Buying your own home is a biggest achievement for many. But is your home really your biggest asset or actually your biggest liability? I think it is the latter.
Being successful in your career, building assets, reaching financial stability, buying a home and settling down are the most common goals most of us have. For some they all happen like a dream and for some they may take time, but we eventually get there. Of all the aspirations that one has, having a stable flow of income and having a Home usually tops the list. Home is where we relax, come back to, where our loved ones live or once lived, it is where we belong. And if the emotional aspect is not so important for many, then even the “practical” and “financial” benefits of owning a house are very important – I mean com’on, Home is a piece of real estate and what better investment than real estate? The value of a house today is going to increase tomorrow and hence it is your biggest Asset!!! WRONG, absolutely. Home is actually your biggest liability.
Before you guys think further, understand one thing, I said a Home and not Real Estate or Residential Property. Get the difference? Real Estate investment or owning a Residential Property is different from owning a Home. Home is where you live, the piece of real estate you utilize for yourself whereas residential property is just a piece of real estate that you can buy. Sure home or real estate in general has potential to earn you a lot in terms of appreciation, but Home is still not an Asset as long as it is utilized for personal residence. An Asset is something that has a potential to earn you money, in financial terms or something that can offset your liabilities or debts. In simple words it puts money in your pocket. Does your house to that? NO!
Coming back to the point of real estate, if you own a residential property that you do not utilize for self, but is rented out or not self occupied, so can be easily used to offset any liability or generate cash flow then yes it is an Asset, since it is capable of putting money IN your Pocket. However, if you reside in the house or home, then it is your biggest liability because, it takes up a major chunk of your savings and earnings for you to own it in the first place. And this not just savings of a few years, for a lot of us it is savings of half a lifetime or more. You either pay a big chunk of whatever you have earned and buy a home, loan free or take a Home Loan and keep paying the hefty EMIs for a long-long time. It is money OUT of your pocket.
Even if you live in a house that is paid for, and you are debt free, still it is not your asset. Why? Because, it won’t still make you money; sure if you sell it, you can argue that you can generate money, but then what? You sell your house you still need a place to stay, right? So you either buy a new house by paying the profits you made by selling your own house and adding some money to it or you take a loan to fund it, or you can just Rent a place. In all these scenarios, you are still paying money and not earning it. So how is it still an asset?
A house can be an asset if you have rented it out and are earning from it or live in a well maintained Ancestral Property that is just big for your family and you sell it off at a profit and buy a smaller home and save some money doing it. In that case yes, you can say that your existing house turned out to be an asset. But how many of us can boast of living in a sprawling old property? Also in a scenario where in you are living in an upmarket place and sell off the property and move to a relatively lower priced locality and save some money, then yes, you can argue it is an asset; but not in any other scenario, no.
Also in terms of letting you achieve financial freedom, your home buying will affect you. Whatever you earn; a big chunk will be spent on home buying and all other things will often take a back seat in your priority list till the time you are able to buy a house. Sometimes it just robs you off the best years of your life, since you are either worried how to buy a house, or pay the EMI, what to do to be able to afford a house in a decent locality and so on.
Well, to conclude, home buying is not a bad thing. Shelter is a primary human need. If you can manage to own a home in a good locality, it is a big relief and kind of a milestone in one’s life. However, to think of it as an asset is delusion. Owning a home is independence for sure. You are free, you feel secured, your family feels mentally secured and you can now focus on achieving the other things in life, that were all sidelined thanks to your focus on owning a house; but I repeat, do not treat your house as an asset. Yes, there are tax benefits too, but then there are other ways to save taxes, that do not involve sucking a big chunk of your life’s savings. Buy a home, it is important, but do not, do not, ever say or think that it is an asset, it is a myth.