Your Home: Asset or Liability?

Since the beginnings of modern capitalism over a century go, we have considered our homes to be an asset; some of us call them our greatest investment. However in the last decade or two, there has been a contrarian viewpoint which has started that homes are actually a liability because of all of the expenses related to them. There is also a third point of view which thinks housing is an okay investment, but their might be a housing bubble about to pop which could make home ownership not such a great investment.

Each of the three points of view has some validity. When done properly, a home can be a good investment, with a few caveats that need to be explained. When you buy a typical home, you'll on average be better of owning the home somewhere around three years of ownership. If you plan to stay in a home for quite a while, it can be a good investment. However a bigger home does not always mean a better investment. Some people buy homes they cannot afford to and get themselves in a financial mess, and then its' a liability? So which is it? A bit of both. Your house has qualities which make it an asset and a liability.

First your house is an asset because if you did not own a home, you would have to pay rent. If you lived in a home with a paid off mortgage, the amount of rent you are saving is essentially equivalent of income. So in that sense it would be an asset. It would also be an asset because generally real estate appreciates over long periods of time. There may be some periods where they go down in value, but over decades, they can do quite well.

Of course there are things that make your home a liability as well. You have to pay additional expenses on your home. You have to pay for all of the utilities, property taxes, lawn care, repairs, home owner's insurance, and the like. You also have to pay interest on the mortgage if you have one, and any money that you invest in your home cannot be invested elsewhere, so you have an issue of opportunity cost. You could have paid $700 a month for a rental and invested the rest, but instead you chose to buy a home. There is also the possibility that your home goes down in value, making it a liability.