Author Topic: Counting rental house home equity?  (Read 1012 times)

SugarMountain

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Counting rental house home equity?
« on: December 18, 2014, 10:34:51 AM »
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?

arebelspy

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Re: Counting rental house home equity?
« Reply #1 on: December 18, 2014, 04:45:20 PM »
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.
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