Author Topic: Does FI include equity in home?  (Read 2555 times)

Retireme32

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Does FI include equity in home?
« on: October 10, 2013, 06:25:58 AM »
So I use Mint.com to track my expenses and when they tell me my networth they include Zillow's value of my rental property and my question is - in the opinions of the Mustachians - can I count that? I'm using the mustache calculator to figure out how long until I can retire and I"m trying to figure out do I only put in my 401k and cash savings as my "current net worth" or do I put in the home's value minus mortgage on it as well ?  If I can not include today's estimated value of the house, can I include how much I've put into the house - how much is paid off - b/c that would be given back to me if I sold at the price I bought at.  Thoughts?

plainjane

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Re: Does FI include equity in home?
« Reply #1 on: October 10, 2013, 06:35:36 AM »
The answer is generally, it depends.  From a pure net worth perspective, you can include the amount you have in the house.

However, when you are FI, do you plan to sell the rental house, invest the proceeds and live off that?  Or are you planning on keeping the rental and living partially off the rent it gives you?  Your answer should clarify for you whether you count the value of the property as part of your required number for retirement.

Frex, I don't count the value of my home in my net worth for FI because I plan to live in it, not sell it.  But I also assume that I won't have to pay rent when I'm FI, so my required number is lower than it would be otherwise (I do have in that FI budget a line item for property taxes and average maintenance).


mr. T

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Re: Does FI include equity in home?
« Reply #2 on: October 10, 2013, 07:44:06 AM »
My opinion would be that the capital value is not that important. The important bit is the amount of cashflow that it generates. Because the cashflow pays the bills in retirement. Of course assuming that the house is not bought as a speculation on rising house prices.

Retireme32

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Re: Does FI include equity in home?
« Reply #3 on: October 10, 2013, 10:43:45 AM »
Good points -thank you!

Melody

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Re: Does FI include equity in home?
« Reply #4 on: October 11, 2013, 09:04:00 PM »
If it's the home you live in, I wouldn't count it if you plan to live in it post retirement (and it will be paid of prior to retirement). However, it still factors into your retirement calculation, as it lowers your expenses, therefore lowering the amount of stash needed to hit a 4% safe withdrawal rate. For example annual expenses with paid off house = $10K stash needed to retire= $250k. Annual expenses without house paying to rent equivalent house $20K, stash needed $500K. It doesn't matter if your house would sell for more or less than the difference, it is providing you a utility of $10,000 a year ($250k of stash).

chasesfish

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Re: Does FI include equity in home?
« Reply #5 on: October 12, 2013, 05:51:53 AM »
I don't have an easy answer, I just keep two numbers on my spreadsheet:

Total Net Worth
Total Invested Assets

Houses and cars are assets that can be sold, but don't generate cash flow for me.