Is Your Home an ‘Asset’ or a ‘Liability?’

How to know the difference and realize the true value of your home

When you think about the assets you own, does your house immediately spring to mind?

It should, if you made any down payment on the house and your home hasn’t declined in value.

That down payment – whether it was from funds out of your own pocket or money secured elsewhere – represents equity in your house. Your equity in a home is defined as the market value of the property minus any mortgages or liens on the home.

So if you just bought a house worth $350,000, and you had a 10% down payment, your current mortgage balance is $315,000, which means you have $35,000 in equity in your house.

Knowing how to skillfully manage that equity – and properly maintain both your home and your finances so that you avoid financial loss or foreclosure – is part of the job of being a successful homeowner.

Why Your Home Is an “Asset” and Not a “Liability”

First, let’s take a look at why you should consider your home an asset – because not everyone views your primary residence as an asset. Some people say a home that you occupy isn’t really an asset because a home is constantly taking money out of your pocket with mortgage payments, insurance, taxes, and so forth.

For this reason, you might hear various assertions that a home is not really an asset, but a liability.

I agree with the obvious conclusion that owning a home entails ongoing out-of-pocket expenses. However, as I explain in my book, Your First Home, I don’t concur with the notion that just because something costs money, it doesn’t qualify as an asset.

Using that line of thinking, one could argue that the $250 sitting in your checking account isn’t an asset since having a low balance means your bank is going to charge you $10 or $20 a month for that account, or nickel-and-dime-you to death with service charges. (See my tips on how to avoid rising bank fees).

Although we know that getting nickel-and-dimed happens all too often, has anyone ever told you that your hard-earned cashed sitting in the bank is a “liability” instead of an “asset” simply because your checking account actually costs you money each month. That would be ludicrous, right?

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  • D Crosby

    Sounds good as long as you gloss over the fact that in 2011 your home is likely to be underwater or showing very little equity. Also selling your home in one to six months is unlikely in many areas meaning you are either shackled physically to your house or paying for two while waiting for a sale.

    Furthermore, and most importantly, you made absolutely no mention whatsoever regarding maintainance. The cost of a new roof, driveway, water heater, furnace and untold (minor) repairs over time have to be factored into the equation.

    As a business magazine you should also be advising your readers about opportunity costs, ie the money you could have earned selling you skills rather than spending your weekend fixing and maintaining your home.