The Lemon Fool

The software I use (Kubera) to track my portfolio and accounts includes the value of your main property in your net worth.

Is there a consensus on whether you should be including it in your net worth and also your SWR calculation against that net worth?

I can see there's an argument that it's obviously an asset and at some point you could downsize / use equity release etc.

Or is it better to exclude your house (on the basis that you'll always need somewhere to live), and if you do ever downsize later in life just treat that as an added bonus rather than factoring it into your SWR calculations?

dingdong wrote: Or is it better to exclude your house (on the basis that you'll always need somewhere to live), and if you do ever downsize later in life just treat that as an added bonus rather than factoring it into your SWR calculations?

This is what we do, ignore the house - it's part of our net worth, but other than that it's not included in any calculations.

I also don't use an SWR, we live of the natural yield from our portfolio, but will spend chunks of cash if needed in the future but for the foreseeable the natural yield is enough.

Ignore the house, unless you are planning to sell 3% of it off every year

We include it in our IHT planning, but in our heads it is earmarked for care fees as and when, so we largely ignore it.

Paul

DrFfybes wrote:Ignore the house, unless you are planning to sell 3% of it off every year
Paul

how on earth do you sell 3% of your house

pje16 wrote:

DrFfybes wrote:Ignore the house, unless you are planning to sell 3% of it off every year
Paul

how on earth do you sell 3% of your house

Well if you include it in your Net Worth when working out your SWR, then at some point it will happen

My beneficiaries probably do, but I gotta live somewhere, so it is not a an asset that can provide an income either through yield or partial sale, so it doesn't count.

44.4/33.3/22.2 FT250/House/Gold initial weightings

Draw 1.4% SWR from just the liquid 67% (stock/gold 67/33) = 0.93% relative to total wealth
FT250 pays a 3% dividend = 1.3% relative to total wealth
Imputed rent benefit, rent that we'd otherwise have to find/pay of 3.3% = 1.1% relative to total wealth.

Combined 0.93 + 1.3 + 1.1 = 3.33% effective SWR, sourced via imputed rent, dividends, SWR.

No need to rebalance, just draw the SWR element from whichever of the liquid assets is the most above target weight at the time (stock or gold).

30 year 3.33% is the return of your inflation adjusted money via 30 yearly instalments. Historically more often you ended 30 years with at least your inflation adjusted start date wealth still available, had your cake and ate it.

Later life may entail having to sell the home in order to fund late life care home costs.

Multiple assets/currencies (land/stock/commodity; £ home value, 50/50 £/foreign FT250 earnings, gold = global non-fiat currency). Initially 55% of wealth physically in-hand (gold and land = reduced counter-party risk). Diverse sources of income (imputed, dividends, SWR).

From a disposable income perspective 3.33% of total wealth, but where 1.11% of that is in effect being spent on rent, to leave 2.22% disposable relative to total wealth, or 3.33% relative to just the liquid asset wealth, such that you can mentally account for things either way (include or exclude home value).

dingdong wrote:The software I use (Kubera) to track my portfolio and accounts includes the value of your main property in your net worth.

Is there a consensus on whether you should be including it in your net worth and also your SWR calculation against that net worth?

I can see there's an argument that it's obviously an asset and at some point you could downsize / use equity release etc.

Or is it better to exclude your house (on the basis that you'll always need somewhere to live), and if you do ever downsize later in life just treat that as an added bonus rather than factoring it into your SWR calculations?

It is part of your net worth and may incur IHT on part of that value, should it exceed £350k.

SWR is a nonsence when the cost of your house is concerned. It comes into play should you have to go into care and rely on the proceeds of its sale to fund your care. The SWR then becomes irrelevant, because you will know what you have to find each week, month or year.

TJH

Its part of your net worth, and given you can sell it to fund many years in rented accomodation, its part of your retirement assets

Of course using it as a buffer means you can plan for a more aggressive SWR.

To both exclude your house and have a cautious SWR means you'll be waiting so many more years to retire and will likely die rich

How much would it cost to rent your house?

If you own it, you're getting it rent-free. So the immediate value to you is the difference between the rent and the maintenance cost. Plus something for the security (and freedom) of not being at a landlord's whim.

Would the proceeds from selling it generate more or less income than that? Place I rented from 2013 to 2019, the rent was covered with something[1] to spare by the dividend income from a VCT portfolio whose cost to me was around half what the house would've cost.

[1] Something ranging from a few hundred up to a surplus of £6k in my best year.

UncleEbenezer wrote:How much would it cost to rent your house?

If you own it, you're getting it rent-free. So the immediate value to you is the difference between the rent and the maintenance cost. Plus something for the security (and freedom) of not being at a landlord's whim.

Would the proceeds from selling it generate more or less income than that? Place I rented from 2013 to 2019, the rent was covered with something[1] to spare by the dividend income from a VCT portfolio whose cost to me was around half what the house would've cost.

[1] Something ranging from a few hundred up to a surplus of £6k in my best year.

