Author Topic: Net Worth calculation for FIRE  (Read 3693 times)

Grogounet

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Net Worth calculation for FIRE
« on: August 01, 2016, 04:50:03 PM »
I have used many calculator throughout the years, just to realize I was probably miscalculating my FI date... by 7 years !

Indeed, many calculators take into account your home as an asset which obviously has equity and provides networth.. The only issue I have with that is that it is a networth/equity that is not "realized". You can really use it unless you invest in turn with it.
Same with RE. All calculators are using rate of return from stocks... What if your RE is negatively geared, like some many in Australia? Etc etc...

ie you have a home valued at $700k, paid $500k and $400k sitting on an offset account... Cannot count it in your networth IMO.
Same with an IP that is negatively geared, even if the property goes up in value x 3, you still cannot get the income produced by it unless you start repaying the interest via an Offset

Curious on what the RE investors guys are using as a FIRE calculator.

mathjak107

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Re: Net Worth calculation for FIRE
« Reply #1 on: August 01, 2016, 04:57:35 PM »
a safe withdrawal rate is based on liquid assets that can if need be , be spent down to near zero to keep the income stream solvent  over x-amount of years ..

i would not count a house in my calculation . you can't spend the living room .

at some point if you sell it or mortgage it then yes but as a consumption item i don't recommend you make it part of the income stream  base amount .

the house has other functions such as acting as  a cost cutter improving existing cash flow if it is cheaper then renting . ..
« Last Edit: August 01, 2016, 05:00:40 PM by mathjak107 »

seattlecyclone

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Re: Net Worth calculation for FIRE
« Reply #2 on: August 01, 2016, 05:17:22 PM »
This is a topic that comes up pretty often around here. People have differing opinions, but mine is that my house doesn't provide any income so I don't count it toward the stash that I will be withdrawing 4% from each year. However the fact that I don't pay rent to live in my home makes my nominal expenses lower, which reduces the size of the stash necessary to support my lifestyle.

As to whether it counts toward my net worth, of course it does. It's an asset that has value, so it counts. It just isn't in the part of my assets that I expect to provide a financial return. I do count the value of my home as part of my "position of strength": owning a home in a relatively expensive area means that if the 4% rule fails me there's always the option of tapping into that equity and moving to a less expensive area.

mathjak107

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Re: Net Worth calculation for FIRE
« Reply #3 on: August 01, 2016, 06:40:52 PM »
that is one benefit of  living in a high cost area .  high cost areas are expensive because they usually have the higher paying jobs. higher wages equal a lifetime of higher social security payments . a 600k plus house , that goes up 3% is a whole lot more then a 100k house that goes up 3% so when you relocate to cheapsville transplants generally do better then locals

ender

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Re: Net Worth calculation for FIRE
« Reply #4 on: August 01, 2016, 06:49:05 PM »
This is a topic that comes up pretty often around here. People have differing opinions, but mine is that my house doesn't provide any income so I don't count it toward the stash that I will be withdrawing 4% from each year. However the fact that I don't pay rent to live in my home makes my nominal expenses lower, which reduces the size of the stash necessary to support my lifestyle.

As to whether it counts toward my net worth, of course it does. It's an asset that has value, so it counts. It just isn't in the part of my assets that I expect to provide a financial return. I do count the value of my home as part of my "position of strength": owning a home in a relatively expensive area means that if the 4% rule fails me there's always the option of tapping into that equity and moving to a less expensive area.

+1

arebelspy

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Re: Net Worth calculation for FIRE
« Reply #5 on: August 01, 2016, 07:58:23 PM »
This is a topic that comes up pretty often around here. People have differing opinions, but mine is that my house doesn't provide any income so I don't count it toward the stash that I will be withdrawing 4% from each year. However the fact that I don't pay rent to live in my home makes my nominal expenses lower, which reduces the size of the stash necessary to support my lifestyle.

