Inspired by JLP of AllFinancialMatters (and the recent purchase of a large appreciable asset) I am interested in consistent (albeit theoretical) home appreciation valuation.
No, I do not mean how much I like, enjoy, or praise my home–although I do, very much like our new home. We have been in it for
seven several months now (2/2006) and in an effort to conservatively track home appreciation (because of the New Worth issue) I have gone about it this way:
I will appreciate the home 1/12 of 1% (of the value = recent purchase price) per month.
I feel this is conservative because it assumes that the home will appreciate at only 1% per year, and I have heard that the national average is more like 3% (just throwing this out). Being that this is theoretical appreciation, meaning I won’t know or realize the gain until it is sold (really, isn’t even a appraisal theoretical?).
My general accounting philosophy is to estimate conservatively on cash in-flow and [a restrained] liberally (wadda you expect, I am conservative in every other way) on cash out-flows.
This way, if I make a mistake, I usually make the mistake in my favor, not “the other guy’s.”
Does this sound plausible? A good idea?