so far as to offset the debt took on to own it. For example, if my primary residence had a mortgage of 100k, but was worth 140k, it offsets the debt, but I don't count the positive equity as an asset.

It should count for something, as it does offset its own debt (assuming it's worth more than you owe). However because you need somewhere to live, you shouldn't count your primary residence as a positive asset.

Does that make sense? Its value offsets negative risk, but doesn't add positive value.

[TBH]

And I personally believe that you SHOULD look at what percentage of your net worth is in your non-financial assets, and should have a target for what you want it to be at retirement ... but I have drawn a lot of flack from others on this site for suggesting something so "ludicrous." Of course, I still personally think it's important and my aim at retirement is to have it be not more than 15% of total net worth.

I agree with others who have said you can't control the value of your home so you shouldn't worry too much about this.

However, I do think this is a useful thing to keep track of in my individual circumstances.

Fact: One of our parents lived in a high cost of living area. They were obsessed with being mortgage free, felt like that was the hallmark of true financial independence. So they paid off their house but had almost no retirement savings. When they wanted to retire, they had to sell their home and move to another state in order to do it. Now they are retired in very reduced circumstances, having to adjust to a much more modest lifestyle than they were used to.

Fact: I am also so anti-mortgage that I have to force myself to save instead of paying down the mortgage. Early on I made a rule for myself that our home equity could not exceed our retirement savings. Now time has passed and our retirement savings is about three times our home equity. I would like to see that number grow.

Yes, I want to have a paid-off house in retirement. Yes, I will look at downsizing or selling our home to rent an affordable place when it's time to retire.

But I have to keep my eye on the ball and focus on retirement savings and not mortgage paydown. I don't have enough extra money to do both, and we're a bit behind on retirement savings because DH didn't start saving til his late 30s.

I do include my home equity in my net worth calculations, however, because it gives me a boost to see our net worth going up.

[feh]

I think posters have hit the nail on the head. Unfortunately, the thread title was misleading, as the OP wasn't really interested in net worth calculations (which definitely should include your home equity).

Your home only affects retirement planning when you consider the expenses associated with it (mortgage, taxes, maintenance, etc).

The only exception is if you know you're going to downsize (ie. sell your $400K house and buy a $200K one).

[disneysteve]

Your home only affects retirement planning when you consider the expenses associated with it (mortgage, taxes, maintenance, etc).

Right, and then the value of the home doesn't matter. For retirement planning, your concern is your expenses and what assets you have to draw from to pay those expenses. It doesn't matter if your home is worth 100K or $1 million as long as you have sufficient retirement income.

[scfr]

I agree with others who have said you can't control the value of your home so you shouldn't worry too much about this.

However, I do think this is a useful thing to keep track of in my individual circumstances.

Good points, TBH. As far as "worry," it's definitely not something worth monitoring or making adjustments for on a month-to-month or even year-to-year basis. But it's definitely worth looking at when reaching "milestones" such as buying a house, potential long-term layoff (any layoff over 50, I think), kids leaving home, etc. And it's really worth looking at more and more the closer you get to retirement.

As for those who don't agree, that's OK, I'm used to being in the minority! Just because an oft-quoted rule of thumb does not currently exist does not mean it's wrong. I'll keep on thinking for myself.

OP, let us know what you decide to do.

[MonkeyMama]

Right, and then the value of the home doesn't matter. For retirement planning, your concern is your expenses and what assets you have to draw from to pay those expenses. It doesn't matter if your home is worth 100K or $1 million as long as you have sufficient retirement income.

I would disagree for mursing or assisted living type expenses. Or if you have the freedom to downsize and tap the equity. I just don't think having a house worth $100k versus $1 million is apples to apples in the slightest as far as your actual financial options and flexibility. You might not plan to downsize, but you could in a pinch.

[rigz]

Good points, TBH. As far as "worry," it's definitely not something worth monitoring or making adjustments for on a month-to-month or even year-to-year basis. But it's definitely worth looking at when reaching "milestones" such as buying a house, potential long-term layoff (any layoff over 50, I think), kids leaving home, etc. And it's really worth looking at more and more the closer you get to retirement.

As for those who don't agree, that's OK, I'm used to being in the minority! Just because an oft-quoted rule of thumb does not currently exist does not mean it's wrong. I'll keep on thinking for myself.

OP, let us know what you decide to do.

OP here.

thanks for all the suggestions/info in the thread.

my biggest change was mentally separating net worth from retirement goals. as you can see with my confusing thread title I had them sort of mixed into one number when they should be separate. I had the mindset of "I could retire when my net worth was $XXXX amount" - it clearly doesnt work that way.

[Blessed]

I include our home in net worth. I wouldn't but I know we will be downsizing and moving into our rental once the kids are done with college. Too be safe I figure the price of what we paid for the home since the market was down then instead of the current value. Anyway you look at it we will be selling one paid off house to move to another. Since both are paid for we will be pocketing the money from the sale and including it with retirement money. If we had no plans to downsize or take out a mortgage on another home I would not count it.

[Caoineag]

I keep track of the equity in my networth but subtract the value before determining how much income my networth can produce. I keep it in my networth because it does matter in the grand scheme of things but its not an income producing resource.

[KTP]

I count our house in our net worth because we plan to sell it in two years when we ER and we have no plans to buy another house (will be homeless and on the road).

I run two figures though...one with 2015 liquidation values and one with 2015 pie in the sky values. In these I count everything we have that we will not be taking with us (in other words, selling). For the liquidation values I estimate what I could get for everything we own if I had to sell it all in a week or two. So I use 60% of Zillow for the house and 60% of blue book for the cars we will be selling. For the pie in the sky figures I use 90% of Zillow and 90% of blue book.

We have almost hit our net worth target just using the liquidation values....thank you Mr. Stock Market!