Your Home - Asset Or Liability?

[The_Big_K]

Hi CEans! I am starting a thread which would eventually become a part of CE-Finance Section. The question that we will discuss in this thread is: Is your living home an asset or liability?

Now it makes some sense to understand what is an asset and what is a liability?

Let's first go through the dictionary definitions: (from Dictionary.com )

Asset:

1. A useful or valuable quality, person, or thing; an advantage or resource: proved herself an asset to the company.
2. A valuable item that is owned.

Liability:

1. The state of being liable.
2. • Something for which one is liable; an obligation, responsibility, or debt.
   • liabilities The financial obligations entered in the balance sheet of a business enterprise.

However, the simplest definition that occurred to me while reading the rich dad books is -

An 'Asset' is something that puts money in your pocket & a 'liability' is something that takes money out of your pocket.

I'm not sure how many of us agree with this definition. But in a sense, the definition is true. So let us come back to the question: Is your living home an asset or a liability?

I have seen people spending their lifetime saving up money for their dream house. People think that the house they live in is the biggest asset they have. Real estate values go up in due course of time, but according to our definition, it does not put any money in our pockets. Instead, your home takes money out of your pocket.

So should we still call our home an asset? I do not think so.

Rush in your thoughts and let us see what ideas we generate in this thread.

-The Big K-

[rick]

An 'Asset' is something that puts money in your pocket & a 'liability' is something that takes money out of your pocket.

I agree with this definition. According to this definition, my car is a liability.

But I think a Home is not always a liability. We had bought our home few years ago for around 450k and now the price has gone up. You got to clarify your post a bit, biggie.

I loved this post. Keep it up Biggie !


RICK

[Liyaqatali]

Well this basically depends on your income whether your home is an asset or a liablity.. If buying a house makes ur outflow is greater than your income then i would consider it to be a liability rather than an asset.. This is what is also mentioned in Rich Dad Poor Dad book too. Author clearly brings it out why a home is a liability.

Other thing that we should consider is that what are u gonna do after u buy a house and u get to know that its rate have gone up.. R u gonna sell it? Even if u sell it then u should also keep in mind that you should also pay the same amount of money to buy a new house....

[crook]

Correct me if I'm wrong. The 'Home' that is being discussed here is the home where you are living currently.

So as the definition goes, if your home takes money out of your pocket, then its a liability. But if your living home puts money in your pocket, then its an asset.

Take this example: I took a loan from the bank and the EMI gets deducted from my salary. I pay the maintenance, electricity bill, water bill, home tax ... and the money goes out of my pocket. So home becomes a liability.

Take example 2: I setup an office in one of the rooms & operate from there. The total revenue that I generage from my office (or the business) puts money in my pocket. The balance sheet shows that the cashflow is positive. In this case, the home is an asset

Take example 3: I buy a house and rent it out for a rent that is equal to or greater than the EMI that goes to bank. I am not sure if this is possible . So in this case, I'm actually generating some money out of my home. But this is a special case.

So, your home can be an asset or a liability depending on how you use it.

more thoughts are welcome-
crook

[The_Big_K]

The purpose of this thread is clear - that is, getting the basics right. Now, as we put forth thoughts that challenge the long running beliefs, we sure get lot of discussion.

Now there are lot of people around us who continue to think that Home is their biggest asset. There are people who think that the initial investment of few thousand bucks is now worth a few millions. Our point is, if you can't use that money, its of no use. Unless you 'SELL' your house, you don't have the money!

So folks, bring in your thoughts. No matter how stupid you sound

-The Big K-

[Jerry]

Finally, we have a discussion for CE Finance ! Good start, mr K!

This is an interesting thread. The concept is really good. No wonder that investing in real estate is the best investment anywhere in the world. I agree with Big K that unless you sell your house, you can't have the money that it has generaged.

Probably we need more such discussions on our beloved forum.

[crook]

it seems that CE Finance is going to take another century

and we have a long way to go before we actually start see people posting on forums rather than being just silent observers

[The_Big_K]

hold it buddy

let's have more replies on this thread. We got interesting replies here. Any new ideas folks?

-The Big K-

[The_Big_K]

I'll now put in efforts to revive these interesting-yet-dead threads

It would be really great to have interesting thoughts on this thread. Above all, we are challenging the thoughts which have been on our minds since aeons.

-Happy Posting-

-The Big K-

[crazyboy]

For me....If the case is of a home....than a home is a liability which can be proved as Asset.
a bit confusing i guess... but here this concept says ...when you invest something on the home ..than someone can take it as a liability but this is deffinately increasig the price of that home...(If you will sell it, you will get more money out of it.) than one can say it Asset..
Isn't It?
This way if one will conclude it he can say that Home is a liability which can be proved as a asset.
According to me there is always a relation between the Liability and a asset.
it should be propotional...

As energy never die..so one must say Money never die..if its liabilty than it will prove as a asset in future...--Kidding


Shout people..

--Crazy

[The_Big_K]

Its time that I drop in to add my $0.02

CrazyBoy got the concept right. I'll add a few more lines to make the stuff clear.

As long as you - the owner of your house, live in your home, the home continues to be a liability. Because, it constantly takes money out of your pocket.

But the moment you sell your house, you are no longer owner of the home. I mean its not *your* asset.

There is an exception to this. Let's say that you live in a big house and you rent a room or two. Your monthly rent earns you more than what you spend on the house. Then your cashflow is positive and your living home becomes an asset. Quite interesting, right?

So next time you hear people talking about the biggest asset of their life -their own home, stop them and give them a dose of 'the basics'

Happy Posting!
-The Big K-

[crook]

i got it 'right' too. nice thread! keep up the good work guys!

[The_Big_K]

Guys, did you realize?

To generate new ideas and be creative, you have to start questioning the basics

say what? further views on this topic are welcome

-The Big K-

[integratdbrains]

Take example 3: I buy a house and rent it out for a rent that is equal to or greater than the EMI that goes to bank. I am not sure if this is possible . So in this case, I'm actually generating some money out of my home. But this is a special case.

In India especially in cities like mumbai this is seen very often.the government employees get quarters to live till their retirement so what most people do is try to change their home which is a liability to an asset by buying another house and give it out on 'rent' which sums to more than the EMI that is to be paid.So as long as the individual is an employee he will be using the government quarters as an asset!