Building Wealth: Is Your Home an Asset or a Liability?

When you’re building wealth, it’s important to rank your assets and liabilities. If your homelands in the asset column, then you’re in a good position for years. But if it’s a liability, then there are some serious things to consider.

Building Wealth: Is Your Home an Asset or a Liability?
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A Primary Residence

Your current residence will usually be a liability. It is a property that you maintain with your own money, with an expectation to keep it in shape. Any gains will quickly be wiped out by insurance, maintenance, or property taxes. This applies to a home you own or one that you’re currently paying the mortgage on. 

It can even be argued that there are no major differences between owning or paying a mortgage on a home when attempting to value it as an asset. Arguments about home ownership are highlights on journeytobillions, which goes into great detail about loans.

The expenses add up the same, and you’ll find the value is only flexible based on the current housing market. But there are some considerations to make when valuing property as an asset.

Selling Your Property

A sold home as an asset is a slight misconception when you go through the paperwork. Homeownership is always a great choice, but you shouldn’t approach a home you plan to live in as an asset.

If you’re paying a mortgage, then the home still belongs to the bank. And while you’re paying that mortgage, interest will accrue each month. As long as the home has a monthly note, then it can never be considered an asset. Even when you sell it at a higher price, a lot of the money earned doesn’t take the previous interest or years of maintenance into account.

But a residence that you buy to flip can be viewed differently based on its location or time of ownership. You can add as little or as much to the build that you deem necessary. There is no interest to worry about, and no limitations to what you can do with the actual home. If you understand the housing market, selling a home you own can quickly turn a liability into an asset.

Homeowners that are selling their primary residence will have less flexibility. As a result, they will take in less money on the sale. This keeps in line with the idea that a primary residence you own will usually be a liability. Due to the lumber shortage and COVID-19, there are a few circumstances that directly change the housing market.

The Housing Market

Saying that the 2021 housing market is a roller coaster would be a massive understatement. It’s one of the few times that a homeowner’s primary residence can sell for almost double its value. This makes specific houses an asset, but there are some downsides to consider. 

More homes than ever now fall into a flood zone. Falling into the flood zone instantly makes a home a liability, even if it was previously a huge asset. Once the lumber shortage ends, the market will once again shift to turn homes that were assets into liabilities again.

Homes that are currently considered assets are only a few months away from slipping in value. That’s something for every homeowner to consider if they want to get the most value out of their home.

Balance Your Finances

Your home should always be an asset with tremendous value. If it fails to meet expectations, then improve the value as needed. Improve your financial future by making your homework for you rather than against you.