Your Home – Asset or Liability?

Last month I listened to Paula Pant interview Chris Hogan, the author of ‘Everyday Millionaires’. According to the measurements used in that study, it may well be that we are on our way to being millionaires, but I am not sure whether I agree with the definition of millionaire, as they took into account the value of their houses.

Three years ago we moved from a small terraced house to a four bedroomed detached property. Mr Simple had sold his own property – a modern starter home – before he moved in with me for a while. We wanted a house with a large garden, as we love growing our own vegetables, so in many ways we bought the house for the garden rather than the size of the building.

At that point in my life I had not discovered the FI/RE movement. The reason for the move was not only to have a bigger garden, but also to move nearer to Mr Simple’s place of work. I transferred to another office within the same organisation. The house we live in is about equidistant between our two places of work. In that way one would say that the move was in line with the FI/RE principle of reducing your transportation costs, as each of us had a twenty-minute journey to work. Now I say ‘had’, as Mr Simple has been made redundant since we moved house and my office has been shut due to efforts on the part of my employer to reduce overheads. Fortunately, I am able to work at home a lot, but when I do have to go to the office it is an hour’s drive away.

Not only is it in this study that the value of a property is considered an asset, but many FI/RE blogs post monthly net worth updates which include the value of their house minus any outstanding mortgage balance that they owe. The question that I have is whether the value of your house should be considered in your net worth calculations. According to Robert Kiyosaki of Rich Dad Poor Dad  when calculating your net worth you should not include your home.

We have about £370,000 equity in our home, but that money is not accessible to us, as we don’t plan to sell it and even if we did we would still need somewhere to live. We could buy a smaller property and therefore invest some of the money, but not all of it. 

Robert Kyosaki not only believes that you should not consider your house an asset, but in fact it could be considered as a liability. A house has to be maintained, there is decorating to do, it needs cleaning and you have to pay to heat it and light it, as well as other bills such as council tax. The bigger the house the higher the bills, so even though some would say that a large house means a higher net worth, in fact it could be stated that the greater the value of your house the bigger a liability it is.

Now that we have this house and I have got the FI/RE bug I plan to consider how to turn it into an asset. At present there is a considerable amount of decorating to be done, which Mr Simple has turned his hand to now that he doesn’t have full-time employment. Ideas that come readily to mind are AirBnB, renting out a room to a lodger, hosting overseas students and renting out the driveway for parking as we live near an airport. I need to do some research on each of these and plan to share my findings with you over the next couple of months.

Do you see your house as an asset or a liability? Have your turned your house into an asset? I know that Gentlemans Family Finances has delved into the world of AirBnB. Have you tried this or any other ways of making your house pay? I’d love for you to share your experiences.

15 Replies to “Your Home – Asset or Liability?”

  1. While I know that it’s flawed the way that I see my house as an asset is in the mortgage (or rent) payments that I don’t have to make as a result of owing it. That is money that can go into saving/investing for the future.

    The other thing for me is that I really struggle to separate the emotional side of owning a home with the financial (which is why, in honesty I don’t see it as either an asset or a liability). Looking back there is a bit of me that wishes we had bought a more modest house in the first place (not that we have an extravagant house by any stretch of the imagination. But, where we live now is our home so the idea of downsizing before the kids leave home isn’t one that seems worth contemplating.

    1. Thanks for stopping by. I agree about the rent payments. I see renting as wasted money and at least with a mortgage there is an end point. Eventually we’ll only have to pay to maintain the property and will own it outright.

  2. Having been a homeowner for all of 2 days I’d say that I would consider the (mortgage-less) part of my home to be an asset. BUT I consider it useless to include in any calculation for the reasons you say. I’m only really interest in my FIRE fund, not my net worth, and the former doesn’t include my home.

  3. It’s fun to occasionally add up our net worth with our home equity included. But we DON’T include our home value in our FI calculations.

    That’s because, like you’ve stated, we’d need to live somewhere whether we sold the house or not. Also, the equity we have in it isn’t readily accessible—so it shouldn’t count in our FI calculations.

    (However, we were able to “release” half of the equity last year as a HELOC which we’ve used to invest and turboboost our path to FI—but that’s another subject for a blog post!)

    We’ve hosted international students for over a decade and we’ve loved it. It’s more than just an income stream—it’s enriched our lives in so many ways. It’s definitely worth a try!

