December 18, 2007, 7:00 am

Why Calculating Your Property Value In Your Net Worth

by: The Financial Blogger    Category: Assets and Net Worth
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It is 6 AM on Monday morning and I am writing those lines right after I shovelled my driveway. We received 11 inches of snow on Sunday but it really felt like it was 5 foot! All that to say that sometimes, I really wonder why I am living in Québec, Canada!

There was recently a debate on MillionDollarJourney’s Blog as to know whether or not we should include our property value in the calculation of our net worth. Some people say no, I say yes 😉 I’ll explain why today:

Point #1:

Let’s say that you have a 300K house with a 200K mortgage on it. Technically, if you do not count your property value in your net worth calculation, you will start with a negative net worth of -200K. An individual should not be penalized in his net worth calculation because he has a property. In fact, any assets linked to an important debt should be included in a balance sheet. This means that cars should be put on your balance sheet if you have a loan attached to it (I would approximately include the same amount of the debt as cars are considered to be a depreciating asset). On the other hand, your plasma TV should not be included even if you paid with your credit card 😉

Point #2:

Let’s compare 2 situations; #1 Peter who had bought a 50K house 20 years ago and decided to concentrate on paying down his mortgage instead of contributing into his RRSP / 401K or investing in the market. Today, he has no investments whatsoever but his property increased in value to 250K. Let’s say that he has no other debts and no other assets. #2 : Sandy is 20 years old and she is a very responsible student. She has no debts and she was even able to put 5K aside in a money market fund. She lives in an apartment and as no other assets. If you do not calculate the property value in both situations, Sandy will be the one with the biggest net worth (5K) while Peter will be left with nothing to show on his balance sheet. I am asking; Does it make sense? While Peter did not necessarily made the best move ever when concentrating all his income into his property, he is still richer than Sandy.

Point #3:

What is the purpose of calculating your net worth? According to a banker’s point of view, it is to know one’s financial situation if he has to liquidate all his assets and pay off all his debts (more likely a bankruptcy scenario). Banks will look at tangible assets such as money in bank account, registered and non-registered investments along with properties and (maybe) cars. If you are looking at it with a retirement planning perspective, it will really depends on your financial plan. One can sell his property and move into an apartment, another one could leverage against his property to invest in the market or to buy a rental property.

In the end, a property should be considered for what it is : a semi-liquid assets. When calculating your net worth, you should include your property value based on an appraisal or the purchase price plus the inflation rate for every year that you had it. One must keep in mind that this is not money that you can access right away as the sale process is much longer than selling mutual funds or withdrawing money from a bank account. Therefore, it should not count as being part of a emergency fund but it is surely worth something!

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by: Cross the River | December 18th, 2007 (9:27 pm)

Why live in La Belle Province?

Haven’t you seen the South Park Episode? There’s no Canada like french Canada!!! (you did put the accent on the e)

Seriously, the snow knows no borders and we have the metric system (wink! wink!)

The way I see house worth, not including it would be like saying I borrowed money and got nothing fot it. Even if you still have a mortgage (don’t we all?), the house is still yours. It is not true that the bank (or la Caisse populaire) owns it. Otherwise, you’d be a tenant and it could kick you out.

For the majority of individuals, a house might be the only thing they have to show for at the end of their life. So let’s included it.

Semi-liquid? I would disagree. If we are to follow standard accounting procedures, ( GAAP or something?), assets are mentionned in order of liquidity and real estate is usually close to last. I say we just says it’s part of net worth and leave it at that.

Great blog!

As we become a more connected world things like real estate are more liquid than ever before. Include your home in your net worth. It’s only proper GAAP.

Then you should also count the depreciation on your car.

by: The Financial Blogger | December 20th, 2007 (7:15 am)


You are totally right. Every year, when I calculate my net worth, I drop my car value. The easiest way to do it is to find a similar car to sell on the internet and put a lower value than the asking price.

You are right that your house value should be included in your most complete net worth statement, i.e. the statement you would want to see if you DID in fact have to liquidate everything.

However, the argument AGAINST including your home value doesn’t disagree with this, what it says is that from a personal finance point of view your liquid net worth is much more important.