As to whether it counts toward my net worth, of course it does. It's an asset that has value, so it counts. It just isn't in the part of my assets that I expect to provide a financial return. I do count the value of my home as part of my "position of strength": owning a home in a relatively expensive area means that if the 4% rule fails me there's always the option of tapping into that equity and moving to a less expensive area.

Big yes to both parts of this.  :)
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Grogounet

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Re: Net Worth calculation for FIRE
« Reply #6 on: August 01, 2016, 09:03:12 PM »
Thanks all for the replies
On my part, I believe the best option is to work around reasonable assumptions: Negatively geared properties tends to become positive after a while and that should be taken into account.
Especially in my case, were the first calculations led me to think I could FIRE in 10 years approx. and it's now 17... OOps

arebelspy

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Re: Net Worth calculation for FIRE
« Reply #7 on: August 01, 2016, 10:05:37 PM »
Thanks all for the replies
On my part, I believe the best option is to work around reasonable assumptions: Negatively geared properties tends to become positive after a while and that should be taken into account.
Especially in my case, were the first calculations led me to think I could FIRE in 10 years approx. and it's now 17... OOps

Solution: don't buy negatively geared property?

;)
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Grogounet

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Re: Net Worth calculation for FIRE
« Reply #8 on: August 02, 2016, 03:55:06 AM »
Haha ! Yes, that could be a solution indeed
But now I already have one and might plan for the second one soon.

As we know wealth in property is created with return from rent and capital. Today, rent might not be attractive by capital still is...

arebelspy

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Re: Net Worth calculation for FIRE
« Reply #9 on: August 02, 2016, 04:01:12 AM »
Haha ! Yes, that could be a solution indeed
But now I already have one and might plan for the second one soon.

As we know wealth in property is created with return from rent and capital. Today, rent might not be attractive by capital still is...

It can be. I prefer not to speculate, but plenty of people have made money doing so.  (Others have lost quite a bit.)  Best of luck to you.  Hope you don't have to work those extra 7 years, or more.   :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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Grogounet

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Re: Net Worth calculation for FIRE
« Reply #10 on: August 02, 2016, 04:05:35 AM »
Thanks sir. I'm into for the long haul and have planned to have cash into offset accounts, while diversifying with shares, etc etc...

Saying this, I will have to custom my own calculation I believe!

steveo

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Re: Net Worth calculation for FIRE
« Reply #11 on: August 02, 2016, 04:38:21 AM »
that is one benefit of  living in a high cost area .  high cost areas are expensive because they usually have the higher paying jobs. higher wages equal a lifetime of higher social security payments . a 600k plus house , that goes up 3% is a whole lot more then a 100k house that goes up 3% so when you relocate to cheapsville transplants generally do better then locals

This is true if you relocate. if you don't it's meaningless.

BFGirl

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Re: Net Worth calculation for FIRE
« Reply #12 on: August 02, 2016, 02:21:02 PM »
I don't count my house (paid for) in calculating my FIRE numbers.  However, it is a backup asset that I can take the equity out of in later years if my stash falls short.

Grogounet

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Re: Net Worth calculation for FIRE
« Reply #13 on: August 02, 2016, 03:43:14 PM »
What is your strategy to draw equity?
I though that it wouldn't be possible to convert it to revenue?

steveo

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Re: Net Worth calculation for FIRE
« Reply #14 on: August 02, 2016, 03:53:35 PM »
I don't count my house (paid for) in calculating my FIRE numbers.  However, it is a backup asset that I can take the equity out of in later years if my stash falls short.

I see my house as buffer if I choose to downsize. I don't want to do that but at some point I may need to or want to.

arebelspy

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Re: Net Worth calculation for FIRE
« Reply #15 on: August 02, 2016, 03:54:26 PM »
What is your strategy to draw equity?
I though that it wouldn't be possible to convert it to revenue?

Sell, cash out refi, reverse mortgage, rent out, etc.  None ideal, but as a plan C, it's at least nice to know it's a distant backup.

It's still an asset to fall back on if TSHTF.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.