Why Your House is a Liability, NOT an Asset

why your house is a liability

Your house is NOT an asset

Chances are you’ve heard someone at some point utter the phrase “your house is your biggest asset”. Seems legit, after all home ownership is the American Dream. But the reality is, your house is a liability, perhaps your biggest, depending on other financial  factors. When you purchase a house to live in you begin to incur inevitable expenses.

What are assets and liabilities

Before we can understand why your house is a liability, we must first learn what both assets and liabilities are. In simple terms(because simple is always better), an asset is something you buy that generates income. Things like rental properties, businesses, royalties, or affiliate  The latter, liabilities are the opposite, things like cars, clothing, electronics, boats and generally anything that cost money to maintain and/or generates expenses. These terms, and the ability to identify such are fundamental on your journey to financial freedom.

Why your house is a liability

Now that we know these terms let’s think about home ownership in all its American glory. You find the house of your dreams. You make an offer, get financing, and everything runs smoothly. Let’s look at the expenses that you are now responsible for. There the mortgage, insurance, taxes, lawn care, and repairs. All of these expenses are taking chunks of your income. In the unfortunate event you lose your job, these things will likely become unsustainable, and the home may likely end up in foreclosure.

How a house can become an asset

On the other end of the spectrum, real estate used as an asset, is one of the best ways to generate passive income . Let’s take the same example from above, however, instead of living in this house, we make it a rental property. There will still be expenses involved such as the mortgage and insurance, but by renting this out for an amount greater than the expenses, a profit margin is created. Now the rent – mortgage, insurance, and taxes = profit. That same house, that was once a liability, is now generating income rather than extracting it. Not only are you now generating a passive income, but you are also paying off the home over time. You can always convert your house to an asset from a liability by moving out and turning it into a rental, the way I did when I accidentally started building passive income. The most important thing to remember is that you always want to own more assets then liabilitie

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  1. […] Now before you rag on me for accepting a verbal offer, I want to just say in my defense, at this point I was new to this, no one ever thought me anything about real estate. But back to the story, the guy who was buying my home arranged to meet me the following Monday to sign the contract, I set up an appointment with a title company and was excited that I was a bout to move into my dream home. Unfortunately, my luck doesn’t usually work out as well as it appears, when Monday rolled around I did not hear from my buyer, I gave him a ring and was sent to the voice mail. WTF! He was just talking to me all every day. I called over the next few days probably somewhere near 30 times, this guy was obviously avoiding me. I hate unreliable people. Saddened, I decided to call Phil and tell him that I wasn’t going to able to get my dream house. Phil asked why, I explained to him what I had been through. Phil then suggested getting a loan, “my credit sucks” I said, but Phil had an answer for me, “what about a hard money loan?”. A hard money loan as I learned, is private loan through and doesn’t involve banks. Phil had a hard money lender named James that he introduced me to. Phil told me as long as I had 20% down  he would approve me and didn’t care about the credit. I just had to make interest only payments and I had 3 years to make a balloon payment. I could come up with the rest in 3 years, this sounded like a good plan. Now I wasn’t relying on selling my old house and I was able to move, but what was I going to do with two houses. The answer almost came like clock work, I could rent it out to cover the monthly payments while I saved up for the balloon. I didn’t realize it then but I was laying the pavement to the road to retirement. I listed my home on craigslist for rent for $650 and found a tennant immediately, I was happy I was now generating $650 per month without doing anything. I was building passive income. The payments rolled in like clock work and I was able to cover my payments which were $475 a month and still saving $175 toward the balloon without any work. This random chain of events was crucial and a staple in the beginning of my career as a real estate investor, this is how I accidentally started building passive income. My home was now an income generating asset, and no longer a liability. […]

  2. […] Now before you rag on me for accepting a verbal offer, I want to just say in my defense, at this point I was new to this, no one ever thought me anything about real estate. But back to the story, the guy who was buying my home arranged to meet me the following Monday to sign the contract, I set up an appointment with a title company and was excited that I was a bout to move into my dream home. Unfortunately, my luck doesn’t usually work out as well as it appears, when Monday rolled around I did not hear from my buyer, I gave him a ring and was sent to the voice mail. WTF! He was just talking to me all every day. I called over the next few days probably somewhere near 30 times, this guy was obviously avoiding me. I hate unreliable people. Saddened, I decided to call Phil and tell him that I wasn’t going to able to get my dream house. Phil asked why, I explained to him what I had been through. Phil then suggested getting a loan, “my credit sucks” I said, but Phil had an answer for me, “what about a hard money loan?”. A hard money loan as I learned, is private loan through and doesn’t involve banks. Phil had a hard money lender named James that he introduced me to. Phil told me as long as I had 20% down  he would approve me and didn’t care about the credit. I just had to make interest only payments and I had 3 years to make a balloon payment. I could come up with the rest in 3 years, this sounded like a good plan. Now I wasn’t relying on selling my old house and I was able to move, but what was I going to do with two houses. The answer almost came like clock work, I could rent it out to cover the monthly payments while I saved up for the balloon. I didn’t realize it then but I was laying the pavement to the road to retirement. I listed my home on craigslist for rent for $650 and found a tennant immediately, I was happy I was now generating $650 per month without doing anything. I was building passive income. The payments rolled in like clock work and I was able to cover my payments which were $475 a month and still saving $175 toward the balloon without any work. This random chain of events was crucial and a staple in the beginning of my career as a real estate investor, this is how I accidentally started building passive income. My home was now an income generating asset, and no longer a liability. […]

  3. […] prefer to try to eliminate the need to exchange numbers with guest, to keep this as close to being passive income as […]

  4. […] prefer to try to eliminate the need to exchange numbers with guest, to keep this as close to being passive income as […]

  5. […] is real estate in the form of rental properties can be extremely lucrative, and an excellent asset that generates income. When you talk to people about rental properties the response normally falls in to one of two […]

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