Are Real Estate Expenditures Part of Consumption?

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I seem to be confusing myself in understanding what is and isn't a part of Consumption. I understand that Housing is NOT part of Consumption. What about Real Estate? My confusion is illustrated below.

Let's assume I want to purchase a vacation home next year. I tried two methods of modeling this in ESP.

Method 1. Assume a "First Change of Vacation Home"
I left the Current Vacation Home page blank and entered data for a future purchase of a vacation home on the First Change of Vacation Home page. I ran a simulation and got a reference level of recommended consumption.

Method 2. Assume a Property 1 purchase in the Real Estate Folder.
I entered the same purchase amount, down payment, mortgage rate, property taxes, etc as for method 1. I ran a simulation for this profile and got a level of consumption that was about $150/yr higher than method 1. (This seemed close enough and I can see where tax or other factors might affect the result by that small amount.)

Now for my initial confusion. The help and tutorial files state that housing is not part of consumption. Sure enough, the amounts for both primary home and vacation home show up in the Total Spending section of the report under Housing for the report using Method 1 above.

For the Method 2 report, the Total Spending section of the report excludes the amounts shown for Real Estate and shows only the amounts for my primary Housing. This agrees with Consumption excluding Taxes, Special, Housing, Savings, etc. as noted in the Help files. Real Estate expenditures appear to be excluded.

My final confusion, however, is if consumption is being reported to be essentially the same using both methods, I would need to consider my Real Estate expenditures as part of that reported Consumption. As such, to get an "available spending" target in this scenario, I would need to subtract my Real Estate expenditures from Consumption even though they appear to already be subtracted.

Is there some other reason that my Recommended Consumption level is nearly the same for both reports even though one presumably includes the second house and the other doesn't?

Where does my faulty reasoning and/or misunderstanding of what constitutes my "Recommended Consumption" lie?

John

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Submitted by jdupton on 28 June 2009 - 9:15pm.
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Comments

1
From: Dick Munroe

Investment real estate is assumed to be a profit center, so you see income (or loss) from investment real estate reported in your Total Income and don't need to do anything else. Any loss has been deducted from your income and included in ESPlanner's processing, as has any income.

No, you don't consider real estate income as part of your expenses, it's income (even if it's negative) and it's already accounted for.

Best,

Dick Munroe

2009-06-30 07:31
2
From: jdupton

Dick,

Thanks. I now see that in the reports. It makes sense when you think about Real Estate as an investment. I will use the model that treats the future Vacation Home as a future change in vacation property even though there is none starting out to change...

John

2009-06-30 12:37
3
From: Dick Munroe

John,

That's the proper treatment for handling a vacation home that you plan to purchase in the future. That way you get the right tax treatment when/if you sell it.

Best,

Dick Munroe

2009-06-30 14:59