Your Primary Residence is a Home, Not an Asset

While there isn’t necessarily a great debate raging, there are strong opinions on both sides of the question, “is a home an asset or a liability?”

There are those that believe the home they live in should be considered an asset. However, there is a school of thought, popularized by Robert Kiyosaki (author of Rich Dad Poor Dad), that says a home, particularly one carrying a mortgage, is a liability.

Asset and Liability

Before we go any further, let’s look at Merriam-Webster’s definition of these two key words:

as·set [ˈa-ˌset also -sət] noun

  • A valuable person or thing
  • Something that is owned by a person, company, etc.

li·a·bil·i·ty [ˌlī-ə-ˈbi-lə-tē] noun

  • The state of being legally responsible for something
  • The state of being liable for something
  • Something (such as the payment of money) for which a person or business is legally responsible

Looking at those two definitions, a case could be made for both. There is no doubt that many have sold their home at a great profit, supporting the idea that a house can be a valuable thing, an asset. On the other hand, when your home is carrying a mortgage, you are liable for the home and you are legally responsible for making payments. That would clearly make it a liability.

Homes Are Not Good Investments

Something to consider. In the July 15 edition of Bottom Line Personal, a previous SavvyRecommendation, Diane Pearson (CFP, CDFA), notes, “Don’t be fooled by the recent real estate recovery – homes simply are not good investments. From 1890 through 2012, on average, home prices gained absolutely nothing in value after adjusting for inflation. Owning a home actually costs money – lots of it.”

I have adopted the belief that a home, a primary residence on which a mortgage is owed, is a liability and should not be viewed as an investment. I previously touched on this topic, at least tangentially, in a couple of other blog posts, The Value of my Retirement Portfolio and How Do You Stack Up?

noted that when considering preparation for retirement – the focus of this blog – I like to look strictly at portfolio value (aka financial wealth) – which excludes things like home and car values – which are traditionally included in net worth, which is determined by subtracting the total dollar amount of all liabilities from the total value of all assets.

My rationale? When you are ready to retire, who cares how much Kelley Blue Book believes your car is worth or how much Zillow believes your house is worth? Those numbers are largely irrelevant.

Real Estate - Prisma Udine

While having a significant net worth may sound impressive, it isn’t particularly helpful if the majority of that number is based on what you – or Zillow – believe your house is worth. In the 2007 time frame, prior to home prices crashing, there were a lot of people with inflated beliefs regarding their net worth, which was largely based on perceived home values.

There are lots of people out there that profit from selling the idea that a home is a valuable asset and you should do everything in your power to own one. That is not always the case and you shouldn’t.

Final Thoughts

Even if you do everything right (i.e. buy the right sized house, buy at a good price, get a fixed rate loan, etc.), you will be better served by viewing your home as a liability and not give it consideration when calculating your net worth (or at least understand the difference between net worth and financial wealth) and conducting retirement planning.

If you are interested in investing in real estate, consider purchasing a rental property or Real Estate Investment Trusts (REITs). With respect to retirement, and specifically generating retirement income, it is much more useful to focus on passive and portfolio income, not your home.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. Fascinating question that I’ve long pondered. I ultimately decided to run our life as a business. Were GO4ITUSA a business our home would fall under the “Property, plant, and equipment” category that all businesses use on their balance sheet. Our mortgage would be a liability. I think it important to distinguish between the two. The “asset” in this case may be a depreciating asset but it does have value. As such, I think it belongs in the net worth calculation, offset by the mortgage liability if you’ve got one. And as with a business, all assets require annual operating costs to maintain. The bad businesses (like GM etc.) have a ton of assets on their books which require a lot of capital to maintain – making them vulnerable to inflation. The good businesses (Coca Cola, Sees Candy etc.) require very little to maintain. If you’re a renter then you have a fixed annual liability just as with a mortgage and you have very low operating expenses. I’ve done both – rented 18 years.. Owned 18 months first time and now 6 yrs second time. I think the key is as with any business – the price you pay and the value you receive means EVERYTHING. If you paid a good price then chances are the underlying asset will appreciate at a rate above your operating costs. If not? Well then you’ve made a crappy investment just like buying a stock that’s too high. Valuation is just like a stock – how much does the asset “earn” annually (calculated by what you could rent it for) divided by the price. We rented 18 years because that equation was always a tell-tale sign that houses were way too expensive – just like the Nasdaq bubble of 1999. Finally in 2010 things got rational again and we bought. Since then we’ve about broken even after factoring in all costs… The good news is that as time goes and more money goes towards principal things start to get a lot better. We’ll see. Bottom line, I’d rather rent during the time we did, and I’d rather own starting in 2010.

