Is Your Home an Asset or Liability?

Q: Is your personal residence an asset?

A: It depends.

Traditional thinking:

Traditional thought typically tends to view home ownership as an “American Dream” and classifies your home as an asset. Investopedia defines an asset as “a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide a future benefit”. If you buy your home on a 30 or 15-yr mortgage and slowly pay it off each month while the market value grows, you’ll see an increase in your equity. While this may be true if you purchased in an appreciating area, some more modern ideas would challenge this way of thinking.

Modern thinking (Rich Dad, Poor Dad):

In Robert Kiyosaki’s book “Rich Dad, Poor Dad”, he advocates that your personal home is not an asset. His definition of an asset - something that puts money in your pocket. The book suggests that your home is a liability, since you pay the mortgage, along with any maintenance and upkeep required. Not only do you have cash outflow on your home, you don’t have any cash inflow either. As we continue to see younger generations migrate toward renting vs buying, there is some intangible value in not being tied to an area.

My View:

It depends. I believe your home is a liability if you are not seeing cash flow from it. However, you may be able to turn your home into an asset with a tiny bit of creativity. I have been able to successfully see monthly cash flow on 2 personal residences I’ve purchased. It’s also my belief that any significant amount equity that you have sitting in your home is lazy money that isn’t working for you. Would you let your employees just sit around, not providing any value to your business, hoping that one day they will score the company a big pay day? I didn’t think so.

My first purchase was a house hack- where you buy a multi-family and live in one unit while renting out the others. In my case the monthly rent was paying the mortgage each month, so I was living rent free while the tenant paid down the mortgage and the home appreciated. Some rehab on the home also helped increase the cash flow and equity position. Through this process I was able to save myself nearly $1,000/month.

My second personal residence proved to provide monthly cash flow as well. About 2 years after purchasing my home, I was able to take out a credit line (HELOC) against the home at 100% financing. It’s important to note, these credit lines can be dangerous if used for consumer spending instead of investing. Through utilizing this credit line, I have been able to purchase other property all cash, and if done right, pay off all the HELOC once the new property is refinanced. This strategy was only available so quickly after purchasing by 1. Buying at the right sales price 2. Doing a value-add rehab 3. Buy in an appreciating area.

There are other ways you can be creative in order to turn your home into a cash flowing asset, but these are probably the two most common.

As always, if this has been helpful in any way, please like and share as you may be helping someone else start their journey to financial freedom.