Is a House an Asset or a Liability?

Linda and I signed the papers on our first house in 1996 after we had been married for just two years.  We bought in an older neighborhood near Dallas, TX.  The mortgage payment was more than we had been paying in rent but we were both working at the time and we made it work.  We lived in the house for the next five years before we decided to move to Ohio in late 2001.  When we decided to sell we had the house inspected and confirmed our suspicions that we had foundation problems.  The concrete slab under our house had a crack right down the middle.  The repair cost us over ten grand!  We were concerned about making enough from the sale to cover the repair and have some left over.  It turns out that our house had appreciated about 30% in the five years we owned it.  We ended up with enough to fix the foundation and have a good chunk of equity to save toward a new house in Ohio.

Our first house was certainly an asset for us.  Many people these days are debating whether a house is an asset or a liability.  The answer in a lot of ways depends on how you define an asset.  Robert Kiyosaki in his book  ”Rich Dad Poor Dad” defines an asset as something you can own or control that puts cash in your pocket.  A liability takes cash out of your pocket.  By this definition a house falls clearly in the liability category.  But if you look at the building of equity in a house and look at increasing net worth, a house can fall in the asset category.  In his article, “Why My House is an Asset“, Andrew Van Valer says his house is an asset because he can run a home-based business and generate cash flow.  This is not an easily answered question and there are lots of variables.

I believe that it really comes down to not buying more of a house than one can afford.  When we found a house in Ohio, it was again an older house – nearly 130 years old.  This makes the starting price quite a bit lower than new houses and in my opinion it has a good bit more character than a new house.  We were only able to put 10% down (historically it is recommended that you put at least 20% down) but we were able to get a 15 year mortgage.  Now we have only 8 years left to pay on the house!  Woohoo!

My recommendation for those looking to buy a house is to put between 10 and 20% down and to get a 15 year mortgage.  Also make sure the mortgage and upkeep costs fit well into your budget.  Crown Financial Ministries has a good Spending Plan Calculator for determining how much you should spend on housing for your income.  Don’t over extend yourself.  If you do these things I think that home ownership is still part of the american dream.

Proverbs 19:14 (NLT) says, “Fathers can give their sons an inheritance of houses and wealth, but only the Lord can give an understanding wife.”  When we moved into our last apartment in Dallas, Linda declared we would only live there for one year.  Then my parents helped us with our first down payment exactly one year later.  This verse proved true for us.

Let me know your thoughts on home ownership now after the housing market crash.