House: Asset or Liability

[dczech09]

Hi all,

I read some of Robert Kiyosaki's stuff and he makes a claim that a house that one lives in is not an asset, it is a liability. His rationale is that the house does not generate an incomer for the owner; it generates expenses.

I want to start a discussion on this topic and see what everyone else thinks.

My point of view:
The accounting definition of an asset is that it is something that provides value to the owner. Thus, the house is an asset, the mortgage is the liability, and the equity is part of the owner's net worth.

A house obviously has expenses associated with them, but that does not necessarily mean that it is a liability. We are taught in accounting that liabilities are separate from expenses, although liability payments do become expenses.

To me, the house is certainly an asset and the mortgage is the liability. However since the house produces so many expenses (regardless of whether or not there is a mortgage), the house is a poor investment. By poor investment, I mean that it is very likely that the house costs more than the return on investment.

So that is my view. What is yours. I think this is a simple question, but has a complicated answer.

[97guns]

kiyosaki's view of an asset is something that produces income, he does contradict himself though because he is very pro silver/gold and that is not an income producing asset but more like a home you would live in type of asset - one that will rise and fall with the market.

ive read a bit of kiyosaki and have found out that my portfolio/investment strategy is very similar to his but on a much smaller scale. he is a big proponent of passive income.

[disneysteve]

A house is an asset but it is not an investment.

Just because something generates expenses doesn't make it a liability as long as the expenses don't exceed the value of the asset.

[bjl584]

I view a house as more of a place to live. In theory you can count the value of your house as part of your net worth, but is that really money that you can use? Not really unless you sell it. And even then, there is no guarantee that you will sell it for what you think that it is worth. And if you do sell it, then where are you going to live? Another house? Rent an apartment?

[jpg7n16]

Originally Posted by dczech09

Hi all,

I read some of Robert Kiyosaki's stuff and he makes a claim that a house that one lives in is not an asset, it is a liability. His rationale is that the house does not generate an incomer for the owner; it generates expenses.

I want to start a discussion on this topic and see what everyone else thinks.

Even using his own definitions - because sometimes an asset, instead of generating income, can eliminate an expense.

If you own a home you no longer pay rent, meaning the house asset allows you to save the expense of rent. Therefore making it an asset. If you own the home, it's your asset. If you don't, it's someone elses.

And if you're thinking, "well okay, sure you don't pay rent, but you instead pay your mortgage payment" then you're wrong. Houses do not come with mortgage payments. Mortgages come with mortgage payments. The mortgage is the liability. If you didn't have a mortgage, you could still own a house and not pay any mortgage payments (buy with cash/paid off mortgage).

Besides, you could rent out a spare bedroom. You could rent the whole house out if you chose to.

My point of view:
The accounting definition of an asset is that it is something that provides value to the owner. Thus, the house is an asset, the mortgage is the liability, and the equity is part of the owner's net worth.

Exactly.

Asset = something you own
Liability = something you owe

[MoneyMogul]

A house is only an asset if you can sell it for more than you owe on it.

[bjl584]

Originally Posted by MoneyMogul

A house is only an asset if you can sell it for more than you owe on it.

I don't quite agree. If you own a house outright, then the only expenses that you incur are taxes, utilities, and maintence. You are essentially shielded from inflation of rising rents. That's a good position to be in. Also, if you have to, you can open a HELOC on your house that gives you access to the equity in your home without having to sell it.

[Cassius King]

It can be all of the above.

A house is a liability until it is sold. Because of the house, you have to pay taxes, upkeep, etc. It's only an asset if you plan to sell and buy something cheaper. You have to live somewhere.

[disneysteve]

Originally Posted by Cassius King

A house is a liability until it is sold. Because of the house, you have to pay taxes, upkeep, etc. It's only an asset if you plan to sell and buy something cheaper. You have to live somewhere.

I think you are confusing issues here. Whether or not you plan to sell the house has no bearing on whether or not it is an asset.

"items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate"

Anything of monetary value is an asset. Even if there are expenses associated with it. Even if you don't plan to sell it. Even if you owe money against it.

[Cassius King]

Originally Posted by disneysteve

I think you are confusing issues here. Whether or not you plan to sell the house has no bearing on whether or not it is an asset.

"items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate"

Anything of monetary value is an asset. Even if there are expenses associated with it. Even if you don't plan to sell it. Even if you owe money against it.

How do you realize that asset without selling it? Just like paper profits, nothing is gained until it's sold.
Sure, the house is technically an asset while you're living in it, but how does it help you monetize anything?

