Author Topic: Do you consider your primary residence an investment?  (Read 6226 times)

Davids

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Do you consider your primary residence an investment?
« on: August 30, 2014, 02:20:33 PM »
I, along with probably almost all of you homeowners include the equity I have in my home as part of my overall net worth. Now obviously rental properties, summer beach house or cottage should be considered an investment but what about your primary residence? I bought my house in 2010, I expect to have my mortgage paid off in the next 4-5 years but I don't think of my home as an "investment." I intend on living in my home for the next 20 years. The only way I would see myself moving out prior to that is if I were to get a great job offer that would require me to move. I have a wife and a newborn son and the school district is good where I live. I don't really view my primary residence as an investment, obviously when the time comes to sell I hope to get good value for it.

sol

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Re: Do you consider your primary residence an investment?
« Reply #1 on: August 30, 2014, 02:41:28 PM »
I view lodging as an expense.  An expense that I will mostly stop paying once my mortgage is paid off, other than the property taxes and HOA fee.

The net worth of your primary residence is not generating profits that you can extract for living expenses, so by the common definitions of asset and investment used here, it doesn't count.

Trudie

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Re: Do you consider your primary residence an investment?
« Reply #2 on: August 30, 2014, 02:53:22 PM »
I consider it part of my net worth, but do not think of it as an investment in the traditional sense.  Depending on where you live and general market conditions you may or may not get out what you've paid for it.  You'd do better in the stock market.

But, I enjoy our house and see it as our sanctuary, the place where we entertain friends, in a neighborhood with neighbors we enjoy.  To me, there are emotional benefits.

I just try to keep the expense associated with it in check.

DarinC

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Re: Do you consider your primary residence an investment?
« Reply #3 on: August 30, 2014, 02:55:23 PM »
It's not an investment, just an asset that ideally would allow you to minimize the expenses associated with living someplace. It's still part of your net worth though, just not a revenue generating part.

Cap_Scarlet

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Re: Do you consider your primary residence an investment?
« Reply #4 on: August 30, 2014, 03:14:48 PM »
Depends on whether net worth is for bragging or for using.  Otherwise why does it matter?




Janie

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Re: Do you consider your primary residence an investment?
« Reply #5 on: August 30, 2014, 03:33:05 PM »
Not really, but I'll probably buy a less expensive house in a lower COL area in a few years and add the remaining proceeds from the sale to retirement savings. ETA: It's paid for, no mortgage

« Last Edit: August 30, 2014, 04:14:11 PM by Janie »

thedayisbrave

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Re: Do you consider your primary residence an investment?
« Reply #6 on: August 30, 2014, 03:56:27 PM »
I inclue home equity in my net worth calculations and yes, I consider my personal residence an investment.  Mostly because the alternative, renting, is a pure expense whereas a mortgage builds equity (albeit slowly). 

RichMoose

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Re: Do you consider your primary residence an investment?
« Reply #7 on: August 30, 2014, 04:13:06 PM »
I view it as an expense. And unless you're generating significant income (equivalent annual revenue of 10 - 12% of purchase cost) from vacation houses / cottages, I would personally view those as expenses as well. However, you're right that its part of total net worth. I personally separate total net worth from liquid net worth because to me it paints a better picture of which net worth number actually generates revenue.

RapmasterD

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Re: Do you consider your primary residence an investment?
« Reply #8 on: August 30, 2014, 06:05:16 PM »
Don't include in net worth calculations.

Do consider as an investment.

lhamo

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Re: Do you consider your primary residence an investment?
« Reply #9 on: August 30, 2014, 06:12:42 PM »
I consider our primary residence as both an asset/investment and part of our net worth.

Our mortgage payment is $1880/month.  A little over $1000 of that is going toward principal.   DH gets a housing allowance of about $645/month.  So we are paying a "rent" of around $245/month to live here (it is actually more than that if you count management fees and utilities, but we'd have to pay those anyway).  You can't rent a cardboard box down by the river for that, and we love/are very happy in this apartment, so it has been a very good place to park our money while we wait for FI.  Value has increased more then 3x over what we paid for it 5.5 years ago.  Property values have been dropping lately, but not enough to cause concern -- more of a correction of an overheated market than a crash.  Property values in Beijing, in our location in particular, are never likely to drop below what we paid for the place. 

We will not grow old in this property.  Should our work situation change, we would sell.  I anticipate we will sell in the next 1-5 years.  The proceeds from the sale, less taxes, will allow us to buy nice homes in both my home area and my DH's home area, and I estimate we could get by fine on a 2-4% SWR from that point on.

Not counting this significant asset as part of our net worth would not make sense in our case.  And I consider that true for any property.  If push comes to shove, you have an asset you can sell to generate cash to live on.  It may not be smart to do so at the time when you need the money, but the same goes with selling stocks, withdrawing from savings, etc. 

jennifers

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Re: Do you consider your primary residence an investment?
« Reply #10 on: August 30, 2014, 09:11:06 PM »
I bought a condo so I could live near work without paying insane downtown rents.  I consider the equity I have in the condo as part of my net worth assuming I could sell it for near what I paid.  It would be nice if it went up significantly in value like an investment, but the main value is that it provides me a cheap place to live.

Elderwood17

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Re: Do you consider your primary residence an investment?
« Reply #11 on: August 30, 2014, 09:23:24 PM »
I consider housing an expense, but the equity of my home is an asset on my balance sheet.

The Mobile Mustachian

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Re: Do you consider your primary residence an investment?
« Reply #12 on: August 31, 2014, 08:14:24 AM »
I live in a duplex and have tenants living on the first floor while I live on the second. I consider this an investment property, but I don't include in my net worth calculations because its not a liquid investment. If I were to be able to move out and still have a place to live, then I might consider including it in my net worth (i.e. a second home).

