A House is an Asset

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:

Home Chart of Accounts

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:

RS said:

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.

mbhunter said:

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:
Sean said:

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…

On Consumerism Commentary’s article, a professor is quoted as saying in “Ballooning equity doesn’t mean you’re rich“,

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.

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7 Responses to “A House is an Asset”

  • Like I mention in my post, many people fail to account for the value that they derive from the personal residence. But the liability argument side does have a point. If I have a personal residence that costs $1 million but will rent for only $1,000 a month, should it be counted as an asset worth $1 million?

  • What if you were to sell that $1 million house and then turn around and rent it from the buyer for $1000 a month?

  • “If I have a personal residence that costs $1 million but will rent for only $1,000 a month, should it be counted as an asset worth $1 million?”

    Where’s the confusion here? Of course it should be counted as an asset. Only the corresponding mortgage is a liability.

    Why would the fact that you are collecting $1000 rental income per month change whether or not you classify your house as an asset? Your house is an asset (fixed asset); the $1000 rental income is an asset (cash); and your mortgage is a liability (long-term liability).

  • Of course, a house is an asset. Anything that can be converted to cash (sooner or later) is an asset. In my post I am simply pointing out that when people argue that it is a liability, they forget to take the imputed rent into account.

  • As long as i’m going to live in the house i own, even if its is mortgage free, the house is an asset with zero value. After all, i do need a house to live in. On the other hand, if i own another property, then it is an asset with some value.

  • It costs money to live in your house, even if your mortgage (your *financial* liability) is zero. This is because, like food, water and other basic necessities, housing is not free. You should see yourself as a consumer of housing. Since your house creates expenses, you should consider it a liability, even though it has value. The problem is, if you realize this value, you now need to pay for somewhere else to live. I suppose it could also be considered an expense, like rent.

  • Sorry Doug that is flat out wrong. Saying that because “your house creates expenses, you should consider it a liability” is ridiculous.

    Gold bars create expenses as well as I need some place to store them, preferably in some secure storage that will cost money. By your logic a gold bar is a liability. I do not even want to try to defend the statement that a gold bar is a liability.

    If you want to get technical, every expense could technically be paid from an accounts payable (which is a liability) which is then paid off from an asset (cash). So these expenses are liabilities but the house isn’t.

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