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

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

It’s an Asset if You Can Borrow Against It

You can also borrow against the value of your home – via home equity loans or lines of credit, attesting to the fact that all bankers consider your home an asset and will allow you to use it as collateral.

Yes, I know we’re in a credit crunch and bank-lending standards are strict now. But you get the point. If your house is worth more your loan (i.e. you have sufficient equity in it), then you can borrow against that house.

It’s an Asset if it Has Increased in Value or Can Increase in Value

Moreover, the home you’ve bought – or may be about to purchase – may appreciate in value over time, holding out the potential for a good return on your investment. Clearly, real estate markets don’t go up every year. One need only look at home prices from 2007 through 2011 to see that.

However, homes have historically risen at a rate of 6.6% annually, according to the National Association of Realtors. This growth has represented a significant form of wealth for countless homeowners nationwide. Meanwhile, stocks have experienced annual appreciation rates averaging 10% when you look at 10-year investment cycles for every decade going back to the 1920s.

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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.