Why the house you live in is NOT an asset
Many people like to talk about your home as being the biggest asset most people ever buy. But it’s not actually an asset at all.
In finance, there are assets and liabilities. An asset is defined as something that brings money in, while a liability is something that costs you money. Basic wealth creation says that if you can have assets which produce more money coming in than money which goes out via your liabilities, then you’re increasing your wealth.
Most people buy liabilities, such as cars and other ‘toys’, which is why 95% of the population ends up without enough money to comfortably retire on. Here’s why your house is a liability, rather than an asset:
You cannot rent out the home you live in; you can only rent out a flat or a room on the property. You have expenses for your home, bills, maintenance, and so on. To work out whether your home is an asset or a liability simply add up any income from tenants who also live on your property, and take away the total of your bills and other expenses. If you end up with a negative number, that is, your bills and expenses exceed the income you make from your home, then it’s a liability. Advice on why the house you live in is not an asset with Property investments
But what about capital gains, you ask? Won’t my home be worth a lot more when I sell it? (Assuming your property does rise in value, most do). Let’s do a quick example – you buy your family home for $50,000 in 1990. You sell it for $200,000 in 2000. That’s $150,000 you’ve made over 10 years, right?
What were your expenses on the house over those ten years? Does $20,000 per year seem about right? This includes, bills, insurance, maintenance, renovations, council rates, interest on your mortgage, etc, etc, etc, it’s starting to add up, right? That makes for a total of $200,000 you’ve paid over the ten years, vs. the $150,000 in capital gains. So, unless you can make up the missing $50,000 by renting out a room, you have a liability, not an asset.

Advice on why the house you live in is not an asset with Property investments