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.
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