Should Your Primary Home Count Towards Your Net Worth?

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Buying a home is a big deal – it’s one of the biggest and most emotional financial decisions you’ll make in your entire lifetime. Haven’t we all dreamt of the home we’d buy when we grow up?

When my wife and I neared the end of our medical training, discussions of where to live (and how many kids to have) began to arise. Like most people, our first home felt like the payoff for years of study and hard work; time for the good life to begin.

On the financial side of things, you’ve also likely heard that owning a home is the best investment you’ll ever make. But is that really the case?

Robert Kiyosaki, author of Rich Dad, Poor Dad states that you’re better off considering your primary home as more of a liability – more of a consumption item than an investment. Why?

Yes, your monthly housing payment is going toward the equity of the home rather than rent. That’s a good thing. However, your primary home can be considered an illiquid asset. As some have said, “You have to live somewhere.” It’s also a liability in the fact that if you miss payments, the bank will take what’s theirs. And let’s face it – you’re not really treating that home like an investment property.

When you own an investment property, everything is about the numbers. What kind of cabinets would allow you to maximize the rent? Would re-doing the countertops increase returns or just be a waste of money?

These aren’t the same kind of questions that occur to you when you’re picking out paint samples for your child’s nursery or renovating your dream bathroom.

Given all that, should your home actually be included in your personal net worth?

Well, to answer that question, let’s back up a bit. Why does it matter? Who cares? Really, are you even tracking your net worth? I, for one, absolutely am, and I use a site called Personal Capital to help me do it. I used to use Excel spreadsheets and update them every month or two. I had to login to each account and look up all my numbers individually. Now I just login to one place and see realtime graphs, charts, allocations etc., all at once. Anything that saves me time is tremendously helpful.

Net worth is important because it’s like a scorecard. It’s kind of like some of the markers we follow in medicine. The absolute numbers are important, but what they mean in terms of clinical or real life significance is what makes those numbers powerful. Having an increasing net worth means that you’re increasing your assets versus your liabilities. That leads to ultimate long-term stability.

Okay now, should your home be included in your net worth?

When it comes to qualifying as an accredited investor, one of the criteria is that you have a $1 million net worth excluding your primary residence. (As I’ve mentioned in previous posts, qualifying as an accredited investor can open up a huge world of investment opportunities, including great real estate crowdfunded deals.) The thought is that you need to live somewhere and can’t easily liquidate or tap into the equity of your primary residence. However, I don’t fully agree with that. You can liquidate by selling your home on the open market, and you can definitely sell it faster if you’re willing to price it under market. In my market, I see homes closing in 14 days all cash easily depending on the price. The same issue with liquidity can be said for any investment property, yet that is included in your net worth.

So I absolutely believe that if needed to, I could sell my primary home and use the current equity as cash if needed. I can’t think of too many scenarios where I would need that money that quickly but I know I could. On a side note, I have a HELOC setup, so I could always use that to tap into the equity of my home as well in a pinch.

My net worth

After all this talk, you may be wondering what my net worth actually is. Well, including my home, I’m above $3 million. Without it, though, I’m in the upper $1 millions. I benefited from purchasing a home at a good time in the market and it’s appreciated greatly. So yes, my home is a huge part of my own net worth. That is, to an extent, a testament to the power of leverage. My only regret? I wish I could have bought the house right next to me at the same time.

My net worth goals do include my primary home. However, cash flow goals are my ultimate priority. Cash flow pays the bills and gives me the freedom to live life on my own terms. Even though my net worth is what it is, the cash flow I receive on a monthly basis is what allows for true financial independence. However like I mentioned, net worth is still a nice indicator to follow.

Do I think my home was a good investment?

Oh absolutely yes. We bought in a fantastic location, I don’t need or want more space, our kids love it here, and we have a great community. Those are things aren’t always easy to quantify in numbers, although some could play into the price of the home.

So, to answer the title of this post: Yes, I like to include my home in my net worth. I know exactly what my net worth is both with and without my home, but I base my goals on the former. I guess it also feels better and more secure to see that bigger number in my Personal Capital account.

What do you think? Should you even care what your home is worth when it comes to net worth?

19 COMMENTS

  1. I tend to not include it in my calculations. First, as mentioned when investing the SEC regs do not include it in the accredited investor definition. Secondly, I am told “we are not moving” by my spouse so I can’t count on selling or downsizing to help my retirement account balance. Although if I ever needed to, we could do a reverse mortgage- but certainly not planning on it. That said, I keep both numbers side by side on my spreadsheets. I tried Personal capital but it could never link in well with my brokerage for some reason, so I use spreadsheets.

    Lastly, my home has been probably my worst investment, although a very nice place to live the appreciation has been horrible over 18 years. The taxes are absurd and with our new Governor it may get even worse.

    • Sounds like you do track it, but smartly know what your net worth is and isn’t. The most conservative way is to certainly track without it and base your goals there. I’d try Personal Capital again, I’ve heard Mint works as well. Overall it’ll just save you a good deal of time if you have accounts all over the place like I do. Sorry to hear about your home. At the very least I hope you’ve enjoyed living in that community, and that has to be worth something right?

  2. Primary homes as investments have been hit or miss for most people I know. We always hear about the profitable ones. And it all depends on where and when you buy. People who bought in NJ, Bay Area, and SoCal and NE corridor within the last decade have mostly seen significant gains. Omaha? Maybe like a paper gain of $20k on a $400k house. Sometimes a loss when you sell.

    As you had mentioned, I’ll only count my property in my net worth if I plan to unload it when I decide to retire. Otherwise, there’s no cash flow in it.

