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Updated 9 months ago,
What is real net worth when on investment properties?
So the main definition of net worth to my knowledge is, after selling all assets minus liabilities you get your net worth.
I believe a lot of times when we try and do a quick net worth calculation for an investment property we think,
Example:
Rental A it’s worth 200k, I bought it at 100k and own 80k. So it would seem my net worth is 120k right? But isn’t that really wrong?
If on average, selling a property costs about 8% So then we would have:
200k-8% = 184k - 80 (mortgage) = 104k
But, let’s say the property was a long term holding so capital gains taxes due on it are 15% (assuming no state taxes in Florida
So our capital gain was 100k and 15% is 15k due in taxes!
So we have a networth so far of:
104k - 15k = 89k
But, we depreciated the property for 2 years at 3.7k/yr total 7.4K taxable amount which we would owe about 1.8k at 25% tax rate (I might be off a bit here and there)
Final total net worth from what we thought it was 120k now is 87.1k which is a big difference!
Is this something most of us neglect or do not think about?
On my spreadsheets I’ve always deducted 8% (sell costs) from the actual equity on my properties but I haven’t thought about all the grainy details until now!
What do you guys think as far as calculating net worth on investment properties?