Author Topic: How do you value your home over time when determining net worth?  (Read 4555 times)

hybrid

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I had never tracked net worth to the dollar before finding this site but always knew where we were in a general sense. Yesterday was a milestone for us, it was the one year mark of tracking net worth. My spreadsheet is as simple as they come, I track cash, stocks, home and rental home value, and 401Ks in the asset column, and 30% taxes on the 401K and remaining principal balance on the homes in the liabilities column. I don't bother with vehicles since we drive them until they die, and we are net positive there anyway.

It was a very good year!

My question is this: How do you adjust home and rental home market value over time? I made no adjustments over the past year because sales in my area are flat, I'm not living in a hot market like SF or NYC. At some point though those values will change. For those who also keep track of net worth, how do you price the market value of your home and how do you allow for change in market value? 

Cheddar Stacker

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Re: How do you value your home over time when determining net worth?
« Reply #1 on: July 01, 2014, 11:33:59 AM »
I like how you track 30% taxes on the 401K as a liability. That seems like a high % for a mustachian, but everyone's estimates are different.

I track my one rental property on an adjusted cost basis rather than market value. I take book equity and add back accumulated depreciation. This gives you the accumulated equity, including operational profits left behind in the business, plus the original purchase price of the property. It likely tracks below market value, but that will hopefully account for any closing costs and taxes related to a sale. Not perfect, and smarter RE investors will likely have a better way, but that's what I do.

Personal residence - I'm a serial re-financer so I've had appraisals nearly every other year. I use that as my guide. Zillow is waaay off and too volatile for me.

dragoncar

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DoubleDown

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Re: How do you value your home over time when determining net worth?
« Reply #3 on: July 01, 2014, 12:50:53 PM »
Hey Richmond Neighbor,

Like all our assets, I update estimated values with actual account balances and values at the end of each year. I'm using 4% estimated annual appreciation on our home (Northern Virginia) for the near term future. If you think your area (Richmond) will basically track inflation, you could go with 0% appreciation so that its value is always up to date in real (inflation-adjusted) dollars. So, its value now would be the approximate value in the future, adjusted for inflation. Just include your principal being paid down each year so that you have an idea of your increasing equity over time.

In my calculations, I also subtract out about 9% from the estimated sale price to cover transaction costs when we sell one day (I figure 5% commission and maybe another 4% in closing costs/fees/repairs). That's likely higher than necessary, but I'd rather be pleasantly surprised if they come out lower.

As far as determining the value, I use comparable sales in the area, which are plentiful for us. As a result, Zillow and similar sites also are very reliable tools for determining actual value of our homes.

I don't know about your budget when you retire, but I agree that 30% taxes on 401k withdrawals in the future is very high. Even when I was earning $200k+ my tax rate never approached that high.

frompa

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Re: How do you value your home over time when determining net worth?
« Reply #4 on: July 01, 2014, 07:05:12 PM »
As I don't plan to use my residence to add to my FI 'stache, I don't count it in net worth for planning purposes.  For my rental property, I use an extremely low ball park, leaving room for me to be pleasantly surprised when it comes time to have to cash it out.  If I want to seriously consider keeping it to generate cash after I jump ship, I'll tell my appraiser I want a solid reliable figure for its value for my own financial planning purposes,  get the formal appraisal, and then I'll decide whether keeping it or selling it makes most sense. In the meantime, I'm good with my low ball park. I bought my rental many years ago, but it doesn't take a whole lot of looking around to get a good idea of what real estate is worth.  Why are you concerned with your net worth?

Thegoblinchief

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Re: How do you value your home over time when determining net worth?
« Reply #5 on: July 02, 2014, 06:37:50 AM »
You have to live somewhere, right?

I would count a mortgage as a liability but NOT include the estimated value of the primary residence in NW.

Or, as I do, track two separate NWs. One that includes non liquid assets like my house and cars, and one that doesn't.

Fishingmn

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Re: How do you value your home over time when determining net worth?
« Reply #6 on: July 02, 2014, 07:06:10 AM »
I do my net worth as a traditional snapshot of assets & liabilities.

What I mean is I include the house - mortgage and the value of my rental properties. I include a very conservative number for my cars (what I think I'd get as a dealer trade). I include the value of our boat (conservative) and the cash value of a whole life insurance policy my parents bought on me when I was very young. I even include a small amount for home inventory - what all of our "stuff" would sell for if there was an estate sale.

I do not account for tax liabilities on IRA's or the sale of my rental properties (which have all appreciated). The only discounting I do is to take the rental properties and discount them by 5% to account for selling costs (I'm a Realtor so only have to pay buy side).

The point of this is what would our estate be for our heirs if we died tomorrow. For example, all of my rental properties would actually have no taxes due on them as my estate planning process dumps them into a trust that suddenly erases all appreciation and accumulated depreciation.

SnackDog

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Re: How do you value your home over time when determining net worth?
« Reply #7 on: July 02, 2014, 10:22:43 AM »
I allow properties to appreciate at the selected inflation rate (I like 3%).  I also specify when to sell them to juice up the investment account (starting around age 80). I value them today with my own best guess which is always less than Zillow.  Adding them to net worth makes for a big number, but doesn't do much for me in terms of retirement planning as I don't plan to sell them unless a doomsday scenario occurs in the stock market or my health.

hybrid

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Re: How do you value your home over time when determining net worth?
« Reply #8 on: July 02, 2014, 11:24:19 AM »
Thanks for the input folks. Yes, the 30% rate is high. For now. Still not sure how we're collectively paying back that 17 trillion one of these days, so I put it high knowing full well I am likely being way too conservative. Always better to get a pleasant surprise than an unpleasant one.

In my county (Chesterfield, I am just outside the Richmond City line) there is a great county website for checking comparable sales, so right now I am basing my estimate on that. I agree that Zillow is all over the place and I would also add it cannot gauge what the inside of a house is like. We have made several upgrades that would help our home quite a bit and still have one very dated kitchen (like I care about dated....) that would not help if we sold.

Tracking to inflation is an interesting concept, I'll think about that. I have a realtor friend and we talk quite a bit about home sales. Some parts of Richmond are quite hot and prices have rebounded nicely in some areas. Other parts, like mine, have been pretty flat for the past four years or so.   

Thegoblinchief

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Re: How do you value your home over time when determining net worth?
« Reply #9 on: July 03, 2014, 06:56:06 AM »
Zillow increased the value of my house $15k in one quarter this year. Heh, nice, but I don't think so.

Cheddar Stacker

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Re: How do you value your home over time when determining net worth?
« Reply #10 on: July 03, 2014, 08:42:55 AM »
Zillow increased the value of my house $15k in one quarter this year. Heh, nice, but I don't think so.

SELL, SELL, SELL!