    • Yup, there’s absolutely no cash flow consideration when it comes to my home. At the same time, I feel it’s silly not to at least acknowledge the value the home has. If all went down the drain, of course we’d be open to selling, moving, or just renting locally if needed. We’d have no choice if it came to that. Then that cash would be sitting in our savings account and it would magically count towards our net worth according to the SEC. I definitely feel lucky to have experienced this level of appreciation but I do understand it’s not necessarily the norm across the country.

  3. I count mine as part of my net worth even though it is a modest $200,000 or less house. That makes it an insignificant piece of my net worth but your point that I could sell it and rent somewhere to live in an emergency proves it is a genuine asset and as such it deserves to be counted. Even more so in your case where you have a truly valuable and greatly appreciated house. Very nice post, well thought out and well presented.

    • Modest depends on where you live I guess. In some parts of the country, that’ll buy you 4 acres of solid land! Sounds like you’ve got other assets to fall back on, which makes your primary home even more “liquid” and therefore easier to include in your net worth calculation. Thanks so much!

  4. I do count my primary residence as a part of my net worth. I earned and saved the down payment and it’s embedded in the equity of the house. Is it an investment? No. But being in the Bay Area, it’s appreciated to the point where my equity is a fairly large percentage of my total net worth. Also, I’ve been able to harvest some of that equity via a HELOC and plant that equity seed in a single family rental property. That equity portion will now generate its own returns. Of course, much of that depends on where you live.

    • Yes I believe that the money you scraped for has to account for something. It’s a little strange to me that if you decided to rent and keep that money in a savings account you’re all of a sudden worth quite a bit more. I actually tapped my HELOC to help put down money for a down payment on an apartment building, but aggressively paid it off.

  5. I go back and forth on this one. Sometimes I include it – especially if I’m trying to impress someone (like a banker).
    I don’t really think of my house as a financial asset though. I see it more as an expense. Think Rob Kiyosaki’s “Your house is not an asset, but a liability.” In my area, houses don’t appreciate much so it is pretty easy to see it isn’t a great investment. Especially when you throw in maintenance, taxes, and transaction costs. For my net worth, I don’t typically include it. If I ever sell my house I will likely buy another. I also live in a fairly low cost of living area. I suppose if I lived in a high cost of living area and might retire to a lower cost area, I could anticipate some appreciation to cash in on.

    • I absolutely get Kiyosaki’s thinking, and you know I’m a huge Rich Dad fan. However I think it deserves an, “it depends.” It depends on how it turns out, and unfortunately that’s hard to predict. If I chose to rent the same house in my neighborhood, I’d be paying a good amount more than my PITI. Throw in the appreciation and the positive emotional components of owning our home, looking back, I would make the same exact decision. Unfortunately outcomes like this have a lot to do with luck.

  6. We include it in our net worth but not in our retirement planning. I think it’s important to include for estate planning purposes. Personally, I wouldn’t want more than 10-20% of my total tied up in home equity. Also would be wary on the coasts or near other bodies of water–climate change could have some less than desirable outcomes for property values in the long term.

      • Honestly, I would consider moving and then putting the money to work someplace else. But that’s probably not realistic if you want to stay where you live–everything else will be crazy expensive too. If I recall from when I lived in CA, property taxes are locked in at what you pay for the property–so that’s a reason to stay too. I would be hesitant to refinance given the seemingly bullish market–but who knows what the future brings? You will most likely have an estate tax problem with or without the house at the rate you’re going (not a bad thing, just requires planning 🙂

        • Thanks for your opinion, I love hearing them. Yes, in my area, property taxes cannot increase more than 2% a year unless it’s sold. So you have people sitting on 10-15 million dollar properties paying taxes as if they bought it for $500,000. So yes, I don’t have much desire to move within the county and reset that property tax counter. Having an estate tax problem is a good problem to have and if that’s the case, hopefully you have the resources to work with a great estate planning attorney.

  7. Our real estate assets is worth 40% of our net worth and honestly, I wouldn’t have included had I known by this time this year that it would grow so fast. The year started us at 30% of our net worth. This market is suspiciously bull-ish. But you are right, it doesn’t matter, no one else is going to jump on you for counting or not counting. Liquidity is definitely my #1 too though.

    • Sorry, should’ve made it clearer and may edit the post. Knowing that my house has doubled through such rapid appreciation, I should’ve bought my neighbor’s house as well as an investment property. I knew the neighborhood and had the understanding that this area would be great to invest in. I just didn’t want to stretch myself financially too much. Although looking back, it would’ve been a great investment.

  8. Thank you for this post. The purpose of determining a net worth is different for different individuals. If you are meeting with a financial professional then it’s important to include it. If it’s for the sake of calculating passive income then your primary residence may skew the numbers incorrectly. As some commenters pointed out, if you’re not willing to sell your primary residence at an opportune time then its net worth is slightly less relevant.
    The true value of the home (as opposed to market value) is actually much harder to determine now that we have services such as AirBnb. A home worth $150k may produce $2,200/month of income which means that its actual hard asset value is much lower than its ability to produce income. I don’t think a plain Jane net worth calculation would capture that value.

    • Thanks for the input. Didn’t even think about how using it as a vacation rental might play into this whole thing, very interesting. I guess it’s quite possible to extract a good amount of value by using those services while you still somewhat retain the ability to enjoy your own home. At this point though, don’t think my wife would go for it. Ultimately tons of different factors and things to consider but at least thinking about it should send you in the right direction.

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