Firstly, well done for covering the rent with the investments, i'm not sure we would have managed that after tax with our knowledge.

As you say, security of tenure is one factor, and going slightly OT here, after transactional costs how much would you have gained from the increase in property value during your ownership? My rule of thumb was if you were somwhere for under 3 years then rent, otherwise buy if you could.

Paul

A perennial question….
We all need at all times a refuge from the wind and the rain
The house is obviously worth something but you will always need one so making use of it as a financial asset is problematic
You could realise cash by downsizing on retirement
You could reverse mortgage/equity release if you run short of cash in old age
Most investors know their homes worth and cost but don’t include it in their investment plan because it is an illiquid and necessary asset
Personally I would therefore live in as small a house as possible and concentrate you savings on SIPPs and ISAs
xxd09

DrFfybes wrote:

UncleEbenezer wrote:How much would it cost to rent your house?

If you own it, you're getting it rent-free. So the immediate value to you is the difference between the rent and the maintenance cost. Plus something for the security (and freedom) of not being at a landlord's whim.

Would the proceeds from selling it generate more or less income than that? Place I rented from 2013 to 2019, the rent was covered with something[1] to spare by the dividend income from a VCT portfolio whose cost to me was around half what the house would've cost.

[1] Something ranging from a few hundred up to a surplus of £6k in my best year.

Firstly, well done for covering the rent with the investments, i'm not sure we would have managed that after tax with our knowledge.

As you say, security of tenure is one factor, and going slightly OT here, after transactional costs how much would you have gained from the increase in property value during your ownership? My rule of thumb was if you were somwhere for under 3 years then rent, otherwise buy if you could.

Paul

Property values are very much on my mind at the moment. Like any investment, you need to get your timing right. I bought my current place in 2006. As an investment the timing was not brilliant because less than two years later we had the banking crisis and prices fell sharply and did not recover for some time. Based on a recent valuation, I am up around 40% since purchase, over 17 years. With my previous house over a 19 year period I was up 6 times. Now that was a decent return. To rent my current place might not be that much different from what I would get by investing its net value in an income portfolio.

Anyway, of course my house is part of my net worth but I would not use its value in looking at a SWR. I do not use that anyway, just live off the dividends and keep it simple. Unlike investing of course, a house has a lot of costs attached to it, as I know, having just had it externally redecorated, roof fixed and internal heating sorted over the last few months.

Dod

DrFfybes wrote:As you say, security of tenure is one factor, and going slightly OT here, after transactional costs how much would you have gained from the increase in property value during your ownership? My rule of thumb was if you were somwhere for under 3 years then rent, otherwise buy if you could.

Paul

I have a measure for that.

In 2005, my landlady served notice to quit (she was moving back to her native Switzerland after a divorce, and disposing of UK assets). She offered me first refusal - and Northern Rock were keen to finance me - but I duly refused. I moved to another rented flat (with one more room, and in much better condition), where I lived 2005-2013.

She sold for £105k in 2005. Land Registry records show the flat sold again for £96k in 2014. A capital loss of £9k over almost the same period I lived in the next place. Of course that's dwarfed by rent and possibly maintenance (the old place needed it), but still a satisfyingly-strong signal I'd been right to refuse.

Afternoon, All.

After some deliberation, we decided to include neither property nor defined benefit pensions in our "portfolio". The reasons are subtly different, but converge in the sense that they are deemed fixed or near-fixed for practical purposes.

Conversely, for the "portfolio" it is truly discretionary - at any time, we could go into any allocation we wished - other than as constrained by what you are allowed in ISA's etc. Using that same rationale, we include "cash" in the portfolio.

After that, we focus on the equities vs non-equities (i.e. bonds, cash and bond or cash like).

Regards, Newroad

Newroad wrote:Afternoon, All.

After some deliberation, we decided to include neither property nor defined benefit pensions in our "portfolio". The reasons are subtly different, but converge in the sense that they are deemed fixed or near-fixed for practical purposes.

Conversely, for the "portfolio" it is truly discretionary - at any time, we could go into any allocation we wished - other than as constrained by what you are allowed in ISA's etc. Using that same rationale, we include "cash" in the portfolio.

Makes snese - we ignore the theoretical capital in our DB schemes as they aren't fungible, however the income is about as secure as income can be so you can deduct that from your outgoings when calculating what you need to withdraw (subject to any health constraints, in which case you might count a survivor's pension, but in those circumstances a lot would change and either of us would downsize if we were left alone).

In our case this leaves a required drawdown on other assets of under 2% to maintain our lifestyle, which is obviously a very nice position to be in. Consequently a 100% equities plus a cash buffer if the markets really crash is our preference, using Low Divi payers like VEVE/BRKB in unsheltered and selling down as required.

Paul

Not planning to spend down our house, and would like to think that it'd be passed on as part of our estate... so nope.

I do leverage my financial position against my home by holding a large mortgage, but so too does anyone else who has a mortgage.. whether they think they do or not.