# How to Deal with RE appreciation in Net Worth Calculation?



## iherald (Apr 18, 2009)

I do my monthly net worth calculation, and for the last five years I've left my house price at the price I purchased it. According to a recent appraisal, the value of my house has increased by about $190,000. 

Obviously this would be a darn nice increase on my net worth calculation. However, I like to be conservative, and don't want to have to change it every month when I hear prices have gone up x% or down X%. 

I know FrugalTrader increases his house value by an annual inflation increase in his net worth calculations, but I was wondering what everyone else does.


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## wendi1 (Oct 2, 2013)

I use the value that I pay property tax on (the MPAC assessment), and update it yearly.

But I don't really use the net worth number for anything - for me the important number is net investables (RRSP, TFSA, savings, investment accounts) minus debts.


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## HaroldCrump (Jun 10, 2009)

I am with wendi1.

I keep track of the current value of my house, and do pay attention to listings and sales in my area.
However, the key metric for me with the "net investables" as well.


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## Ihatetaxes (May 5, 2010)

I list my perceived value minus $50,000 for selling costs. I haven't increased this number in a couple of years and its pretty conservative.


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## nobleea (Oct 11, 2013)

Purchase price and inflate 3%/yr for inflation. Long term, should be pretty accurate. But also must account for realtor fees and any transfer taxes if they exist.
My estimates are pretty bang on to the city's assessed value as well.


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## blin10 (Jun 27, 2011)

waist of time


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## Just a Guy (Mar 27, 2012)

The only time you know the true value of real estate is when you sign the paperwork on a sale. Any other time is wishful thinking or guesswork. This coming from someone with a lot of real estate.

When you want to borrow against it, it's worth as much as you can get, when you are paying property taxes, it's barely worth anything...

Then again, a net worth statement is also pretty useless unless you're looking for bragging rights...after you've got enough for food on your table and a roof over your head, what really matters?


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## Cal (Jun 17, 2009)

I don't count it as part of my net worth, only immediately liquid assets.


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## richard (Jun 20, 2013)

I kept the house at the purchase price. The main reason is that I don't want to feel like I'm making progress just because other people decided they're willing to spend more on real estate. I want to work for my wins. When I sold the house this resulted in a very minute increase in the net worth since the final cash received was a little more than the purchase price. 

Getting the gains all at once seems like a reasonable way to account for it since you don't really have anything more until you sell. If I suspected a decline I might reduce the value though to be more conservative. Now my balance sheet is much simpler and mostly involves liquid assets


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## GoldStone (Mar 6, 2011)

What's the point of the exercise? Is your house your retirement plan?


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## Ag Driver (Dec 13, 2012)

I leave it at my purchase price for my calculations. 

On the Net Worth topic -- I think it is good financial responsibility to have a goal to increase net worth each year. Real estate being a very large investment with potential to increase is certainly an asset to be included, IMO. There are very few physical assets that I would consider including in my net worth.


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## Jon_Snow (May 20, 2009)

GoldStone said:


> What's the point of the exercise? Is your house your retirement plan?


It's part of mine.


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## Retired Peasant (Apr 22, 2013)

It's part of my retirement plan as well. Also, if your net worth statement includes mortgage as a liability, then you'd want to include the purchase price of the house - you have a certain amount of equity there that needs to be included. I just use the purchase price, and don't bother increasing the value each year.


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## lightcycle (Mar 24, 2012)

For those of you counting home equity as a retirement plan, does that mean you are planning a reverse mortgage? Just curious.


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## Spudd (Oct 11, 2011)

Personally, I plan to sell my house in the big city and move to somewhere with a lower cost of living - hence cashing in on some of the equity.


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## lightcycle (Mar 24, 2012)

Makes sense.

In another thread someone talked about only counting the useable equity of a car or house in Net Worth calculations, given you'll always need wheels and a roof over your head. I like that definition. Selling your $2MM house for a $150K cottage in the country gives you $1.85MM in useable equity, which seems like a practical way of calculating Net Worth.


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## Rusty O'Toole (Feb 1, 2012)

For net worth calculations I would use market value and update once a year. You can estimate this or ask a real estate agent or mortgage broker for an opinion.

What value you chose is not very important unless you are using it as part of a loan application. In the case of a loan or mortgage, the lender will use their own figure which is computer generated and may or may not be accurate.