BTW, I'm not arguing, just openly thinking out loud.

[NetSkyBlue]

Of course a house is an asset. A house that you are living in is of even more value, because it saves you the expense of paying for another place to live. There's rarely a house that you couldn't sell for any amount of money, or at least sell the land the house is on, unless it's condemned or something.

If you owe more than the house is worth, your liability (mortgage) is greater than your asset's worth (amount you could sell for), and brings down your net worth. But the house itself is still an asset.

Just as your furniture, clothing, kitchenware, a soda can, etc are assets. You could sell them (albeit for very little).

They are not, however, investments. You couldn't likely sell them for more than you paid.

[disneysteve]

Originally Posted by Cassius King

How do you realize that asset without selling it? Just like paper profits, nothing is gained until it's sold.
Sure, the house is technically an asset while you're living in it, but how does it help you monetize anything?

BTW, I'm not arguing, just openly thinking out loud.

Just because nothing is gained until it is sold has no bearing on it being an asset. Shares of stock are an asset. Savings bonds are assets. My car is an asset. What if I told you I had a safe full of gold bars? Would you consider those to be assets? I sure would even though I have to sell them to get money out of them.

[maat55]

In the shorterm, if financed (30 years), a house is not much different than rent after you figure interest, insurance, taxes and upkeep. Longterm, you can break even if it appreciates(varies) enough to cover your expenses. In the longterm, its better than rent, in the shorterm, maybe not.

It is an asset, but not an investment.

[Cassius King]

I guess what I'm trying to get at is yes, a house is an asset and maybe even sometimes an investment. Primarily it is a residence(home)for you and your family. To realize any of the gains of that asset it must be sold and then downgraded to a cheaper residence.

If you're net worth is $1.25m but your house is $1m of that, you must sell it to retire properly. Having a $1m house does you no good financially unless that asset is monetized.

[Cassius King]

I have an interesting question, maybe more appropriate for another thread.

My primary residence is perfect size and location for my wife and kids. However, when I retire and the kids are out of the house, my wife and I plan on moving somewhere in the SE and getting a condo. Hopefully my home will net me some gain with the downgrade to a condo, maybe not.

How many people are of the same mentality, or are you in the home you plan on staying in. Just curious. Thanks again for the convo.

[dczech09]

I completely disagree with the defining a house as an asset conditional upon whether or not you make money. Either something is an asset, or it is not.

An asset is simply something of monetary value. A house certainly fits that definition.

An investment, on the otherhad, is something that has the ability to either generate an income or an economic value added.

A home is not an investment. Homeowners do not buy houses with the anticipation of selling for a profit or generating an icome. They buy houses for a place to live. An because of it, they stay for the long-run which produces expenses that must be paid by the homeowner. Those investments drain any perceived profit when the house is eventually sold off.

The only time a house is an investment is when it is monetized. Such situations would be flipping or renting out property to others.

So I would agree that a house (bought as a home) is an asset, but not an investment.

[jpg7n16]

Originally Posted by MoneyMogul

A house is only an asset if you can sell it for more than you owe on it.

Nope. That just means your asset nearly paid off your large liability. The mortgage is the liability, not the house.

The house and the mortgage on that house are two very different things.

If your house asset doesn't pay off the full liability, you need to use other assets (like cash) to pay off the rest of it. Maybe even sell your computer, books and trinkets to help pay off the liability.

Anything you can sell - for any amount - is an asset. Includes paperclips, cars, furniture, and houses.

Originally Posted by Cassius King

If you're net worth is $1.25m but your house is $1m of that, you must sell it to retire properly. Having a $1m house does you no good financially unless that asset is monetized.

Except that it saves you from paying rent, keeping your retirement expenses low. (Or lower than they would have been without the house)

Or... you could also rent it out to others. You could throw parties on the weekends and charge admission. You could have BBQs in the backyard and charge admission. You could rent the garage out to a local mechanic so he can work on cars. You could charge people to store their furniture in your spare bedroom.

It's your asset, and you can do pretty much whatever you want with it.


There are more implications to owning the home than only if you sell it.

[Ima saver]

I certainly consider my house an asset. I bought my first home at age 21 and had it paid off by the time I was 32.I have up sized my houses 3 times and never had a mortgage on any of them. Since my dh knows how to fix everything, I have no expenses except property tax and insurance.
That sure beats renting or making mortgage payments. I have been mortgage free for over 30 years.