There is a long running debate about your home and whether it is an asset or a liability. Some, like Robert Kiyosaki, are hell bent on homes being liabilities.
He even says that calling your home an asset is a “scam”.
Pretty intense!
Meanwhile, many people view their home as an investment because, historically, homes appreciate, it’s often better than renting, and your mortgage is essentially forced savings.
So is a house an asset or liability? Most opinions are a bit too black and white for me.
The reality is your home can be an asset but it can also be a liability. At this point in my life I’ve purchased three separate primary residences.
I always try to consider how I can treat my home as an investment. Doing this takes some work, may not be ideal (yet), and can be a pain.
But it’s worth it.
So let’s look at how you can get out of the liability trap and make sure your home is working for you as an asset rather than just a place to live.
A Home Is A Liability When You Buy New
It seems everyone wants a gorgeous, newly constructed or remodeled home.
Who wouldn’t?!
But when you buy something like this you are paying top dollar. Investors make outsized returns when they successfully add value.
With newly constructed or remodeled homes all the value has already been extracted… by the person that sold it to you.
And while you can still make the case that buying this type of home is still better than renting, well that may not necessarily be true from a purely financial standpoint.
Regardless, you’d still be falling into the common arguments around whether a home is a liability or an investment.
The reality is, even if you believe simply owning a home makes it an investment, you made a bad one by purchasing something with no ability to force appreciation.
So what do you do?
Buy The Fixer Upper
I’m a big fan of buying something that’s dated. I want to be the one doing the remodeling for two reasons.
The first is probably obvious by now. That’s how to add value to your home in a big way.
In 2017 when we moved to Metro Detroit we were very specific about buying something that needed work.
Then we did the work and sold for a record price in our subdivision.
No other sale has even come close!
The new buyers got a gorgeous, newly remodeled home. But there is no value left to extract.
The second reason I like buying a fixer upper is you have the chance to make it exactly as you want it.
When the work is already done there’s no option to pick out finishes, change the layout, etc. There’s nothing better than being able to put your own tastes and touches on your home.
Now that we’re back in California, we’ve once again purchased a fixer upper.
Even though we have no immediate plans to sell it, we’ll have a huge equity cushion in the event that we do.
But buying a fixer isn’t for everyone, so what else can you do?
Buy In A Less Desirable Area
Whether I’m buying a rental property in Detroit or my personal residence in California, I prefer to be in up-and-coming areas.
Again, there are two reasons I prefer this.
If you can identify an up-and-coming area, odds are that in the near future it will be quite popular. As that unfolds, the value of your house inevitably increases at a pace that outstrips the general market.
You may have zero plans to sell and believe you’re going to live in your home forever.
But life changes, trust me. And wouldn’t you want to make a bunch of money when you do sell instead of just doing alright?
The second reason I enjoy buying my primary residence in an up-and-coming area is because I genuinely enjoy NOT being in the higher end, A Class areas.
I don’t need to be competing for who’s spending the most at the school fundraiser or getting trapped in the “keeping up with the Joneses” mentality.
I drive a beat up 2008 Toyota Corolla and people don’t judge me (too much) for it.
Whether we like to admit it or not, the spending habits of those we surround ourselves with affect us.
Some day, it’s likely that none of this matters to me. But for now, it absolutely does!
You Don’t Have To Treat Your Home As An Investment
Here’s the thing… If I was completely content with my financial situation I would not give one thought about treating my home purchase as an investment decision.
I would buy a gorgeously renovated house in an A+ location.
And then I would enjoy the hell out of it.
I have every intention of doing exactly that someday in the future. I’m just not there yet.
The reality is, a home is a place where you spend a ton of time. It is, ultimately, a consumption item. And you should derive a ton of pleasure by living in your house.
But my belief is that you should treat the biggest purchase of your life, initially, as an investment.
You can either buy the dumpy house and create your dream home or plan on working up to your dream home down the line.
But not every home purchase needs to be made from a financial lens. Eventually, all that money you’ve worked so hard to make should be spent and enjoyed.
Otherwise, what’s the point?