Is A House An Asset Or A Liability?
It depends on your outlook and time horizon
The eternal optimist will tell you it is an asset. The “glass half empty” person will tell you it is a liability. In reality, it depends where you are in your homeowner cycle.
Definitions
An asset is considered something you own that can be converted into cash. A liability is something you own that is a drain on your finances.
An even simpler definition is — an asset makes money, a liability takes money.
In the beginning
When you first purchase a house, it is a liability. You make a down payment and have closing costs. The closing cost will immediately lower your net worth, hence making your home a liability.
If you need to sell your home the next month, you would have closing cost, again! Here is an example of what impact buying and selling a home would have on your net worth.
With a principle and interest loan, a portion of your monthly payment goes against the principle, decreasing what you owe the bank and increasing the equity in your home. In…