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## Jungle (Feb 17, 2010)

i will be undervaluing our house by 15% of market value taken from MLS home price index for detached in our area. 

Reason being:

Overpaid by 5% 
Realtor fees 5% 
Value error/ over bias of 5% 

Should be a safe estimate.

If I end up with more, then it's a bonus.


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## crazyjackcsa (Aug 8, 2010)

You can contact your real estate board and find out how much RE has increased in the last year.

As part of researching the history of our home I went to the land registry office. It will tell you every time the house was sold, to who and for how much. Then you could figure it out historically.

This really helped for me, since the house had changed hands about 10 times over 100 years.


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## kcowan (Jul 1, 2010)

I use book value (unless it has declined exceptionally). I don't include cars even though we have three.

Although all possessions have some market value, we consider any recovery to be found money. RE has 10% friction to liquidate.


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## marina628 (Dec 14, 2010)

I just look at the cash and investments we have when I log in online .I know we have lots of value in real estate but we are using them for producing income flow.Our personal home I can't see us ever downsizing now so the value wont matter as we will live in it. I think network is only important if you are applying for credit or you are trying to figure out what you will have for retirement.Many people do count on their home for retirement as they plan to sell it and use the equity to live off down the road.


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## lightcycle (Mar 24, 2012)

Counting your vehicles and home as a part of your Net Worth is very useful...

...when dealing with ransom demands.

When that call comes in, you'll know exactly how much of it you can pay off without calling the Nice Lady at the Bank.


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## Ponderling (Mar 1, 2013)

I just count the house value as what I paid for it, and then add in value of any improvements I make like new roof, windows, doors, furnace ,floors, insulation, finish basement.

I count painting, window converings etc. , as household expenses, not improvements. 

My 'quit the day job' number is not based on the value of our single family home real estate. 

We don't plan on decamping from the big burbs for maybe more than a decade, and who knows what it might be worth by then.
See a few percent more on mortgage rates i that time frame and the whole housing stock is likely to sink considerably as a result.


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## MrMagoo (Dec 12, 2013)

*Things to consider in a personal net worth statement*

I don't understand why a weekly process is very enlightening. I look once a year, although I do track my portfolio capital and volatility once a week (total investment cash + fixed income + equities + funds) as I am retired and capital preservation is vital.

I believe it is necessary to identify all my assets and liabilities, and compare the net to the prior year report to see if I am winning or losing - hopefully positive and increasing over time.

Assets - anything I own: businesses or rental real estate, bank cash, financial securities, whole life insurance cash value, pension value. All of these have the potential to generate income. Finally any property, all of which generates ongoing expenses - home, car, trailer, boat, ATV, FF&E, etc.

Liabilities - anything I owe. Short-term (1-year or less demand on cash assets) credit cards, lines of credit, income tax, etc. and Long-term (more than 1 year to pay off) mortgages, car loans, home equity loans or lines of credit, etc.

The question of income exceeding expenses each month is a separate topic revealed by a personal version of an annual income statement, and needs careful tracking of detail in order to identify whether you are again winning or losing.


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## KrissyFair (Jul 8, 2013)

Funny there are so many anti-net worth responses. I do one monthly, just like OP. For years I tracked our spending to the penny, but we've got it pretty much down pat, so I find a NW statement a pretty succinct way of making sure we're not derailing.

Anyway, for OP - I do a yearly inflation update. I think that looking at perceived market value would be time consuming, volatile and potentially misleading. When we bought out house, the listing price was outrageous and we paid 22% less. Meanwhile, our property tax assessment was well below what we paid. Anyway, the point is to see the direction, not have precision right? So as long as you pick a relatively stable metric and do once or twice a year at most I think you'll get a good idea of where you are.


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## heyjude (May 16, 2009)

Interesting thread. Home equity is definitely part of net worth. In my thinking, a primary residence would not be included in an investment portfolio, as one has to live somewhere. However, rental property would be included in a portfolio. 

It's amazing to see the myriad number of ways that people account for home equity. At best, they are ballpark figures. I like to keep it simple. I just stick with the book value, unless I have had a recent appraisal. And I am not going to do that unless I am contemplating a sale.

I do a net worth calculation annually. When changing circumstances warrant I do it at three month intervals.


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