A house is only an asset if the owner gets money from it (e.g.rent income.) It is considered a liability if the property is residential on purpose. Frequent travelers would benefit more from renting by avoiding more expenses.
For a lot of people, spending money on real estate, including your own home, will become a good investment in the long run. After all, most houses and land often increase in value over time.
But in reality, things are a little bit complicated. Houses can either be assets or liabilities. Is a house an asset or a liability? Continue reading to find out.
Asset vs. Liability
According to Investopedia, an asset is a valuable resource owned by someone expecting to receive current or future benefits.
Any investment or revenue-generating property is an asset because they give economic value to the owners. Houses, cars, and land are also personal assets because these have a monetary value.
On the other hand, a liability is something that you’re obligated to pay in the future. Any type of debt, bond, or mortgage is a liability because you owe money to the issuers of these financial instruments.
House as an Asset
A house is considered an asset in a traditional sense. These properties are convertible to cash and have a monetary value attached to them.
Rental properties are also assets because these items generate money and give financial benefits. Houses are usually on the “asset” side of the books. However, this can be different when you’re using a house as your primary residence.
House as a Liability
Due to wear and tear, a house usually decreases in value. It is only considered as an investment when the owner managed to sell them at a higher price, which is not usually the case.
As you use the property, its value decreases, which is considered a loss. Not to mention that you regularly pay for the bills, maintenance, and repair to maintain your property to its condition.
In a way, you owe yourself rent, and you pay it each month via a mortgage. Since there is no future economic benefit, and depreciation expense is always represent, a residential house is considered a liability.
For Travelers: Should You Buy or Rent a Home?
It depends on the purpose of the property. There are times when buying is better than renting, and vice versa—read more.
Rent if…you’re staying in an area for a specific amount of time only. Buying a property in a location where you’re not planning to settle down can only add more expenses (taxes, house maintenance, brokerage fees, moving expenses, etc.) When renting a property, you will only pay for the rental expense.
Buy if… you’re planning to settle down or planning on making a business in an area. While you’re not using the property, you can rent it out as a vacation home and get rental income from it. If you need to use the property, you don’t have to worry about paying additional expenses because it is your own house.
Image by Nathan Fertig