What is the “right time” to buy a house? When should you buy your first home? Does it make sense to own or rent a home? Is a house an asset or a liability?
These questions have no easy answers, you can find all sorts of advice online, full of pros and cons for each position.
What Are the Basics?
Homeownership is the Great American Dream, but is it all that it’s cracked up to be?
Think about it. Assets put money in your pocket, liabilities take money out…so which one is your home?
Each month you have to pay the mortgage and interest rates…Then, there are repairs, looking after the garden and all the other expenses that a property always brings with it.
Chances are if you own a home, it’s probably more of a cost than an asset. It is easy to think of your house as an asset since all the proceeds from the sale of your house will be yours. But the real answer depends on your perspective.
If you use your home as collateral for a loan or rent it out, it should be recorded as an asset. On the other hand, if you’re unmotivated to rent out your home or use the equity invested in it, then it would certainly be considered a liability.
What Are Assets and Liabilities?
The common definition of an asset is something that puts money in your pocket each month such as rental property or investment property.
A liability is a debt or obligation, such as a loan, mortgage payment, or legal action that requires payment from the party holding the liability. Even with a mortgage and student loans, your house could be considered your greatest asset, assuming it rises in value and appreciates over time.
Is your home more of an asset or a liability? This question comes up frequently in real estate circles. The answer, as with most things financial, is “it depends.”
Whether you should treat your house as an asset or a liability has to do with two points: the current value of the property and your ability (or desire) to rent it out.
How Does This Change if I’m Traveling?
If you have a big mortgage, travel often, or just want to be able to cash out when you retire, then you might see your home as a liability.
But if renting your property while you’re traveling leaves some money left over every month, you’ve effectively turned your home into an asset.
If you live in a popular tourist destination, this could be a lucrative setup. You’ll need to check the market demand and average rental value to find out how much you could rent your property for.
Once you have a clear idea, you can check your finances and balance with current costs, mortgage, rates, repairs, and decide if you can effectively turn your property into an asset and a money-making tool!
Image by Sieuwert Otterloo