One of the hottest debates in the personal finance space is whether or not the value of one’s home should be considered in a net worth calculation. There are people deeply rooted in both camps. We happen to be in the “we count it!” camp. But are we the exception, or the rule?
Is Your Home An Asset Or Liability?
The results are in – 67% of all respondents said that they would count their home’s value in their net worth calculation.
Historically, the value of a home has been calculated as part of one’s net worth. I believe it Robert Kiyosaki, author of Rich Dad, Poor Dad was one of the first people to introduce the concept that a home is not an asset. Instead, a home is a liability. Why? Because assets put money in your pocket each month, while liabilities take money out of your pocket each month. I once heard Kiyosaki say in an interview, the difference between assets and liabilities is that in times of crises, assets will feed you and liabilities will eat you. This couldn’t be more true. If you’re facing an unexpected job loss or staggering medical bills, anything that takes money from you each month is adding to your stress and anxiety and, essentially, eating away at your financial and emotional wellbeing.
The camp that doesn’t count their home in their net worth calculation holds to the belief that it is a liability. The argument is that you have to live somewhere. Even if you sold the house to access the equity, you would need to purchase another one, hence, tying that money right back up again. The exception would be selling a home with equity and NOT buying another one. In which case, the sale effectively gave the owner passive income and could be considered an asset.
The other reason primary homes are considered liabilities is the cost of routine upkeep and repairs that are necessary to maintain the value. Even if the home is without a mortgage, there are still taxes, maintenance, and repairs. This easily adds up to be thousands of dollars each year. The cost of living in a mortgage-free home is probably the same, if not more expensive than renting a home.
Hmm…no wonder there are people out there who swear they will never purchase a home. The other major drawback for the folks in the “buying a house is for the birds” camp is the restriction of living in ONE spot. The days of settling into a home in a nice neighborhood for the majority of your adult life are long past. These days, millennials and gen-Xers alike are turning their backs on home ownership to pursue a more footloose and fancy-free lifestyle. Tiny houses, travel trailers, and short-term rentals are all the rage. And who can blame them? Life is too short to be stuck in one spot.
I must point out that this argument only holds true with primary residences. Rental properties, on the other hand, are considered assets all day long because they’re putting money in landlord’s pockets every month. Or, at least they should be. If a rental home is not producing positive cash flow, it might be time to consider unloading it.
Truth be told, I can absolutely understand each side of the argument and, if we were already multi-gazillionaires, I probably wouldn’t count the value of our primary home, either. But, since we’re not yet multi-gazillionaires, I’m choosing to count it. If nothing else, it offsets the amount of mortgage we still, unfortunately, owe and gives us a much appreciated mental boost. So there you have it, we count it in our net worth as financial trickery! Yes, we are awesome.
The long term plan, however, is to count the value of our primary home as a positive in our net worth calculation until it’s paid in full (Goal: </= 3 years). Then we will switch teams and take it out of our asset column completely.
On the flip side, we don’t count the value of our cars in our net worth. Why? Because cars typically depreciate, and ours are not exceptions. We plan on driving our cars into the ground and, even though they’re worth a little something now, that value will drop like a rock as time passes. So we just don’t bother.
So, what do you do? Do you count the value of your home as part of your net worth? Or do you ignore it because you can’t use the money? What about cars? We’d love to have your opinion in the comments!
Mad Money Cat counts it.
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18 Comments
I’m torn on the subject as well. I count my house as part of my net worth but the question I always ask is, “What value should I have it at?” Zillow has my house at 365k, when I paid 288k for it in 2015… silly appreciation. Due to this, my “net worth” is inflated probably 50k, but in actuality, this doesn’t count transaction costs.
I include my car in my net worth… I get your point, but you can still sell your car. The point again is what is the value of your car and how much could you sell it for. These factors determine the value you put in your net worth. Thoughts?
Zillow is wildly inaccurate. Currently, it has our house undervalued by about 30k. I know this for a fact because we had an official appraisal done in the fall. I have kept my Zillow appraisal as part of my net worth calculation because I’m planning to eliminate it altogether after we pay off the mortgage. For now, it gives us a little boost because we have equity – and I don’t mind that. If you are counting it though, I would want it to be as accurate as possible. I think you can manually input the value into most programs that automatically calculate your net worth.
As far as the cars go, I see your point. You own it and it does have value. For us, I just know we’ll have our cars forever and I’d rather not watch the numbers go down, down, and down 🙂
I include my (paid off) house in my overall net worth, although it’s really hard to determine what value to use if it hasn’t been appraised for awhile. But I definitely understand how it’s considered a liability due to all the maintenance that’s required. And of course it’s omitted when doing my calculations to determine if early retirement is an option.