    Personally, I feel the standard of furnishings and decor is much lower for hosting students than for Airbnb. So it might be easier to get started with hosting. Just my two cents!

    I’m really enjoying your writing style, by the way! It’s very story-like. I find that really engaging. 😉

    1. Chrissy, thanks for your comments. Not sure what ‘a HELOC’ is, obviously something Canadian. I will have to look in to the possibility for hosting students. Our home is quite rural, which is why I think Airbnb is likely to be more successful. Public transport is almost non-existent.

  4. The property I own is not my home so I did include it in my calculation but my net worth doesn’t interest me half as much as what my FIRE fund is worth. I think it’s been over a year since I last looked at my net worth, have no idea what my property is worth these days and not really interested as not planning to sell.

    All the best with making a bit of extra money on the house – if I lived close to the airport, I’d definitely consider the driveway parking thing!

  5. I’m a big fan of Rich Dad, Poor Dad, and I completely understand the point he’s trying to make, when he argue that your house is a liability.

    To me however, there’s a difference between a house and a home. My home is one of my greatest assets, because I feel safe and comfortable there. Without my home, I wouldn’t be the person that I am today.

    When lifestyle inflation hits you (like it did you – and me as well) and we choose to buy a (big) house that’s when you’ve adopted a short-term liability – but you can turn it into a long-term asset (in my opinion).
    The problem is that lifestyle inflation blinds us from seeing our actual needs. If I had known what I know now (having discovered FI/RE), I would not have bought the home I currently live in. But I’m quite happy living there (much like yourself), so all I can really do, is try to make the most of it (because selling it and moving to a cheaper place would cost me a lot of $ in realtor- and “paper” fees that it would take me years to recover anyway).

    I haven’t been tracking my net worth (I only track my FIRE fund), but recently it dawned on me that it would be foolish, not to consider your equity as something of value. Much like debt is a tool that you use as leverage, you should consider using your equity as a tool too (to reach FI, obviously).

    A lot of people just want to get rid of their debt as fast as possible, so they can live “cheaply” in their home. – But I think we might be missing out on some potential gains, when we don’t make our equity work for us (much like we invest our savings, so they can work for us). £370.000 is a lot of money, just sitting there 😉

    We have fixed mortgages in DK with an interest rate below 2% now. I haven’t (yet) actively leveraged my equity, but I am seriously considering doing so. With the current real interest rates being just about 0% (considering the inflation at ~2%), it would be kind of crazy of me, not to take advantage of my equity, to speed up my route to FI…

    I know one thing: I’m going to start tracking my Net Worth, because I believe that my equity could very will be the key to my early retirement 😉

  6. Like Weenie, we don’t pay an active and direct interest in our net-worth. However, we do track our debts very closely so I guess that is one half of the formula and it could be argued we are indirectly tracking it.

    The reason for this is because our FI plans do not rely on our net-worth but mainly rental income.

    In relation to treating our “home” in networth calculations? We don’t. But again, it all depends on your FI plans and why include it? If someone is including it because their intention is to liquidate and buy other assets which would provide an income at retirement then it makes sense. However, if someone intends to live in their house forever and it doesn’t generate an income, then I’m struggling to see the relevance of including it in net-worth calculations apart from a “feel good” factor.

    1. Cashflow Cop – I think that I come into the second category. We don’t plan to move from our house and so including it in our net worth calculations is misleading. I do hope to host Airbnb guests in the future, so maybe any income will just be under ‘side hustles’.

  7. I think this is a really interesting subject, houses are a continual cost, they will hopefully increase in value, may stay the same value or even decrease due to many different influences. Personally, I love our home, I can imagine living out my retirement here, therefore any money we do have in the home, would be unusable. Until a time where we need to go smaller, with less upkeep and perhaps closer to amenities, the value of this house will only be used to purchase another place!

  8. You’ve got to live somewhere.
    Living in a cheap area might cost less but you could lose out in house price inflation – or you could make big gains as prices catch up.
    Rdpd is just btl bait – it’s important to point out that leverage isn’t only available in the slum landlord business.

    1. For me the question is how much you tie up in bricks and mortar when investing the extra rather than buying a larger house could give you interest to live on and retire earlier.

      1. If you already live somewhere that question is already answered.
        Repayment if the mortgage js something that you might want to avoid – especially if you are approaching retirement age (tfls)

        If you don’t own; some of the prices I see in the South East/ London are eyewatering- i reckon emigrating is the best solution!

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