    • It is indeed a fascinating question that has numerous aspects to consider. The danger I have seen in counting it as an asset is that for too many people it gives a false sense of wealth and financial well-being when that may not necessarily be the case. With respect to retirement planning, I believe most will be better off if they focused developing multiple streams of passive income and on building a portfolio that will throw off a given amount of income.

      Thanks for sharing your thoughts, my friend. It is certainly a lot consider and offers a great perspective.

  2. Good read and completely agree, It’s certainly not fully an asset until you own. I’m kind of kicking myself a bit for buying a home. seeing all that possible wealth go up in smoke at the moment. I’m trying to fix it up as much as I can as cost effective as I can. I might sell and try to get something either cheaper or just rent. Although I’m getting spoiled by the extra space and big garage. If you liked that short series, I’ll have a post soon that will analyze my home specifically. I wasn’t happy with the numbers but they weren’t too bad.

    • Looking forward to the discussion on your home specifically. Be well,my friend.

  3. Agreed, James!! Too many people sink WAY too much money into their homes for the sake of “resale value”. If it has a mortgage, it is a liability. Even a mortgage free home can be taken away by the govt if one cannot or refuses to pay the property taxes.

  4. Hmmmm … so how about when our home is paid off?! Then we could consider it an asset?! The fact that there will still be plenty to spend money on … such as property taxes, insurance, maintenance, etc. … it may still be a liability. Either way, I can’t wait to have a mortgage free home!

    • “… so how about when our home is paid off? Then we could consider it an asset?” I would. While there will always be some ongoing fees (e.g. insurance, maintenance, etc.), that is to be expected whether you are renting or buying. Just as you pay some fees to own stocks and mutual funds, you would be in a similar position with your home once the mortgage is paid and you have some recurring fees. The key is as long as there is a mortgage, it is a liability. Like you, I can’t wait to be free of my mortgage!

      Thanks for stopping by and joining the conversation.

  5. Your home really doesn’t do much for you in retirement other than offer you a place to live (which IS important for obvious reasons) but it won’t help you retire since all the the money you’ve invested into it is tied up until you sell the house. It’s not making you any passive income if you’re living in it! With that being said though, we are homeowners and absolutely on track for paying off our mortgage in the next two years.

    • Great points, Robin. Well stated. The wife and I are also homeowners (a primary residence and rental) and plan to be mortgage free on both prior to entering retirement. Thanks for stopping by and adding to an important conversation.

  6. A Google+ reader notes …

    “I completely agree. At the most, I consider my home a last ditch asset in my last year, should I need extra money for a nursing home. And even that is doubtful. My home is…my home! Nothing more or less.” 

  7. Glad you published this and you have made some very good points. I disagree but looks like I am in the minority.
    My home is one part of my multifactor retirement plan. Will I be sorry – time will tell.
    People also borrow to buy investments (using margin to buy stocks for example or taking a mortgage to buy a rental property) and that creates a liability but there is still value in the underlying asset and it is still considered an investment – so not sure I agree with that logic.
    There are arguments to bad for both sides. Again, glad you posted and hope it generates some good discussion. Cheers.

    • I don’t believe it is necessarily a question of being right or wrong. Perhaps it is more a case of different perspectives. As long as a mortgage is owed on a home, it is hard for me to count it as an asset. Perhaps a “potential asset” is more accurate. Two of the problems with equating a home with stocks is that first, stocks (using the term broadly to encompass ETFs and mutual funds) are liquid, whereas a home certainly isn’t. While both a home and stocks can go up or down in value, an individual cannot move quickly in or out of a home. Second, once a home is sold, even if at a profit, another residence must be leased or purchased.

      With respect to retirement planning, I’m not even sure how I would go about assigning a future value (12 years in my case) to my present home. I know that my goal says I need to have $2,000,000 in my (and wife’s) retirement accounts when I retire. I could plan on only having $1,500,000 in my retirement accounts and plan on (hope to sell) selling my home for a $500,000 profit, getting me to the same $2,000,000. The problem is what if do not make a profit of $500,000 when I sell the home? What if I only realize a gain of $125,000? Nothing to sneeze at, however, my annual retirement income from my portfolio is now going to be $15,000 less (using the 4% rule) than planned — 2,000,000 x .04 = 80,000 vice 1,625,000 x .04 = 65,000. Also, as noted before, I still need to go out and either buy another home, even if smaller, it is still an expense I don’t want in retirement; or even if I rent, that is still an expense I don’t desire in retirement. I don’t plan on having any rent/mortgage expenses in retirement. With my approach, it is almost irrelevant what my house sells for (if I decide to sell in the future) because my retirement income will not be based on the results of a sell.

      Net worth is a viable measurement for some. I just believe that for retirement planning, financial wealth is a better gauge. I could tack on $200,000 (both our vehicles are paid off and we have equity in our home and rental property) to my financial wealth and call it net worth. However, the addition of that figure doesn’t help in my retirement planning. At the end of the day, I believe most people will be better served by just living in their primary residence, work to pay off their mortgage before going into retirement and for retirement planning purposes, focus on building their sources of portfolio and passive income. Anything a primary residence, or rental property, sells for is gravy.

