Should You Include Real Estate In Your Net Worth?

One of the most heated discussions of personal finance is whether or not you should include real estate in your net worth.

I can already now say that my short answer is: YES! You should include real estate in your net worth, but only to some extent.

First of all, you have to differentiate between your primary home and real estate investments (the latter in which you do not live yourself, but most likely rent out) because the methodology differs.

How to include your primary home in your net worth


I know some internet warriors will disagree with me on this one, but I sincerely believe you should include your primary home in your net worth.

However, it is important to avoid a few pitfalls in doing so.

If you recently bought a home for 300,000 USD and have a 200,000 USD mortgage, then the amount to include in your net worth would be 100,000 USD.

If you bought a home five years ago for 300,000 USD and have a 150,000 USD mortgage, and the market value of your home is now 400,000 USD, then the amount to include in your net worth would be 250,000 USD.

Why should you do this? Because your primary home is part of your assets and your liabilities. It is not only part of them, but it most likely makes up a large share of them. Therefore, it should definitely be included in your net worth – not including it would not give a realistic picture of your net worth.

It is of course important to note that there’s a big difference between liquid and illiquid assets. While your real estate is an illiquid asset, (parts of) it can be turned into cash if you sell your home.

Every month you will see me reporting our net worth including real estate. I use the market value of our apartment based on an external (pretty accurate) source’s frequently updated estimate.

Some people argue you should only count income-generating assets as part of your net worth, but I disagree with this. Your home is a massive asset and should therefore be included. Should you then include furniture, jewelry etc. as well? Theoretically, you might, but I would say no, that is too much of a hassle to keep track of, but if you sell it and turn it into cash it should obviously be included.

A couple more things to consider:

  1. Your monthly mortgage payments should only in some instances be used to calculate your savings rate
  2. All of your home expenses should be included when calculating your FI number
  3. Only the potential amount you expect to realize when selling (e.g. if you downsize, shift from owning to renting or your home has risen significantly in value compared to the next home you will buy) should be included towards measuring progress on your financial independence goals
  4. … and if you sell your home and start renting, remember to take your new monthly housing expenses into account when calculating your revised FI number

How to include real estate investments and rental properties in your net worth


Ah, this one is much easier! The answer is YES, YES and YES! Of course you should include real estate investments and rental properties in your net worth.

They generate an income (hopefully!) just like your other investments and should naturally have a seat at the net worth table.

The most important part is to include both sides of the equation to give a realistic picture of how they impact your finances.

Remember to include both the market value, income and expenses when calculating your net worth, savings rate, financial independence number and progress.

Your turn: What do you think? Should you include real estate in your net worth?