Is Your House an Asset or a Liability?

To most people, that's a stupid question. Of course your house is an asset: For many people, it will be the only investment they will ever make. However, if done incorrectly, it can become a liability, without you even realizing it.

If it is done the way the "old folks did it", it will be an investment. In other words, if you buy a house, and live in it all your life, it becomes an investment. It increases in value, while your financial input dwindles, until it eventually only requires taxes and maintenance to be paid. It is an ideal situation, since you eventually stop paying for a place to live in, before you have to retire.

Unfortunately, the real world looks a bit different. As your needs change, and you qualify for career advances, you move to a different house. Statistically, the average home owner changes houses once every seven years. This means that a large portion of your profit is swallowed every seven years, not only by the transaction costs, but by the costs of moving, spending money on the new home, new furniture, etc.

If you decided, for instance, to simply rent a home, which would cost you a bit less, and invest the difference, where would you be in thirty years from now? Instead, by the time retirement comes around, the average person is halfway into paying off a mortgage, still left with a mountain of debt. Every time you move, you cut into your own profits, yet most of it is never calculated completely and properly.

So is your house an asset, or is it a liability? Only you can answer that question. Most people would not answer truthfully, anyway. Hence the persistence of the opinion that your home is you biggest asset. And there is none so blind as one who does not want to see.