Goldielocks

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Re: Do you consider your primary residence an investment?
« Reply #13 on: August 31, 2014, 08:44:28 AM »
I consider it an investment for my sanity.  The value is probably approaching $800k.   High COL area.



The only way to rationalize owning a detached home here is to know that it can be part of my early retirement strategy.... I can sell and buy free and clear elsewhere, or  create one or two income suites, or take on one or two international student boarders, or....

Otherwise, renting in a housing coop is the way to go, and save save save.

Daleth

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Re: Do you consider your primary residence an investment?
« Reply #14 on: August 31, 2014, 09:57:02 AM »
I, along with probably almost all of you homeowners include the equity I have in my home as part of my overall net worth. Now obviously rental properties, summer beach house or cottage should be considered an investment but what about your primary residence? I bought my house in 2010, I expect to have my mortgage paid off in the next 4-5 years but I don't think of my home as an "investment." I intend on living in my home for the next 20 years. The only way I would see myself moving out prior to that is if I were to get a great job offer that would require me to move. I have a wife and a newborn son and the school district is good where I live. I don't really view my primary residence as an investment, obviously when the time comes to sell I hope to get good value for it.

Our primary residence also has rentals attached to it, so we think of it as an investment. We're renovating one of them now, so no rent on that, but even so the rentals are paying 2/3 of our mortgage/taxes/insurance. When the other one is rented we will be living for free.

frugaliknowit

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Re: Do you consider your primary residence an investment?
« Reply #15 on: August 31, 2014, 10:08:20 AM »
While living in my condo (for the past 11 years) I consider it a cost which will be reduced when the mortgage is done (11 years from now or sooner).

If I decide to rent it out, I will consider it an investment.

larmando

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Re: Do you consider your primary residence an investment?
« Reply #16 on: August 31, 2014, 11:14:42 AM »
It is indeed part of the net worth: if one needs money they can sell it or rent it out (if it cash flows), and move to a cheaper area/city/rent for a while. Now of course living there is an expense, as is living anywhere. It can be a good investment if it reduces your living expenses versus renting (in which case the return is inflation plus the saved difference), and a bad investment if it increases them (in which case the return is negative, as can be for any other bad investment, or even medium investment) (e.g. some bonds return are below inflation). While you live there it's not a cash flowing investment (unless you can rent part, e.g. a guest room), nor a liquid one.


Dicey

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Re: Do you consider your primary residence an investment?
« Reply #17 on: August 31, 2014, 11:31:03 AM »
When I was building my nest egg, I counted home equity in my NW calculations. It was a huge motivator when my other investments were small. Now that I am FIRE, I don't count it. My nest egg is big enough to see me through without the value of my home in the total. Someday, when we sell and downsize, the difference will be counted again, but for now we don't need the psychological lift.

SnackDog

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Re: Do you consider your primary residence an investment?
« Reply #18 on: August 31, 2014, 12:40:07 PM »
Net worth - cash value of all assets minus liabilities.  Property is included in assets.  Mortgages are among all loans/debts included in liabilities.

Investment - a vehicle for potentially generating revenue or increased value.  A property can generate revenue and can increase in value. Most also have expenses.  Some decrease in value over certain intervals although most on average appreciate at the rate of inflation.  Property can also be reverse mortgaged (for a fee) and the cash generated invested in the stock market for average appreciation rates exceeding inflation.

Greystache

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Re: Do you consider your primary residence an investment?
« Reply #19 on: September 01, 2014, 09:16:12 AM »
I am going to go counter to most of the replies and say that my primary house is both an investment and part of my net worth.  The reason I say owning a house is an investment is that it increases in value over time and it yields reduced housing costs over time.  I bought my house for $200k 20 years ago.  Prior to the end of the most recent housing bubble, it was worth $700K. It is now worth $600K.  Now that it is paid off, my housing expenses (taxes, utilities, insurance and maintenance) are about 25% of what it would cost to rent a similar house in this neighborhood. The way I see it, there is no difference in something that reduces my monthly expenses and one that pays me a monthly dividend. The effect on my bottom line is the same.  In some ways it is a crappy investment.  It is not very liquid.  Perhaps I could have received better return on my money in the stock market.  On the other hand, it gives me satisfaction that no stock or bond could. It also part of my "buffer".  If things go badly, I have a large chunk of money I can tap. 

Rezdent

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Re: Do you consider your primary residence an investment?
« Reply #20 on: September 01, 2014, 09:42:37 AM »
I do count it as an asset in my yearly Net Worth but I do not count it as part of my. FI "stache".

In my monthly budget I treat Housing as an ongoing expense category.

IRL, my  house functions as a dependent ;)

Squirrel away

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Re: Do you consider your primary residence an investment?
« Reply #21 on: September 01, 2014, 09:49:24 AM »
I count it as an asset in my net worth calculations and I do think of it as an investment as the property prices in London are so high, even now in the dodgy areas. We would still have to buy an equally expensive house if we moved so it's not like I can unlock the equity unless we moved to a much cheaper part of the UK. Renting is expensive too, if we rented in a house like ours it would be almost double our mortgage payment.:/

frompa

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Re: Do you consider your primary residence an investment?
« Reply #22 on: September 01, 2014, 04:25:42 PM »
In my own internal calculations and estimates of what I need to live on, no, certainly not, because I don't intend to sell my house and free up my equity after ER.  Instead, I count my house-related expenditures, maintenance, taxes, utilities and the like, as expenses because this is what they are.  But if you intend to utilize your equity (i.e., sell you house) to help fund ER, then sure, consider the house an investment.