Author Topic: Net Profit -- Home Equity  (Read 827 times)

JenniferW

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Net Profit -- Home Equity
« on: February 05, 2019, 04:32:48 PM »
Do you all include your home's equity in your Net Profit?  I decided to leave out the Zillow quote along with the mortgage loan from my net worth in Personal Capital.

I don't see the point of including it since I am never going to sell this home.  It only cost me $78K and I love it here. I plan on living here the rest of my life.

My net worth is $7300 right now not including home equity.   When I add the equity of the home it's in the mid 30's.    When I include the home equity in Net Worth, I keep having to do a calculation in my head: subtracting home equity to figure out how much I really have access to.

Also, including the net worth of home is not really accurate either because if I did sell there are closing costs and realtor fees.  Seems easier to just leave it out.
« Last Edit: February 05, 2019, 04:35:58 PM by JenniferW »

Rob_bob

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Re: Net Profit -- Home Equity
« Reply #1 on: February 05, 2019, 06:09:23 PM »
I don't include home value in my net worth for my own numbers because I can't spend it and borrowing with a HELOC is a debt.

Another Reader

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Re: Net Profit -- Home Equity
« Reply #2 on: February 05, 2019, 07:14:23 PM »
Your house is an asset.  More important, the mortgage is a liability.  It's no different than a car loan or a student loan.  The liability should appear on your balance sheet and the payment should appear as an expense in your income and expense statement.

For most purposes, net worth includes both the value of the asset with no deductions and the mortgage as a liability.  You could estimate selling expenses, subtract them from the property value and use the result as the asset value in your net worth calculation to take the more conservative approach.

RWD

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Re: Net Profit -- Home Equity
« Reply #3 on: February 05, 2019, 09:27:59 PM »
I don't include home value in my net worth for my own numbers because I can't spend it and borrowing with a HELOC is a debt.
You're welcome to measure whatever you like but you can't call that "net worth" as your home value is part of your net worth by definition (often offset by a mortgage).

How to value your house is a tricky question and really impossible to say until you close the sale. Zillow is often too high or too low. For the purposes of tracking our net worth I've picked a conservative number and probably won't update it until we sell or maybe in a few years, whichever comes first.

JenniferW

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Re: Net Profit -- Home Equity
« Reply #4 on: February 05, 2019, 10:46:17 PM »
I know my home is an asset and my mortgage is a liability.  It's just I dont' care to see money in my net worth I won't have immediate access to.   Just like MMM said not to include car in net worth because it isn't something you are going to sell.

RWD

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Re: Net Profit -- Home Equity
« Reply #5 on: February 06, 2019, 06:19:41 AM »
I know my home is an asset and my mortgage is a liability.  It's just I dont' care to see money in my net worth I won't have immediate access to.   Just like MMM said not to include car in net worth because it isn't something you are going to sell.
In that case what you are measuring is your liquid assets, not net worth.

Also, the only reason to exclude your car(s) from your net worth is because you are a mustachian with cars so cheap they are just a rounding error. If you have vehicles that are valued at a noticeable percentage of your net worth then it would make sense to include them (adjusting the value for depreciation periodically). You may not be planning on selling any time soon but what if you get in an accident and insurance totals your car? If you were not including this as part of your net worth it would look like a windfall (free money if you keep totaling vehicles!). Or imagine Joe consumer goes out and buys a $30k truck. Is his net worth now immediately $30k less? What if he changes his mind and sells the truck the next month? Wow, what a rollercoaster his net worth went on! No, the real picture is it was part of his net worth during the period of ownership.

Again, for tracking purposes you can measure whatever you want. I do feel it is wise to measure invested assets separately from net worth as that is what you would use for the 4% rule. But your total net worth is still an important number as that can always be turned into invested assets at some point in the future (e.g. sell house and start renting instead).

chasesfish

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Re: Net Profit -- Home Equity
« Reply #6 on: February 06, 2019, 06:35:53 AM »
I create a personal financial statement that lists all my assets and all my liabilities.

The home is an asset and any mortgage on it is a liability.  The difference sum totals into my net worth.

I only total invested assets (and not net worth) when calculating the 4% rule for how much I can withdraw per year.

shingy

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Re: Net Profit -- Home Equity
« Reply #7 on: February 06, 2019, 08:17:09 AM »
I create a personal financial statement that lists all my assets and all my liabilities.

The home is an asset and any mortgage on it is a liability.  The difference sum totals into my net worth.

I only total invested assets (and not net worth) when calculating the 4% rule for how much I can withdraw per year.

This is how I handle my calculations as well

Mississippi Mudstache

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Re: Net Profit -- Home Equity
« Reply #8 on: February 06, 2019, 10:32:59 AM »
I create a personal financial statement that lists all my assets and all my liabilities.

The home is an asset and any mortgage on it is a liability.  The difference sum totals into my net worth.

I only total invested assets (and not net worth) when calculating the 4% rule for how much I can withdraw per year.

This is how I handle my calculations as well

Same here. I'll add that I believe Zillow overestimates the value of my home by 8-10%. Instead, track my home's value assuming that it is worth the purchase price (January 2017) plus 2% appreciation per year. This will probably work fine for a few years, but may need to be adjusted up or down in the years to come.

JenniferW

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Re: Net Profit -- Home Equity
« Reply #9 on: February 06, 2019, 10:43:16 AM »
I'd also subtract 10% of home value as an "Other Liability" in Personal Capital.  Because if you were ever to sell it, it would probalby cost you that for the realtor fees, closing costs, etc..
« Last Edit: February 06, 2019, 10:57:45 AM by JenniferW »

chasesfish

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Re: Net Profit -- Home Equity
« Reply #10 on: February 06, 2019, 01:16:26 PM »
I'd also subtract 10% of home value as an "Other Liability" in Personal Capital.  Because if you were ever to sell it, it would probalby cost you that for the realtor fees, closing costs, etc..

This is a good point!  I don't use any of the fancy programs, but I will value my house at the net proceeds I can get after commissions on a retail sale or from a homebuilder who just wants my lot.

Goldy

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Re: Net Profit -- Home Equity
« Reply #11 on: February 07, 2019, 05:58:43 AM »
I include it in my NW calculation but in my spreadsheet I keep itís value as the purchase price I paid.  My thought is that it will appreciate enough to cover expenses when I sell and I donít need to track the Zillow price.

JenniferW

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Re: Net Profit -- Home Equity
« Reply #12 on: February 07, 2019, 09:26:22 AM »
I re-added 90% of my home purchase price as an asset, along with the mortgage.  Also added $2900 for my car, $2700 for stuff laying around the house I want to sell, $5000 for personal assets at home I am not willing to sell. And $2035 for business equity.   I might as well add them all in.. it's how much I could get if I were to sell everything besides the clothes I am currently wearing.

My Net Worth after all this is: $35,874.  Just starting out and managed to save couple thousand per month for past several months.   By end of year I'd like to see my Net Worth be around $55k :)
« Last Edit: February 07, 2019, 09:28:13 AM by JenniferW »