Investment Portfolio: How do we calculate our equity for Barista Fire?

When it comes to managing your investment portfolio, understanding your true equity is crucial. Equity represents the actual ownership value of your investments, giving you a clear picture of your financial standing. It is basically the amount of money that you will have if you sell all your assets. In accounting there are very straightforward rules of how to determine the "right" equity. We both worked many years as (assistant)auditors.

But in this article, we’ll break down our method of calculating equity and explain why we exclude or include certain assets, or calculate it in a certain way. To determine if we are on track for our goal we calculate our future value, by using this equity calculation and our monthly income figures.

What We Count (And What We exclude in equity for Barista Fire journey)

1. Excluding the Primary Residence

One of the most common methods in personal finance is counting your primary residence as part of your equity for barista fire calculations. While our home may be valuable, we exclude it from our calculations for one key reason: it does not generate income. Unlike rental properties, our house is a living expense rather than an investment that contributes to your wealth accumulation. This would change when we decide to sell it, so we do track its value, but we are not adding it in our investment portfolio, because if we decide to keep it till the end of our life (we will not) then it will never turn into an investment.

2. Real Estate Investments: Only Out-of-Pocket Contributions Matter

For real estate investments such as rental properties, we take a very conservative approach. Instead of including market appreciation, we only account for the money we personally put in. This includes:

• Down payments and repayments of the mortgage

• Renovation and maintenance costs

By excluding market appreciation, we ensure that our calculations reflect the actual cash we’ve committed rather than speculative gains. This approach prevents overestimating our wealth based on fluctuating real estate markets. But it also inflates our returns, because the rents increase of the years, but the calculated equity will rise less fast. We choose this approach because we want to be more cashflow oriented instead of more equity oriented.

3. Stocks and Crypto: Including Market Appreciation

Unlike real estate, stocks and cryptocurrencies are highly liquid assets. Because they can be sold almost instantly at market value, we do include their appreciation when calculating equity. This means we factor in:

• The original amount invested

• The current market value, including gains or losses

This method allows for a more accurate representation of financial standing, as these assets can be converted into cash quickly. Although we don't factor in the appreciation in our monthly income figure.

Investment portfolio vs "real" equity

All assets and equity

Our current investment portfolio we calculated at around 100.000 euro, as of februari 2025. But we expect our real current equity ( if we sold everything we own) to be worth around 720k.

As you can see in the picture below, our house and real-estate 3 and 4 are not included in our portfolio, because real-estate 3 was acquired with no cash invested and till now no own cash was ever invested. Real-estate 4 is excluded because that property is not rented out and therefore not be considered as an investment at this moment.

Equity comparison according to our calculations