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

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

Your Home Can Be a Great Asset, But Don’t Make It Your Primary or Your Sole Asset

When you think about your assets, you should now definitely count your home among them, just like the value of any car you own free and clear, the cash value of your life insurance policy, or any retirement money you’ve squirreled away in stocks, bonds, or mutual funds.

As with all assets, you don’t want all your wealth tied up in your home. You’ve no doubt heard the investing advice that you shouldn’t pour all your money into a single stock.

Whether you’re talking about a house or stocks, “putting all your eggs in one basket” is neither safe nor prudent in terms of diversifying your assets. That’s one reason why, if you’re every going to tap your equity, it might be wise to utilize that equity in your home – after careful consideration and planning – for other investment purposes.

I’m not suggesting that you tap into your equity to go play the stock market or make an unwise business gamble. But I am pointing out that for any asset you have – home equity included – you must always think about “opportunity costs,” or what you might be sacrificing by tying up your money in one investment when another, higher-paying alternative might be available elsewhere.

“Ask The Money Coach” is a syndicated column written by personal finance expert Lynnette Khalfani-Cox , co-founder of the free financial advice blog, Follow Lynnette on Twitter at @themoneycoach.

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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.