Thursday, January 04, 2007

"Your Bay Area Home as Profit Center"

Yesterday, I responded to a post on the MBN Forum. The question was about Net Worth. Do you calculate your real estate equity into your net worth? or not?

I do both. I had such a struggle purchasing this house in SF. that it's important to me to know that this investment is worth something!

According to this article in today's SF Chronicle"Your Bay Area Home as Profit Center", 97 percent of people who sold their house in the Bay Area in November 2006 got more than they paid for it. The article admittedly states that in this number they do not include improvements on the property, nor do they include equity lines of credit. So, this number is a bit unrealistic; however, I still believe that the number is high and that most people are making money when they sell their house.

Also, you can see from the article that with a median holding period of 6 years, the appreciation rate of these homes was 11.1% per year. That's awesome. Looking at it from a more conservative approach, housing only appreciates 3.5 percentage points a year over the rate of inflation (which was 2.7% during the same time period). So, conservatively, my house should "technically" increase at least 6.2% per year. Not too shabby.

I get to live in my house, not pay rent, and still "make" 6.2% in appreciation this year. I can live with that. I have no intention of taking out an equity line (unless, we are in absolute dire circumstances and there is NO OTHER way out.) I finally feel pretty good about this purchase.

To answer the Net Worth Quetion too, I like to look at both numbers, because as long as we are living here, the real estate equity is an intangible number. I like to know that it is available, but not count on it. Our current NW is $454,054 with our RE equity and $209,622 without. Either way you look at it, I'm pretty happy with the number.

What about you? How do you calculate your Net Worth?

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