Housing as part of your assets

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karma
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Housing as part of your assets

Post by karma » Tue Dec 21, 2004 4:56 am

I know that in general you are not supposed to use housing as part of your asset base when considering your withdrawal rate. The rising prices in my area coupled with the realization that as a little old lady I would have a tough time of caring for this place make me wonder if you can use (in your mind) part of the worth of your housing as a fall back, buffer orjust plain plan on moving someday, freeing up the cash.

I definitely think it is wrong to use the whole value, because you do have to live somewhere, but is there anything wrong figuring what amount you would need for adequate housing and throwing the rest of the value into your asset base?

We have a very large lot that could bring lots of money if sold, and I'm sure we could find a perfectly nice place for half of what this is worth. We aren't ready for it now, but maybe someday ... At least it's nice to know it's there.

And I do know about housing bubbles :lol:

karma

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Post by hocus2004 » Tue Dec 21, 2004 6:42 am

"I definitely think it is wrong to use the whole value, because you do have to live somewhere, but is there anything wrong figuring what amount you would need for adequate housing and throwing the rest of the value into your asset base? "

I view the "you can't count the value of housing" thing as another unfortunate dogma that some portions of the community have bought into without giving the matter suffiient thought. The amounts that you have invested in your personal residence are different than the amounts that you have invested in more liquid assets, that's fair to say. But I don't accept the idea that it is not possible for an investment in a personal residence ever to provide any real return.

I own my home in full and it is valued at about $300,000. I don't think it would be a good idea to assume that I can earn a 4 percent real return on that $300,000. That doesn't seem reasonable to me, given that I am also enjoying the considerable benefit of living in the house. But I don't see why I should assume a zero percent return on that investment either. The reality is that the value of my housing investment has gone up A LOT. I have probably gained more from my investment in my house than from anything else. I don't expect that to continue. Actually, I expect the value of my house to GO DOWN in the near-future. But I also think that I may earn a small positive return on the investment over the long term.

In an earlier discussion of this question, FoolMeOnce put up a post that indicated that the value of owner-occupied housing goes up by 1 percent to 2 percent per year in real terms. That's obviously an extremely rough average; there are all sorts of variables that need to be taken into account. Something between a 1 percent and a 2 percent real return strikes me as being in the right ballpark, however.

I have a reputation for being excessively cautious. I don't view that reputation as being at all well-deserved. My personal view is that I fall a little bit to the risk-taking side of the spectrum of risk-acceptance possibilities. My views on the housing question show this. Many community members seem to view it as high-risk to assume any gain from the ownership of a personal residence. My view is that it is OK to assume something, although I do understand why a distinction need to be made between the investment in one's house and other investment classes, such as TIPS or stock or investment real estate or whatever.

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Post by JWR1945 » Tue Dec 21, 2004 6:44 am

karma
The rising prices in my area coupled with the realization that as a little old lady I would have a tough time of caring for this place make me wonder if you can use (in your mind) part of the worth of your housing as a fall back, buffer or just plain plan on moving someday, freeing up the cash.

Yes. Reverse mortgages fill the gap. If you need more cash later on, you can always get a reverse mortgage.

Have fun.

John R.

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ElSupremo
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Post by ElSupremo » Tue Dec 21, 2004 7:55 am

Greetings Karma :)

I don't count my home towards the SWR. But I do include it in my overall portfolio. I used to consider a reverse mortgage part of my long term plan. Now it looks like I won't need one. I do think they are a good idea if you need it. :idea: You need to shop around because the terms vary wildly.
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Post by TRyan » Tue Dec 21, 2004 8:23 am

I never used to count housing in my SWR funds but two scenarios changed that:

1. reverse mortgages became available ... now you can have your cake and eat it too
2. I purchased land to develop a second home. This will work as a rental initially ... then as a retire home in later years.

So I plan to either sell the primary and move into a second/vacation home or tap the equity as a reverse mortgage. Either way the home equity will act a final booster in the retirement engine.

Enjoy!
"Buy Low Sell High"

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mickeyd
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Post by mickeyd » Tue Dec 21, 2004 10:14 am

I do not include the value of my residence as part of any portfolio. Nor do I include what is in my bank account, stamp collection, coin collection, or value of my two automobiles. Even though these things all have a definate market value, I have chosen to include them in my "buffer".
regards,
mickeyd

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karma
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Post by karma » Tue Dec 21, 2004 12:33 pm

value of my two automobiles


I'd have to pay someone to take my car away. No value except it still runs great.

I thought reverse mortages weren't such a hot deal. High fees or something.

karma

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ben
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Post by ben » Tue Dec 21, 2004 2:48 pm

I naturally include my (fully paid) apartments current market value in my total net worth calculation.

I do not include it in any SWR calculation as such - if I rent it out the income I get from it will naturally reduce the $ amount I need to take from my invested portfolio. If I live in it myself the rental saving I obtain from not renting elsewhere will naturally also reduce the $ needed from my invested portfolio.

Cheers! Ben
Normal; to put on clothes bought for work, go to work in car bought to get to work needed to pay for the clothes, the car and the home left empty all day in order to afford to live in it...

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