      A great, great conversation and thanks for stopping by, May.

  8. Having watched more than a dozen neighbors lose their house in the last 6 years because they treated it like an investment, I can totally agree with you. Investments go up and down so why would you want that for your home and family. Real estate is a great investment, but your home is for your family and life. If you want your life to be unstable like investments can be then good luck. In the long run investments turn out to be great, same with spending time with your family, but your house shouldn’t be that.

    • Thanks for stopping by, Lance. All well stated. Particularly with retirement planning, the focus of this blog, it seems to me that it is in people’s best interest to treat their primary residence as the place they lay their head at night, and not as the cornerstone of their retirement. For that, focus on building a well diversified stock (mutual funds) portfolio and seeking out multiple sources of passive income.

      While I am hopeful that I can sell my current primary residence for a nice profit one day and perhaps downsize, I do not waste time trying to assign a potential value to it now with the hope that it will pay off in 10 – 12 years. It is absolutely not part of my retirement planning. The same is even true of my rental property. While I have a little (believed) equity in it and I plan to sell it one day, I don’t factor any potential profits from it into my current retirement planning.

  9. The title of this blog post really got my attention. I couldn’t agree more. I don’ know what happened in the last 10+ years with the real estate market and peoples attitudes towards homes but it has really changed. In the “old” days you bought a home to live in, you liked the area, felt safe, was close to work, good schools, etc. Now everyone who buys a home gets asked, what interest rate did you get on the loan, can you flip the home, borrow against it, etc. The shows like flipping Vegas, Boston, property wars, etc. just perpetuate the notion that houses are for buying, appreciating then selling. My parents paid around 18% on their home loan back in the 70s. Let’s see what happens to the housing market if that occurs today. But people still bought properties back then. A home is a place to live. Treat it that way. You’ll have greater peace of mind.

    • Thanks for stopping by, DivHut and adding to the conversation.

      “Now everyone who buys a home gets asked, what interest rate did you get on the loan, can you flip the home, borrow against it, etc. The shows like flipping Vegas, Boston, property wars, etc. just perpetuate the notion that houses are for buying, appreciating then selling.” Great point. In the past, too many people approach home buying with the attitude that home prices always go up. Working with that mindset, many people assumed that their home would be the foundation of their retirement, with the idea they would sell for a significant gain and move into a smaller retirement home.

  10. I agree with the concept of just living in your home. If it goes up it is a bonus. If it goes down, you don’t care because it is your home. A roof over your head. Buy no more than you need and get the mortgage paid off asap. Having a paid off home is security you can’t put a value on. I keep track of it as an asset, but with insurance, maintenance and property taxes, there are continuing liabilities that keep a hefty monthly payment in place.

    • “Buy no more than you need and get the mortgage paid off asap. Having a paid off home is security you can’t put a value on” Couldn’t agree more. I look forward to the day our home is paid off. Thanks for adding to the conversation, Wade.

  11. You’ve convinced me! Sound arguments, and I’m not even a Robert K fan. Like your new header, James.

    • One convert. Great! While there is absolutely nothing wrong with buying a house – as long as it is done wisely – and anticipating that it will appreciate in value over time, it makes no sense to include it in a retirement plan. Accordingly, getting away from focusing on net worth and thinking more in terms of financial wealth behooves would be retirees.

      Glad you like the new look. I wanted to go with something that was a little cleaner and more polished.

  12. A Google+ reader notes…

    “The investment part of my home to me is knowing that in 5 more years It will be paid for and I’ll be debt free. I bought my house to live in and plan to do that for many more years.”

  13. A Google+ reader notes…

    For some, there may be a possibility to make a decent return. I dont think it prudent.

    “For most of the average families here in the US, it would be better to invest in a conservative plan on their own. Maybe (in the right circumstances) even starting a small business that can bring about residual income in ones retirement age.

    Better the enemy you know than the one you do not….”

  14. A Google+ reader notes…

    “We love our home and are very happy with its location and layout. However, we found this out the hard way. After buying a home well within our means and paying approx 35% down, we started our 15 year mortgage payments. We decided to pay extra on the principal as well so we could finish our mortgage in 8 years.

    We would need to see a 15% rise in our property value to break even on our investment. There is no way that is going to happen even if we keep our home for 15 years.

    Its definitely not an asset.” 

  15. A Twitter reader states…

    “I completely Agree.”

  16. A Google+ reader starts off the conversation by stating…

    “I totally agree with you James. A person’s primary residence is certainly a liability. Many people don’t think about property taxes, maintenance, repairs, time lost to household chores (like mowing) and the added risk of owning a home.”

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