For instance, if two people each have net worths of $1 million, Person A has it all tied up in his house, while Person 2 has it all in cash. Which one is in a better position? Which one has more options?

I don’t include my primary home net worth in my calculations, and because I have positive equity in it I don’t include the liability either. In your first example you make the mistake of saying the guy would have a negative net worth of -200k if he didn’t include his home. The idea is that he doesn’t include any of the positive equity.

While you own your home it is in fact a liability, you have loads of expenses associated with it and you make no money back from it.

A lot of people have inflated views of their own net worths when they include their home equity. In a place like California or New York a typical middle-class person can easily have a $1 million home, its extremely common. But unless they were to move to a low cost part of the country they can never take advantage of that built up equity. And the fact is most people will never want to move from the major metro areas to podunk places.

My home is worth about $1.2MM and we bought it for $700K in 2001. However, unless we move to a much smaller place that extra equity means nothing. And why on earth would we move to a smaller place when we are just starting a family? We have less than $500K left on our mortgage so our equity is around $700K. I have net worth outside of this of also around $700k. So can I say my net worth is really $1.4MM because of the home equity?? It sounds nice. Makes me feel a little bit rich. But its not real. The home equity is nothing I can touch. The other $700K I have in cash and investments I can use anytime I want. That is the real money I would live on if I had to, if I wanted to splurge, that would be the real money I could use for something. Say I want to buy a boat for $100K. With a net worth of $1.4MM it sounds like it isn’t a big problem, but in reality it would be a big chunk of my liquid assets. So I consider the latter number more important.

In conclusion, both numbers are important. Including your home is important for a complete picture and a super “emergency” type situation. Not including your home is important to get a picture of your real financial health and what you’re worth is barring any emergency.

by: The Financial Blogger | December 26th, 2007 (12:42 pm)

I can appreciate your point of view and I understand better the reasons why you are not considering your house value in the calculation of your net worth. However, keep in mind that you can always have access to the equity lying in your property through a mortgage or a HELOC. Even if you will pay interest on it, you can still “borrow” your equity.

If you look at the liquidity aspect of your net worth, one’s must not include his pension plan either. In fact, you can sell your house and technically get your money back within 6 months. However, you can not withdraw your full pension plan in one shot at any time (not in Canada).

[…] Financial Blogger agrees with me in that personal property should be included in net worth […]


I think I started some of this debate when discussing my financial position with FT over at MDJ.

My point was almost exactly what Boydboy was saying, in that I don’t think you should include your personal residence when calculating your net worth for retirement/income purposes.

This view came about when talking about the size of portfolio you need to generate the income you want in retirement.

I also include my PR in my balance sheet, but at the price I paid for it, not inflated to what you think it is worth. Unless you are a real estate agent or a certifed appraiser, we are all in for a little shock when it actually comes time to sell.


Good debate though.


I agree with you here, and I always have a hard time seeing why others argue that it should not be included.

One of my favorite posts from carnival of personal finance. I agree that you need ot add your property into your net worth equation. Becuase as was pointed out, it’s semi liquit cash. You can take out HELOC on it very readily, even up to 125%. You can take cash-out refi for an even better interest rate locked in. You can sell of course nad in most cases get up to $500k in tax free capital gains.

Yep, I’d rather be the guy with no savings and 500K in equity than the guy with $50K savings and a million dollar house with $0 equity.


[…] primary residence actually an asset” debate appears to have taken on a new life recently. The Financial Blogger is an example of the latest bloggers to comment on whether calculating your primary residence in […]

Why not ignore the value of your home AND ignore the value of the mortgage in a net worth calculation. I think that’s the best.

In a cash flow analysis, you do have to include the service costs of the mortgage, but you can exclude the rent that is consequently not there.

Simple and accurate.

The second you wish to move to a cheaper place or switch from owning to renting then you can “book” the equity.

by: The Financial Blogger | February 7th, 2008 (7:39 am)

What if you use your mortgage to pay off all your other debts? Many people use the equity in their house to consolidate their debts under a bigger mortgage. If you disregard the property and the mortgage value, you would suddenly end up with bigger net worth.