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There’s no question that a house can be a valuable asset, but only under certain circumstances.
Per data collected from Trading Economics, the rate of household owners in the united states is currently 65.4%.
But, not all homeowners’ homes are assets.
But is it always an asset? This is a question many of us will ask ourselves at some point.
According to Rich Dad Poor Dad, the answer is no. In his book, Robert T. Kiyosaki taught that a house could be either an asset or a liability, depending on your perspective.
Let’s look at what he means by this and how you can apply it to your own life!
Related Content: Rich Dad Poor Dad – 9 Wealth Building Lessons
Table of Contents
Asset vs. Liability
Before we go into depth on whether a house is an asset or a liability, let’s first understand the difference between the two.
In the simplest of terms, an asset puts money in your pocket. A liability is something that takes money out of your pocket!
For example, a rental property would be considered an asset because it generates income (through rent) which goes into your pocket.
On the other hand, a primary residence would be considered a liability because it costs money (in the form of mortgage payments, insurance, taxes, etc.) to maintain and keep up.
That said, let’s dive into whether a house is always an asset or can sometimes be a liability…
When is a House an Asset?
There are situations when a house can be an asset.
Let me illustrate this with a couple of examples…
- If you’re a landlord and rent out your properties, the houses would be considered assets because they generate income.
- You’re in a situation where a house can be an asset if you live in a paid-off home and have the extra cash flow to invest in things like renovations or improvements.
When is a House a Liability?
There are also situations when a house can be more of a liability than an asset.
Typically this is the case when someone has a mortgage or is otherwise upside down on their home.
Meaning you owe more than you own!
In these situations, it cannot be easy to make ends meet. The house then becomes more of a burden than anything else.
Another situation where a house might be considered a liability is if the market crashes and home values plummet.
When this happens, it leaves homeowners in a very difficult position.
Especially if they need to sell but can’t get out from under their mortgage.
Asset Accumulation Mindset
If you view your house as an asset, you will likely treat it as such.
This means you’ll invest in it, keep it well-maintained, and improve its value!
As a result, your house will appreciate over time and provide you with a solid return on investment.
You will also make sure that it provides passive income each month. Think about renting it out or generating income in some other way.
In this case, your house works for you and puts money back into your pocket each month.
Get on the right track to financial success by understanding the importance of accumulating assets or turning things from liabilities into assets.
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Liability Accumulation Mindset
On the flip side, if you view your house as a liability, you’re likelier to let it fall into disrepair.
You probably won’t invest much money in maintaining or improving it, and as a result, its value will decline.
The house will be a liability because the mortgage payments and general cash flow will be negative.
You will also have difficulty achieving financial freedom because you’ll be stuck in this never-ending cycle of debt.
People will often buy houses with mortgages they can’t afford to pay off out of their own earned income. This is a recipe for disaster and will likely lead to financial ruin.
It’s important to remember that a house is just a tool.
A tool that can be used to achieve financial freedom, or it can be a ball and chain that keeps you in debt for the rest of your life.
The choice is up to you!
Changing a Liability into an Asset
Here is a story example of how the Rish family turned their house which was originally a liability, into an asset:
After Mr. Rish read the book ‘ Rich Dad Poor Dad’, he and his wife had a change of mindset.
They realized that the house they had been living in for years was a liability instead of an asset.
They decided to make some changes and turned their house into an asset!
First, they renovated their basement and began charging rent.
Second, they used that money to pay off their mortgage so that they no longer had monthly payments – pretty awesome right?
Third, when their children moved out, they decided to move to a small apartment but keep their original home for renters.
There were two vacant rooms on the main floors and bedrooms in their home, allowing them to be rented out.
They charged another family to live there and collected additional rent money to cover more than their new living expenses at their small apartment.
The house provides income each month through the tenant’s rent and puts money into the couple’s pockets as they live happily ever after.
By making these changes, they could increase the value of their house and create a passive income stream.
As a result, they achieved financial freedom and could retire early.
This is just one example of how changing your mindset about your house can lead to financial success.
If you’re stuck in the mindset that a house is always an asset, but it’s costing you money each month, it’s time to make a change!
Start by looking at your situation and see how you can turn your house from a liability into an asset.
It may take some work, but it’s possible to achieve financial freedom by doing so.
Conclusion
As you can see, there is no clear-cut answer as to whether a house is always an asset or a liability.
It is an asset if it is putting money into your pocket each month and increasing in value.
However, if it costs you money each month and not increasing in value, then it is a liability.
Make sure to carefully consider your situation before making any decisions about your house!
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
