Source: https://Streetinfo.com
I was asked, awhile ago, whether a house is an asset or a liability. This might seem like an odd question. Of course your home is an asset, right? Well, that all depends on who you ask and what your definition of an asset or liability is.
We often hear phrases like, “A house is typically your most expensive asset in life.” Of course, these people mean that out of everything you buy in your life, your house is more than likely the most expensive. So, sure, a home (or condo) is an expense. Your mortgage is an expense. But an expense can be an asset, as we discussed in the related post: Is Your Car an Asset or a Liability?
When Asked “Is a House an Asset or a Liability”, Normal People Vote Asset
If you walked up to your neighbor and asked them if their house is an asset or not, they would look at you funny and say, “Of course it’s an asset – .” It’s true. If you had the option to rent an apartment or buy a house, it is probably wiser to buy the house. Sure, you’ll have to make improvements once in a while, but typically your house will gain value through the years and may even earn you more than the rate of inflation. This is why for most people a house is most definitely considered an asset.
Use Your Business Mind
If you had to make a guess, what would you say the definition of an asset is in the business world? Well, let’s step back for a minute. What is the number one goal of any business? It’s to make money. If they didn’t make money, then there would be no business, which makes it pretty apparent that it’s the top goal out of everything else. So, if your goal is to make money and your business was in producing bicycle frames, your number one asset would be those machines that are used to produce the product right? Right.
Why are those machines considered to be an asset to the business? Well, they are an asset because they are directly helping the company make money, which is their number one goal. Without them, the company would be sunk. So, let’s step back in again. What is the definition of an asset in the business world? It’s any tangible object within the company that has value and that helps the company make money.
Is Your House an Asset or a Liability?
So what do you think? Is your house still an asset? From a business standpoint, the answer is absolutely not. What does your house do for you? It constantly costs you money in repairs – the water heater, the landscaping, the roof, and let’s not forget the plumbing – all of these things cost you money each and every year, but what kind of cash flow do you see from your house? Sorry to tell you, but there is none. Your house is a place for you to live, but it is not a money-making machine and should not be thought of as one. If you want to get ahead in life, I would purchases houses to rent out to others – turning a house into an asset. Suddenly, that property is earning you an income each month and can be valued as an asset and an investment.
Interested in growing your assets and your net worth? Check out these other great articles.
Are you really aware of an asset meaning?
Is Your Car an Asset or a Liability?
4 Ways To Improve Your Net Worth
Additional Reading
Incidentally, if you are interested in learning how distinguishing between assets and liabilities can make you rich, I recommend that you pick up a copy of Robert Kiyosaki’s Rich Dad Poor Dad. The book is insanely popular and has helped hundreds of thousands of people to make better decisions about their finances.
Do you consider your house an asset or a liability?
This post was written by Derek from Life and My Finances. Stay in the know with updates from all of our contributors by subscribing to our RSS Feed
I’m with the normal people and vote asset lol. But from a business point of view I can see how it’s more of a liability. But what if you rent out the garage or the basement suite that you wren’t using anyway? Then maybe it will become an asset again 🙂 Definitely an interesting topic and like you mentioned, the answer depends on who you ask ^_^
Most people do see their house as a asset (except perhaps for those folks who are underwater). Unfortunately those people who are underwater are the best example of why a house isn’t really an asset. I’m sure those people wish that they hadn’t “invested” in real estate with the assumption that homes always apprecaite in value.
What is the price?
You are right – a house is a liability because it doesn’t earn anything. Most people are wrong but in the UK with sky-high house prices, letting property is IMHO not really profitable any more when you take everything into consideration. All property has headaches.
So true – it all does have headaches.
Property is considered an asset by just about every business I’ve ever known. So yeah, I’d consider my house an asset.
However I believe it takes time for your house to become an asset. If what you owe and what you spend to maintain the house is more than the amount of equity you actually own in it, it’s a liability. However over time as you build more and more equity your house becomes more of a true asset.
Businesses, yes. I agree. It’s not going to be an asset for us for a long time.
I agree, a house is an asset. If I can sell my house tomorrow and make money from it then it’s an asset to me and that is the way it’s recognized in our net worth.
Ours is not an asset in our net worth yet, but will be.
Definitely owning a house can be a liability. Houses definitely requires maintenance which can be sometimes heavy on our purse.
SO MUCH MAINTENANCE! We’re constantly maintaining our home. It’s enjoyable though.
Unfortunately, my condo is a liability right now. I owe 2x more than its worth and it will take 10 years to have it off aggressively or 30 years to pay it off on time. I would love for my condo to be an asset AND a source of passive income!
I think a house is a liability if it does not earn any money because you need to maintain it. However, if the house you have is being rented and earns money to pay the expenses thus it is an asset. Whether a house, car or anything, a liability is something that we need to maintain from our own money however an asset is something that money comes in. It would be great to build many assets.
For the most part I view our house as an asset. My monthly mortgage is cheaper than market rate rents in my area and we bought it in good shape so with the average cost of general maintenance and upkeep, my monthly costs are about the same as they would be if I rented somewhere. Here’s where I consider it an asset: my home value is already up $10k (I’ve only owned the home for a year) and as the whole housing market/economy makes a full recovery, that value will only continue to go up. When I sell, I’m very likely to make a profit – which is, obviously, impossible when you’re renting. For the same cost as what I would be spending if I rented, I have the potential to recoup some of the money I’ve spent while in this house. In my particular situation and in the current market, I believe my house is an asset.