Your Home: Is it Really an Asset?

When looking for a home 5 years ago one thing that my real estate agent was adamant about was that a home would be a huge asset and an excellent investment. While, this is true in some ways, it has greatly affected my finances which makes me wonder if it was REALLY the huge asset she had believed it would be.


A Mortgage is a Liability

People like to think that they own their homes. Until the mortgage is paid off, the reality is that the bank owns a good portion of your house. This mortgage is a liability, it’s a loan, one that you are paying a great deal of interest on.

When calculating your net worth you will want to subtract what you owe on the mortgage from the home’s market value. If the value of your home has lost money since you bought it, you may find yourself underwater – your home is not a true asset.

A Home is Not a Liquid Asset

The term liquid refers to how easily something can be converted into cash. For example stocks are easy to convert into cash, you just have to sell them. Your home is very different. Yes, you have lots of equity in it, which you can take out if you need to, but if you are borrowing against your home’s equity this isn’t really investing.

More often than not it’s actually difficult to sell your home for profit. The process of selling a home can be costly and can take months. A home in reality is not a liquid asset and can be disappointing later on if you view it as an investment.

Your Home is an Emotional Asset

When the housing bubble popped I found that my home was worth less than I actually paid for it. Since then it has improved a bit, but by the time you calculate in interest, taxes, maintenance, utilities etc. I’m not breaking even on anything.

Instead of thinking that the house is going to provide me with a great return on investment, I like to think it’s more of an emotional asset than a financial one. Being my own landlord and being settled in one place with a nice backyard and a sense of security provides value in a different light than many other types of investments.