The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: SugarMountain on December 18, 2014, 10:34:51 AM
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When you are looking at the size of your stache and calculating what a 4% withdrawal rate looks like, how do you count home equity in a rental? We own a rental that is currently cash flow neutral, but it has appreciated significantly (turns out November of 2009 was a good time to buy). That money is basically illiquid, but presumably will generate a return. Right now I'm counting it (but not counting the equity in our primary residence). Thoughts?
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Is it part of your income plan to tap it?
I wouldn't count it as part of the 4% WR, because it's already generating an income (the rents), so double counting the equity doesn't help you.
I would do your personal gross expenses minus SS/pension/rents to get your net expenses, and then 4% rule what's needed for that (multiply by 25) and only count your investment portfolio that you're planning on tapping for that 4% withdrawal.
Otherwise you could count the equity at 4%, under the assumption you're going to sell and invest the 4%, but then not count the rent received as reducing your expenses.