After seeing two articles in the past couple weeks discussing whether or not a house is an asset or a liability (“Personal Residence: Asset or Liability,” and “Your House: Asset or Liability?“), and seeing some of the interesting comments written below one of the articles, namely the latter article, I had to chime in.
Last time I checked, a house was an asset. I can not even imagine what a house as a liability would be like. Kind of like an asset with a negative value. One possibly scenario would be if there were an infinite supply of houses and zero demand. But even that would only make a house free it would not lead to the house having a negative value. I can not do the mental gymnastics of considering a house as a liability.
I just had to pull up Gnucash to make sure I was right. I opened up a new file and created a default “chart of accounts” for fixed assets (which includes a home), homeowner expenses, and a home mortgage loan. Here’s what you get:
There is “house” right there under “fixed assets.” You will also notice “mortgage loan” there under liabilities. Some people seem to get confused by this distinction, as at least 2 commenters on Consumerism Commentary did:
I agree that your home should be considered a liability…as long as I am paying my mortgage every month, then it is a liability to my cash flow.
I side with Kiyosaki on this one. My home is a liability because it costs me money. A rental with a positive cash flow is an asset. I don’t even consider my equity in my net worth.
Oh no, Kiyosaki is rearing his ugly head again. Fortunately someone stepped in to set them straight:
This line of thought (house being a liability) drives me absolutely batty every time I stumble across it. Your house is not a liability; your mortgage is a liability. An asset isn’t necessarily a money generating piece of property…
The right mind-set is to look at your house not as an asset, but as a liability, until you’re finally going to sell it and drastically change your living style. Obviously a house, something you have, is an asset, but the argument is by treating it as a liability. This way as your house’s value increases over time, you’re not lured into changing your lifestyle.
This does not make any sense to me, how you can treat a house like a liability one day and an asset the next.