Overseas House Purchase

[scfr]

The short version of a long story is that we're about to buy a small house overseas for DH's mother to live in. We expect her to live in it for 7-10 years. When she is no longer able to live alone, the house will be sold and the proceeds will roll back in to our retirement savings.

2 questions:

1. Where will this house fit on our Net Worth statement? I currently separate financial assets and non-financial assets on our NW statement. Non-financial assets are our home and cars. Although it's a house, I don't think of this overseas house as a non-financial asset because it's not our primary residence and will eventually be "consumed" to help pay for our expenses in retirement. On the other hand, it's not what I'm used to thinking of as a financial asset because it's not an investment that we expect to rise in value or produce any income (this is NOT an investment property even though I chose the "Real Estate Investing" forum as the most appropriate to post in). I'm leaning towards creating a third NW sub-category just for this house, since it seems to be a hybrid between a non-financial and a financial asset. Is that reasonable?

2. How to value this house? There is foreign exchange risk involved in this purchase. DH & I both know the history of the exchange rates between the two countries. DH knows as much as just about anyone. His "worst case scenario" guess is that we could lose up to 30% due to exchange rate loss. So I'm thinking that when it comes to the value of this house on our "books" I just shave 30% off of the purchase price of the house as soon as we buy it and then hold the value steady without any adjustments for market changes or inflation. Can anyone think of a reason to value this house any differently?

Thanks.

[97guns]

i think it is part of net worth, you may not be using it and its overseas but it is/will be yours, it is an asset

convert the cost of their money to USD for net worth calculations

[scfr]

i think it is part of net worth, you may not be using it and its overseas but it is/will be yours, it is an asset

convert the cost of their money to USD for net worth calculations

Yes, I definitely plan to use it as part of net worth. But should we categorize it as a financial asset, a non-financial asset, or something in-between?

As far as converting the other currency to USD, yes, that's the plan . . . but how frequently? Do we discount for potential loss due to currency rate fluctuations upfront, as soon as we buy the house? That seems to be the most conservative approach - it's important to me that I don't intentionally or inadvertently overstate the value of anything on our spreadsheet, especially non-financial assets. On the other hand, that's not necessarily an accurate reflection of actual net worth at any given moment. Maybe I need to recalculate home value based on current exchange rate every time we calculate our net worth? After all, we don't discount the value of our stock holdings by how far we think the market might fall.

As I'm thinking this through, I think how frequently I re-calculate the oversea's home value might hinge on whether it is more of a financial asset or non-financial asset. On my current net worth statement, financial assets are listed based on valuation at the close of a particular business day, but the valuation of non-financial assets is more loose and more conservative.

And there's no reason I can't do both: calculate value based on current exchange rate, and have an extra cell off to the side on the spreadsheet with the "worst case scenario" valuation. That's easy enough to do and might be the way to accomplish what I want to do. Hmmm . . .