Is your house an asset? Some would say yes, and I am sure that some would say it’s actually a liability. Here are different ways of thinking about your house.
Asset: Hopefully your house will appreciate in value over time, but this is not always the case. Because of the often high amount of leverage that most people take on when buying a house, the increase in value can often be multiplied. If it goes down in value and you are underwater, then your asset turns into a nightmare.
Even if your house does appreciate in value it usually does not make much of a difference. This is because most people end up selling their first house and using the proceeds, if any after considering all of the costs of selling a house, to purchase a larger house. Any equity is then “locked up” in their new house again.
No income generation: Unfortunately, your house does not generate income, unless you own a multi-family property, which is not a bad idea, but shunned by most. As a side note, a good strategy is to purchase and live in a multi-family house as your first home, stay for a number of years, move to a new home, and then rent out your unit.
Place to live: Economically, over the long-term owning a home is much better than renting, although life does seem much simpler when renting. If you think of your home as a place to live vs. an asset than your perspective will change, including funds spent on improvements. A cost benefit should be considered when making improvements, but know that improvements to your home are not usually the best investment.
Using it as an asset: If your home appreciates in value and your mortgage balance has steadily increased then you have the opportunity to tap into the equity of your home. Just make sure to use this equity wisely as you don’t want to find yourself unable to pay your equity loans and then end up in financial turmoil. Investments considered should be high return, low risk, which they should always be.
If you like what you just read then don’t hesitate to click like and forward/share with your friends.
Make sure to subscribe to our weekly emails to receive practical business, financial and tax strategies! Sign Up Now!