My perspective is more along the lines of what my beneficiaries would receive should I pass away, and that’s why I include it. I want my family to have a complete list of anything I own of value.
My car is always omitted from my net worth. I have a 2008 and the KBB value is $2k. It’s worth so little that it’s not worth the hassle of constantly looking up the value.
That’s an interesting perspective. I like the idea of including it for the sake of your estate. We also exclude the value when we’re projecting early retirement calculations. No way our pad is ever going to give us money when we’re not working. Quite the opposite 🙂
I might be in the minority here, but I count both our home and our cars in our overall net worth. Obviously the home is appreciating and the cars are not, but they are still assets in the sense that they all hold equity. If necessary, I could sell all three today and live off the proceeds for 2-3 years. To me, that’s a big indicator that they should “count” in my net worth calculations. However, I can see the other sides of the argument, as well.
Nope. You’re not in the minority! According to my official Twitter poll, 67% of folks think the same way you do! And I completely understand that line of thought. I just think that a lot of early retiree folks are afraid to calculate it in their projections, hence, they ignore it totally. For now, ours is included, too!
We count our home. But we haven’t increased it’s value from the purchase price 8 years ago in our calculations. That’s even though our area has seen appreciation and we’ve made some large improvements. We count our car, too, using the KBB price.
We currently have our home in our calculations at an undervalued price, as well. We had an official appraisal done last fall and it came in at 20k more than the current value on Zillow. And we’re okay with that, since we can’t really get the money out of it anyway.
I know we could increase our net worth by about 20k if we included the value of our cars, but I also know that those values will do nothing but drop like rocks over the next few years. And, I’d rather not see that. So we skip it.
I don’t count my home since there is no guarantee it will ever provide me a windfall. I have no intention of selling and as you pointed out if I did I’d probably have to spend it again on another house. So for me it’s just an expense. Still it does lead to some funny situations. If I pay ahead on my mortgage that means my net worth declines since I also ignore my mortgage liability since it’s small compared to my equity.
That is exactly the reason I include the value in our net worth calculation. Because I want to see us making progress as we pay the mortgage. Maybe you should just remove the mortgage from your calculation, as well. I thought of that strategy, too.
I count the house in my net worth calc., I try not to complicate the concept too much. For me your net worth is the amount of cash you would hold if you liquidated all assets, pure and simple. It’s a nice metric to gauge your overall financial health and its direction. The more important number is the value of your investable assets, money you can basically put to work to generate income. By that definition a house you live in wouldn’t count, and if you’re looking to retire early, you technically can’t count tax advantaged accounts either. At least not until you can start generating income from them free and clear. Fun stuff!!
It’s definitely fun stuff. And I definitely see your point. I’m so glad we have an awesome community that loves debating it. Where would we be without it 🙂
I always counted cars, because in any emergency you can liquidate one and have at least SOMETHING on-hand. My home was also in my equation, but only to the extent that it would offset the mortgage…
My numbers have always been so small, that I often laugh that its “like two dogs wrestling over a chicken wing.” Mostly, my finances are only to help keep me progressing in the correct direction, albeit on a teeny-tiny scale. LOL!
Love your blogs, hon! They always make me pause and do a little thinkin’…
Thanks for the compliment! Sorry I’m so late in responding – I’ve been changing my site quite a bit lately and some comments were lost in the shuffle. 🙂
I dont agree with the rich dad poor dad train of though. For me its as simple as if the asset appreciates, then include it and if it depreciates, dont include it. Your primary residence might not provide your cash flow, but it increases your net worth over time because its an appreciating asset. Cars on the other hand depreciate, which is why i dont think they should be included on any net worth statement – PS
Yeah, I know what you’re saying about the Rich Dad Poor Dad mentality. I “get” the concept, but I feel like I need to include the house to offset the mortgage, otherwise, I’d be depressed. Sorry I’m late to respond; I’ve been updating the site quite a bit these days and some comments got lost in the shuffle. 🙂
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18 Comments
I’m torn on the subject as well. I count my house as part of my net worth but the question I always ask is, “What value should I have it at?” Zillow has my house at 365k, when I paid 288k for it in 2015… silly appreciation. Due to this, my “net worth” is inflated probably 50k, but in actuality, this doesn’t count transaction costs.
I include my car in my net worth… I get your point, but you can still sell your car. The point again is what is the value of your car and how much could you sell it for. These factors determine the value you put in your net worth. Thoughts?
Zillow is wildly inaccurate. Currently, it has our house undervalued by about 30k. I know this for a fact because we had an official appraisal done in the fall. I have kept my Zillow appraisal as part of my net worth calculation because I’m planning to eliminate it altogether after we pay off the mortgage. For now, it gives us a little boost because we have equity – and I don’t mind that. If you are counting it though, I would want it to be as accurate as possible. I think you can manually input the value into most programs that automatically calculate your net worth.
