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Question:


I’ve heard arguments on both sides. Please settle it: Is a home an asset or a liability?
-LouivilleLad


Answer:


It could depend on how big your mortgage is. If the value of your home exceeds the amount you owe on it, then it’s an asset, at least as far as accountants are concerned. If you’re underwater, well, there’s a reason they call it that. If you owe more on it than its resale value, then you’ve got negative equity and it’s a liability.
 
Or maybe you were referring to assets and liabilities in a metaphorical sense. The responsibilities of homeownership and the pressure to hang on to what you’ve got can seem to turn an asset into a liability, but this is more of a psychological matter than a financial one.
 
The key issue may not be whether a home is an asset or a liability but whether or not it should be thought of as an investment at all. The last few years have been the grimmest in several decades for the residential real estate market, but it seems that people got into the most trouble when they started thinking of a home as a tool for making a quick score through flipping; used creative financing and/or a low down payment to buy more property than they could afford or arranged a home-equity credit line and treated their home as a four-walled ATM.
 
Homeowners who bought a property that they could afford and bought it with the intention of living in it for a long time are mostly doing all right. If you don’t consider your home a financial asset, you may improve the chances that it will turn out to be one.
-Conrad de Aenlle



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