IS YOUR HOUSE AN ASSET OR A LIABILITY?

Krome

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Hi I'm Krome a newbie enthusiast on personal finance hoping to learn from you all. Thanks. I would like to begin by quoting Robert Kiyosaki who defines an asset as anything that puts money in your pocket. While a liability is something that takes money out of your pocket. Him and many other authors have disregarded that a house can be classified as an asset and have even gone ahead to classify it as liability because of its costs and it's maintenance. How then in our context (Kenyan/African) do we regard a house/home.is it an asset and what level of priority does it have on our journey to financial independence? I welcome all your views.Thank you all for your contributions in advance. Krome
 

James67

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Great debate here bro. I think it depends on your source of income. Where you got the money to build the house. If you took a loan or a mortgage, it means the house is a liability. And you will pay forever. The bank will enjoy.

But if you financed it from savings or cash, then you are better of. Plus, if the house cuts your rental and communting costs, then you can consider it as an asset, since the surplus money can now be invested elsewhere to earn you something.
 

Krome

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So we sho
Great debate here bro. I think it depends on your source of income. Where you got the money to build the house. If you took a loan or a mortgage, it means the house is a liability. And you will pay forever. The bank will enjoy.

But if you financed it from savings or cash, then you are better of. Plus, if the house cuts your rental and communting costs, then you can consider it as an asset, since the surplus money can now be invested elsewhere to earn you something.
Great debate here bro. I think it depends on your source of income. Where you got the money to build the house. If you took a loan or a mortgage, it means the house is a liability. And you will pay forever. The bank will enjoy.

But if you financed it from savings or cash, then you are better of. Plus, if the house cuts your rental and communting costs, then you can consider it as an asset, since the surplus money can now be invested elsewhere to earn you something.
So we should basically classify it based funding sources for it's construction.
 

James67

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Yes. That is my take. But not just funding sources. What I believe most Kenyans do build their homes on credit of some sort. If the repayment for the credit facility is more than the monthly amount the house is saving you, then it is a liability. But if for example you rent out he house, or estimate the rent you were paying previously and you are left with something, then its an asset.
 

Admin

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This is a tricky one. I look at it as the egg and chicken analogy. Which came first. Before acquiring the asset (house), you must have incurred an expense (liability) in terms of loan/mortgage. Thus it will all depend on the credit vs benefits.
 

Krome

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James67 & Admin i concur with both your views on looking at the expense the house is saving you versus the cost of funding it. but in the Kenyan context houses are not cheap ,a simple living space would cost Kshs one to three million and upwards. If you opt to pay with cash that's fine, but as stated earlier many resolve to go for the credit option(mortgage /loans) which is expensive and in turn creates a dent in our wealth building efforts in the long term.in that regard i would view it as a liability as it hampers your progress towards financial independence.
 

John

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A house is never an asset but instead, it is a liability.
On a given month for your personal residence, you need to pay for your mortgage, utilities, maintenance, taxes, insurance, and possibly more.
Experience has taught me that a home is a place to live and is not an investment. The "value in use" is the only economic value you can count on and that is measured by what a substitute home might cost in rent, for example. Otherwise, homeownership is an economic liability.

The improvements above the land depreciate requiring continuous and expensive maintenance to forestall physical deterioration. The improvements can suffer from functional obsolescence over time. Updating a home may require a rip out and rebuild, which is very expensive for most owners. The need to update a kitchen or bathroom design are great examples of functional obsolescence that limit the upside value of a home if not cured.

Counting on appreciation is hardly a sure bet. Ask the 11 million homeowners who, through no fault of their own, currently owe more than their home can sell for.

Real estate markets are very inefficient often requiring third party help to find and secure a buyer. Financial markets can be fickle and the impacts from external influences can devastate value. Regulatory changes and unexpected industry closures are simply two examples of change that can wipe out value no matter how well you maintain and update the home.

Until you sell the home, do the final accounting, and can count dollars in excess of the cost, a home is a liability.
 

Vivy

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Your home is one of the best assets you will ever have. Providing that you bought sensibly i.e. it wasn't overpriced. Or it is likely to collapse at any moment, or you borrowed on the limits of what you could repay. It is only when you have done any of the above it may become a liability. The asset you bought usually keeps up with inflation and in times where housing stock is low, grossly exceeds it. More so if you hold the property for a long time.

This was because they were buying property way above its market value, fuelling even higher prices which then totally collapsed, because they could not keep up the payments when rates rose and very many were left with no home and owing fortunes in negative equity. This is why we tend to see so many renting now, their parents were often some of those caught in the trap. And are afraid of it happening again which it could because people are still buying way over what they can afford. Using one form of a credit to pay another.

If Coronavirus trends in the world continue the way they are, a lot of people will find themselves back in that position of the nineties. But bricks and mortar will always be a top asset if you are wise. Hope that answers your question.
 

Rehema Saina

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Your home is one of the best assets you will ever have. Providing that you bought sensibly i.e. it wasn't overpriced. Or it is likely to collapse at any moment, or you borrowed on the limits of what you could repay. It is only when you have done any of the above it may become a liability. The asset you bought usually keeps up with inflation and in times where housing stock is low, grossly exceeds it. More so if you hold the property for a long time.

This was because they were buying property way above its market value, fuelling even higher prices which then totally collapsed, because they could not keep up the payments when rates rose and very many were left with no home and owing fortunes in negative equity. This is why we tend to see so many renting now, their parents were often some of those caught in the trap. And are afraid of it happening again which it could because people are still buying way over what they can afford. Using one form of a credit to pay another.

If Coronavirus trends in the world continue the way they are, a lot of people will find themselves back in that position of the nineties. But bricks and mortar will always be a top asset if you are wise. Hope that answers your question.
Well said
 

Nocturnal Thinker

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Anything a person owns whether it is by inheritance or by purchase or by donation and the right of ownership is acquired without encumbrance is considered as his own property and that forms a part of his personal or real property.

House is considered as a real property and that is considered as his asset. I own our house which is one of my assets.
 

nangk08

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A house, owned fully by you, is obviously considered as your asset as it is real, tangible property. But if you have taken out heavy mortgages on the house and end up paying heavy instalments to the bank that you can hardly afford, it then becomes a liability.
 

mrki_user

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It would be asset for sure but I don't own it yet. House is great stability in your life. If you rent apartment, you never can't know when owner will kick you out. When you have your house and loan on it, you always know where you will sleep. One concern in life less.
 

iamawriter

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It depends on how one goes about owning it. If one takes loans and does not have the resources to repay then it indeed is a liability. It continues to remain a house and not a home as a home is where peace abides
 
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