House in Stache

[slugsworth]

Question: For people who do not plan on living in their home during upon FI, how do you account for home equity in your 'stache? When comparing options do you include any appreciation in future calculations?

Situation: I like to run numbers on different scenarios and I was recently considering different options with regard to housing. I have roughly 50% LTV on my house and it has a 'value' of around $310k.  I have an interest rate of 3.875%.  My monthly payments are cheap by local standards and I like my place. . . So status quo is great.

However, I could sell my house and net over $110k - and potentially find a cheaper place in the hinterland that I could buy for cash or close to it for that price.  It could potentially move my FI date up 2+ years, which means I should probably take a hard look at it. However, how the home equity is valued will have an impact on my numbers. If anyone has a spreadsheet to compare these sorts of decisions, I would be interested in looking at it.

[nawhite]

Your home equity is your money and you can do with it as you see fit. Generally, we want to ensure our money yields a return. With a real estate asset, that return is either,

1) rent received - Example: you rent your home and get $300/month after expenses, taxes, insurance, mortgage interest, vacancies and repairs. That means your $155k of assets is getting you a return for keeping the house of $3600/year or 2.3%

2) the opportunity cost of other living accommodations - Example 1: if renting a similar house would cost you $1500/month but currently living in your house costs you $800 per month in mortgage interest, taxes and homeowners insurance, then your equity is giving you a return for keeping the house of $700/month or 5.4%

Example 2: You say "screw houses and apartments, we want to go RVing!!!" Then your living expenses are probably closer to $500/month for campground fees (plus $20k in capital for the RV) so your return on keeping the house is -$300/month (remember you pay $800/month on keeping the house) or -$3600/$135k (you had to buy the RV with your money) or -2.67%

So, the answer depends on what you plan to do and what you could use the money for instead. (Note that I should have subtracted my expected returns in stocks (or whatever) from the return values above because if your money isn't in your house, it should be invested elsewhere.