Your Home - Asset Or Liability?

Kaustubh Katdare · 2006-04-10T07:18:28+00:00

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: A useful or valuable quality, person, or thing; an advantage or resource: proved herself an asset to the company. A valuable item that is owned. Liability: The state of being liable. 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-

Your Home - Asset Or Liability?

Kaustubh Katdare

Administrator

Updated: Oct 25, 2024

Views: 1.2K
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-
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rick

Member • Apr 11, 2006

I agree

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 😎

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Liyaqatali

Member • Apr 11, 2006

Home is not an asset

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....

😒

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crook

Member • Apr 12, 2006

asset ..liability ...asset ??

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

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Kaustubh Katdare

Administrator • Apr 15, 2006

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-

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Jerry

Member • Apr 18, 2006

finally

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.

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crook

Member • Apr 20, 2006

😁 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 😉

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Kaustubh Katdare

Administrator • Apr 30, 2006

hold it buddy 😀

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

-The Big K-

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Kaustubh Katdare

Administrator • May 15, 2006

flood in

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-

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Anil Jain

Member • May 15, 2006

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

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Kaustubh Katdare

Administrator • May 15, 2006

my $0.02

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-

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crook

Member • May 17, 2006

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

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Kaustubh Katdare

Administrator • Jun 22, 2006

more views

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-

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integratdbrains

Member • Jun 22, 2006

case 3 is possible.

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! 😉

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aashima

Member • Jun 22, 2006

how can home be a liability??? well calling home an "asset" is wat i'll prefer more than calling it a liability. no doubt it can take ur lifetime to build yer dream house and and can cost u a huge sum of money too but cmon yaar... its just once in a lifetime u buy a house for urself... and its a place which z alwaz the most comfortable place in the world.. no matter wat!!! u work the whole day but after all of its... its just yer home where u find the ultimate peace of mind.... well i go for asset.... HOME SWEET HOME.... and being a hosteler who else can know the importance of home more than me 😉

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Kaustubh Katdare

Administrator • Jun 30, 2006

anyone?

There you go! Let us keep the 'emotional' part aside.

Anyone to answer aashima's points? 😀

-The Big K-

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aashima

Member • Jul 10, 2006

it continues to be an asset...

the best admin 😀 thanks biggie...

well very recently i witnessed a survey programme on television asking ppl abt their opinion regarding their priority in comparison to bulding a house... 88% of the people preferred to own a lavish and comfortable house for themselves rather than any other luxury or requirement...

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crook

Member • Jul 11, 2006

aashima
the best admin 😀 thanks biggie...

well very recently i witnessed a survey programme on television asking ppl abt their opinion regarding their priority in comparison to bulding a house... 88% of the people preferred to own a lavish and comfortable house for themselves rather than any other luxury or requirement...
agreeed! say thanks to our age old teachings. Grow up, get a job, buy a house ....

of course, shelter is one of our basic necessities. but the question under discussion is if the house that you live in, is an asset. as biggie says, let us keep the e-motions aside and think rationally.

the best outcome of this discussion would be to learn the difference between your assets and liablity. Would you call your cell phone an asset or a liability?

the answer is simple. is the phone putting money in your pocket?

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aashima

Member • Jul 11, 2006

crook
agreeed! say thanks to our age old teachings. Grow up, get a job, buy a house ....

of course, shelter is one of our basic necessities. but the question under discussion is if the house that you live in, is an asset. as biggie says, let us keep the e-motions aside and think rationally.

the best outcome of this discussion would be to learn the difference between your assets and liablity. Would you call your cell phone an asset or a liability?

the answer is simple. is the phone putting money in your pocket?

well i guess liability simply means taking a legal responsibility of yer belonging... being responsible for house is a problem??? well may be am wrong but do explain me if i am...

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Jerry

Member • Jul 11, 2006

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.
Read that !

Being responsible for the home is not a problem. I feel the conversation is off-track.

Liability here is used as 'accountability'. So I guess, I'm with crook's point.

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aashima

Member • Jul 12, 2006

well

Jerry
Read that !

Being responsible for the home is not a problem. I feel the conversation is off-track.

Liability here is used as 'accountability'. So I guess, I'm with crook's point.

well if this is the case then i dont think we can consider anything to b an asset.... coz v can trade with every thing this way.. and if v ourself live on rent and crave for our house's emi than i suppose the house shud be betterly called as business....

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crook

Member • Jul 12, 2006

aashima
well if this is the case then i dont think we can consider anything to b an asset.... coz v can trade with every thing this way.. and if v ourself live on rent and crave for our house's emi than i suppose the house shud be betterly called as business....
I can understand what you are trying to imply. But what's wrong with renting a house and making money from it?

Assets are simply the stuff that put money in our pockets. If your home is putting money in your pocket, then its an asset for sure !

Crook

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aashima

Member • Jul 12, 2006

crook
I can understand what you are trying to imply. But what's wrong with renting a house and making money from it?

Assets are simply the stuff that put money in our pockets. If your home is putting money in your pocket, then its an asset for sure !