As far as the cars go, I see your point. You own it and it does have value. For us, I just know we’ll have our cars forever and I’d rather not watch the numbers go down, down, and down 🙂
I include my (paid off) house in my overall net worth, although it’s really hard to determine what value to use if it hasn’t been appraised for awhile. But I definitely understand how it’s considered a liability due to all the maintenance that’s required. And of course it’s omitted when doing my calculations to determine if early retirement is an option.
My perspective is more along the lines of what my beneficiaries would receive should I pass away, and that’s why I include it. I want my family to have a complete list of anything I own of value.
My car is always omitted from my net worth. I have a 2008 and the KBB value is $2k. It’s worth so little that it’s not worth the hassle of constantly looking up the value.
That’s an interesting perspective. I like the idea of including it for the sake of your estate. We also exclude the value when we’re projecting early retirement calculations. No way our pad is ever going to give us money when we’re not working. Quite the opposite 🙂
I might be in the minority here, but I count both our home and our cars in our overall net worth. Obviously the home is appreciating and the cars are not, but they are still assets in the sense that they all hold equity. If necessary, I could sell all three today and live off the proceeds for 2-3 years. To me, that’s a big indicator that they should “count” in my net worth calculations. However, I can see the other sides of the argument, as well.
Nope. You’re not in the minority! According to my official Twitter poll, 67% of folks think the same way you do! And I completely understand that line of thought. I just think that a lot of early retiree folks are afraid to calculate it in their projections, hence, they ignore it totally. For now, ours is included, too!
We count our home. But we haven’t increased it’s value from the purchase price 8 years ago in our calculations. That’s even though our area has seen appreciation and we’ve made some large improvements. We count our car, too, using the KBB price.
We currently have our home in our calculations at an undervalued price, as well. We had an official appraisal done last fall and it came in at 20k more than the current value on Zillow. And we’re okay with that, since we can’t really get the money out of it anyway.
I know we could increase our net worth by about 20k if we included the value of our cars, but I also know that those values will do nothing but drop like rocks over the next few years. And, I’d rather not see that. So we skip it.
It is part of my net worth, but not part of my retirement savings. Same with cars and college savings for my son.
I don’t count my home since there is no guarantee it will ever provide me a windfall. I have no intention of selling and as you pointed out if I did I’d probably have to spend it again on another house. So for me it’s just an expense. Still it does lead to some funny situations. If I pay ahead on my mortgage that means my net worth declines since I also ignore my mortgage liability since it’s small compared to my equity.
That is exactly the reason I include the value in our net worth calculation. Because I want to see us making progress as we pay the mortgage. Maybe you should just remove the mortgage from your calculation, as well. I thought of that strategy, too.
I count the house in my net worth calc., I try not to complicate the concept too much. For me your net worth is the amount of cash you would hold if you liquidated all assets, pure and simple. It’s a nice metric to gauge your overall financial health and its direction. The more important number is the value of your investable assets, money you can basically put to work to generate income. By that definition a house you live in wouldn’t count, and if you’re looking to retire early, you technically can’t count tax advantaged accounts either. At least not until you can start generating income from them free and clear. Fun stuff!!
It’s definitely fun stuff. And I definitely see your point. I’m so glad we have an awesome community that loves debating it. Where would we be without it 🙂
I always counted cars, because in any emergency you can liquidate one and have at least SOMETHING on-hand. My home was also in my equation, but only to the extent that it would offset the mortgage…
My numbers have always been so small, that I often laugh that its “like two dogs wrestling over a chicken wing.” Mostly, my finances are only to help keep me progressing in the correct direction, albeit on a teeny-tiny scale. LOL!
Love your blogs, hon! They always make me pause and do a little thinkin’…
Thanks for the compliment! Sorry I’m so late in responding – I’ve been changing my site quite a bit lately and some comments were lost in the shuffle. 🙂
I dont agree with the rich dad poor dad train of though. For me its as simple as if the asset appreciates, then include it and if it depreciates, dont include it. Your primary residence might not provide your cash flow, but it increases your net worth over time because its an appreciating asset. Cars on the other hand depreciate, which is why i dont think they should be included on any net worth statement – PS
Yeah, I know what you’re saying about the Rich Dad Poor Dad mentality. I “get” the concept, but I feel like I need to include the house to offset the mortgage, otherwise, I’d be depressed. Sorry I’m late to respond; I’ve been updating the site quite a bit these days and some comments got lost in the shuffle. 🙂