Is A Home An Asset Or A Liability?

December 24, 2012

If you’ve done any sort of financial planning, regardless of what stage you’re at now, the plan probably looked something like this:

  • Pay off debts
  • Save up an emergency fund
  • Start investing for retirement
  • Save for a down payment on a house

Buy a house

Why is it that buying a home is an almost automatic part of “responsible” financial planning?

Most of us grew up hearing about the “dream” of home ownership. We also hear that a home is an incredible asset. House values ALWAYS go up over time, and not buying one is throwing money away.

Let’s take a look at both sides and see what’s really going on.

A House As An Asset

An asset is something that makes you money rather than costing you money (that would be a liability). With real estate, it’s generally true that with a long enough time-frame, your house WILL go up in value.

If you buy a home for $300,000, live in it for 10 years, and then sell it for $450,000, it certainly looks like that was a good investment.

You have to live SOMEWHERE, and living in this home not only saved you a decade’s worth of rent, but also left you with more than you started with.

A House As A Liability

If you’ve never owned a home, it’s hard to imagine just how much money you can sink into them. First, you’re paying interest on your mortgage, and while, when it comes to Mortgage Rates Canada has incredibly low rates at the moment, that interest compounds over the years, greatly adding to the price.

On top of that there’s all of your regular expenses like property taxes, insurance, utilities, etc.

Then there’s repairs and other maintenance, which only serve to bring your home back to the value it should have been but rarely raise it.

Then comes the fun part – renovations! From DIY hardware stores, renovation TV shows, magazines, and other examples, it seems half the world is constantly convincing us that we should want to change every part of our home.

Quick weekend projects like installing that new toto toilet can cost thousands of dollars, and that new kitchen faucet you want can easily turn into a $20,000 kitchen overhaul.

While all this is happening, it’s important to remember that your house is NOT producing any income for you, and is only sucking money down a hole.

Make Your Money When You Buy

The time of purchase is when you make the real money on your home. Negotiate hard for a good price, and use resources like to negotiate the lowest rates on your mortgage.

Being smart at the time of purchase is your best chance of profiting from the sale of your home, but always pay attention to your spending and never just assume your house is a good investment.

  • Audra January 4, 2013 at 9:31 am

    Buying a house is the best way for one’s investment. If we own a house, we mentally feel strong, and happy, can able to concentrate on other types of useful investments. To buy house is a great asset forever….

    • Marissa January 4, 2013 at 6:14 pm

      Fair enough.

  • Jacko January 7, 2013 at 7:48 pm

    The home is an asset the mortgage is a liability.

    The key is to purchase properties free and clear of debt. You can buy house today for cash for cheaper than you can a brand new car.

    It’s not what you do it’s how you do it.

  • Don Antle February 26, 2013 at 12:01 pm

    Marissa great post! Being in debt consolidation, our clients’ red cape is owning a house. It builds up equity and holds a sense of permanent value for out clients. But in the other hand extra buys for their house sends them further into debt, its a give and take situation. The main thing we say to people is once you have a house and you’re in a sour situation, keep that house as long as possible the payoff in the end is worth it. Great blog!

    • Marissa February 26, 2013 at 1:06 pm

      Thank you for stopping by!

  • Rose April 11, 2013 at 3:19 am

    I might be thinking of having it rented since its accessible to almost everything!