Crook
but then wats the point of living on rent having yer own home??? comfort levels and privacy is considerably hampered wen one does not live in a house of his own..
its better to construct a seperate building make it commercial or residential and then give it away on lease or rent... that is wat many ppl practise and i find it a wise enuff idea.....

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Jerry

Member • Jul 14, 2006

aashima
but then wats the point of living on rent having yer own home??? comfort levels and privacy is considerably hampered wen one does not live in a house of his own..
its better to construct a seperate building make it commercial or residential and then give it away on lease or rent... that is wat many ppl practise and i find it a wise enuff idea.....
aashima, I guess you answered it ! The point is, you have to spend to live in your home. You have to pay the taxes too.

Consider a home that you have bought and rented. The rent is now your income and it will bring money into your pocket. So that makes it an asset.

It seems that we are coming to a conclusion.

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aashima

Member • Jul 16, 2006

yea...

Jerry
aashima, I guess you answered it ! The point is, you have to spend to live in your home. You have to pay the taxes too.

Consider a home that you have bought and rented. The rent is now your income and it will bring money into your pocket. So that makes it an asset.

It seems that we are coming to a conclusion.
well no denying that it adds to our pocket's financial value but i just want to emphasise one simple point that i its not a wise idea living on rent urself inspite of having own house... the very notion of giving away a part of yer house on rent is better instead... but ya... it still concludes that " house is an asset"

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Kaustubh Katdare

Administrator • Jul 16, 2006

let me jump in

You are right aashima.

Probably Jerry is implying that you do not rent the house that you live in and live in a rented house. This can be looked in a different way - Rent a room or two from your own house 😀 ! That might make you some money & turn your home into an asset.

Or it could be that you buy a property and rent it to earn money ( have a look at integratdbrain's post).

-The Big K-

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aashima

Member • Jul 16, 2006

alright

The_Big_K
You are right aashima.

Probably Jerry is implying that you do not rent the house that you live in and live in a rented house. This can be looked in a different way - Rent a room or two from your own house 😀 ! That might make you some money & turn your home into an asset.

Or it could be that you buy a property and rent it to earn money ( have a look at integratdbrain's post).

-The Big K-
yea... thats wat evn i favour... this way we can no doubt conclude that home is an asset

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crook

Member • Jul 19, 2006

aashima
yea... thats wat evn i favour... this way we can no doubt conclude that home is an asset
The most appropriate conclusion could be "The home which you live in is a liabilty, but the home or property that you own & making money from it, is an asset"

I think everybody will agree with that.

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aashima

Member • Jul 19, 2006

ann...

crook
The most appropriate conclusion could be "The home which you live in is a liabilty, but the home or property that you own & making money from it, is an asset"

I think everybody will agree with that.
well would like to contradict your point crook... but calling home a liability is not a wise notion...
in your ideas and beliefs.. u can make the home u are living in an asset by giving away a part of it on rent (as pg or anything for that reason)... so home remains an asset only...

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Kaustubh Katdare

Administrator • Nov 2, 2006

Re: ann...

aashima
well would like to contradict your point crook... but calling home a liability is not a wise notion...
in your ideas and beliefs.. u can make the home u are living in an asset by giving away a part of it on rent (as pg or anything for that reason)... so home remains an asset only...
Is this the first debate topic on CE which is coming to a conclusion? 😁 Anyone?

-The Big K-

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aashima

Member • Nov 3, 2006

Well yes it could be the first thread to be concluded but before that we mus configure the majority as in how many call home an ASSET and how many call it a LIABILITY after all the discussions!
Biggie you can add a poll to finally conclude it.

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Romeos_person

Member • Nov 4, 2006

While owning a house might be a liability, my thoughts are that it is an assest overall.

Shelter is a requirement, ie I have to have a place to live. I can either pay rent or a mortgage. So, is it even a true liability? I would argue not in the traditional sense. While it is money out of my pocket, it is money that I am required to spend.

In the case where I am paying the bank, I have the opportunity to get some of my money back if not more in the future.

The money paid in taxes are a net loss, however that money is often rolled into rent, so I'm breaking even there regardless of owning or renting.

In addition, since I can deduct the interest paid on my loan from my taxes, I am coming out farther ahead by making the payment on a home of my own rather than in paying rent.

While the investment may or may not pay off as well as other investments down the road, I would argue that it is an assest. And even less of a risk than investing in say the stock market because it is money that has to be spent and if not put into something that you own, it would be money that is a complete loss.

Now, if you purchase a house that requires significant repairs or is a "money pit", then it might be more of a liability than an assest, meaning you cannot get your money back out of it. Just like any investment, you certainly need to do your research to avoid the investment becoming a liability.

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aashima

Member • Nov 4, 2006

I completely agree with Romeos. In a nutshell, home is an asset but if considering certain acute cases like frequent repairs etc, it can be a liability!

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contentwriter

Member • Jul 25, 2007

Home is basically an asset but it turns into a liability when one has to borrow loan on it.

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