Why the House You Live in is Probably a Liability, Not an Asset

by | BiggerPockets.com

Robert Kiyosaki (author of Rich Dad, Poor Dad) is possibly the most famous person to say it, but is bears repeating: Buying a house is not an investment unless you do it very, very consciously with the express purpose of buying a home worth investing in. A house that you live in is a liability in every sense of the word. Sure, it might be the most valuable thing that you own, but when it costs you money month after month, is it worth it?

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The Reality of Home Appreciation

According to Robert Schiller, author of a book about the housing bubbles called Irrational Exuberance, the average total inflation-adjusted annual Return On Investment (ROI) of homes between 1890 and 2012 was…0.02%. That’s a rate worthy of a checking account, not an investment. And when you sell a home you were living in, you have to buy a new home, which means even if you’re downsizing, you’ll see maybe a third of what you originally spent in actual liquid money.

Related: 12 “Hidden” Real Estate Expenses That Blindside Investors

The Reality of Inflation, Rent, and Property Taxes

People like to say that rent increases with inflation. That’s true — but property taxes almost always outpace inflation, which means the longer you live in a home, the more likely it is that your property taxes are going to outpace what your rent would have been.

The Reality of Maintenance

When you rent an apartment and something breaks, it’s either going to be:

  • Something you can fix yourself for $20 and the time it takes to get to Lowe’s and back, or
  • Something the landlord will fix on his dime and his time spent.

When you own a home, you fix everything, on your dime, using your time. That’s many thousands of dollars and many hundreds of hours that you don’t get back because your home isn’t appreciating as fast as it’s disintegrating.

The Reality of Renovation

When the concept of flipping became popular, lots of homeowners used it as a great excuse to drop $30k renovating their home. “After all,” they said, “This will increase the resale value more than it will cost!” That is absolutely true — if and only if you sell the house immediately.

If you continue living in the house, a few things will happen that will negate your “investment in your investment.” First, property taxes will rise and you’ll end up paying for that added value. Second, you’ll use the renovated spaces, and their glisten and gloss will wear off just like it did on the rest of the house.

The Reality of Tax Deductions

In 2010, there were significant tax breaks for first-time homebuyers that could make a strong argument for people with certain kinds of income to buy a house. But all that ended in 2011. Today, if you’re not an investor (with an expert accountant in your pocket), the tax breaks are hard to find and hard to notice when you do find them.

Related: Don’t Forget To Budget For These 3 Overlooked Expenses

The Reality of Being a Real Estate Investor

If you haven’t figured it out yet, being a real estate investor — owning a home that someone else lives in and pays for — is pretty much exactly the opposite scenario. When you turn a home into a source of active cash flow instead of owning it for the purpose of having a roof over your head, the only one of these points you have to worry about is being on the other side of the “maintenance” coin… and that’s what a property manager is for.

So go ahead and buy that house you’ve been saving up for — and keep renting your apartment while you let someone else living in that house. Take the money you would have spent on maintenance and renovations and use it to further your investment portfolio. In 30 years, your bank balance and your stress level will thank you.

Investors: Do you agree with my assessment?

Leave your comments below, and let’s talk!

About Author

Drew Sygit

Drew is the manager of Royal Rose Property Management, a fairly high-tech solution for Detroit Metro area property owners & investors.


  1. Hmm everything we spend money on is a liability. The food you eat is then a liability, but would it be the same eating on $5 , $15 or $50 a day, of course not but we gotta eat. I think eating with less than $5 a day makes you por in anway that you arenmissing out on other foods, so my guessbis that your miserable life is a total waste and you would be a cancer to yourself. Then again we have to draw a line where spending food is affordable and healthy for everyone. Would it be $10 to 25 a day maybe. But then again if that number is $25 for most people then we have to agree that anything over $25 a day that we spend daily is just liability. Same thing goes for a roof. Can you spend $700 a month? Or $2000 ? Anything over the norm would mean is a liability. Kiosaki says is a liability because its the fact but its like saying you as a fact that you will die in this millenium… you know that the day you were born you would die one day, why live then? Because the simple fact that we live and die, we live to pay for food, clothes, or food. If you are in a type of business that requires to have expensive clothes which do you think is more of a liability? A $50 used suit or $500 one?

    • My personal example.
      2010 i was paying $900 for an apt in rent, which was okey, but there were things i didnt like, cars were vandalized from time to time, no yard etc ..
      2012 we bought a home .. $1400 a month

      2015 we are buying second home $2600

      I think we have a liability of $1600 a month rather than the whole 2600 since we have to pay rent somewhere. Then again if i move to a place where i pay rent less like $200 a month that would be a liabily to my health and life.

        • Frankie Woods

          Andy, I too use your “personal example” for evaluating the “return” of my primary residence. I generally take the difference from the mortgage payment and the rent I would pay for a similar property. I then lump that in with the other normal factors that go into calculating a return.

          As a military member, many of the properties that I own have at one time been my primary residence. These properties generally do not meet the 1% rule. However, we you take into account the “rent” I saved by living in them for the 2-4 years; and lump in the rental income thereafter, I have made out quite well.

          Happy investing!

        • Stephen S.

          Yes. Which makes the more important question: Which liability(s) can be gotten rid of? Versus those which are necessary. An unavoidable liability can’t really be counted as a negative.

  2. Leann W.

    Very new to this site. I’ve never thought that owning a home was a “liability”. That being said, I will add that some folks make poor decisions about buying a home… that never pays them back (in realized appreciation, down the road) because they overspent on the property in the first place!

    Also, if you overspend on renovations…. you’re screwed. Owners always need to be realistic about what the payback will be should you decide to turn around and sell after all your reno effforts. HGTV shows like Love IT or List IT, steer people into areas of unrealistic expectations, I believe.

    We renovated the kitchen in a 1960’s waterfront property I inherited, but we did alot of the work ourselves- painting the original cabinets, and tile work backsplash… but decided against granite and when with a granite look formica countertop. Saved thousands. People are always surprised.

    • Stephen S.

      Sure but sometimes I just want it for no other reason than I want it. And my feeling is: what did I earn the money for? Living a Life is always going to be the superior investment to me.

      I wanted to build a solar system for my house. I am still tweaking it. Will I ever break financially even on it? Not a chance. I’m sure I’ve had ten different heating and cooling systems in my house. Why? I felt like it and I enjoyed building them. I’ve had oil, propane, natural gas, geothermal, wood, and now solar. Oh; and electric heat. I’ve put things in and I’ve torn them out when I changed my mind. I built a pyramid shaped convection wood stove that I dreamed up – for just my Cost on the project I could have bought something off the shelf. And for far less I could have just turned up the thermostat for the central system.

      Was it all a bad investment? Not to me. It’s like asking if a few weeks in Paris was a bad investment.

      I’m not arguing with you – do what you want. Do what makes you happy. I just can’t tally everything on my ledgers in cash.


  3. Stephen S.

    I would like to see Mr. Schiller’s data – what he used to calculate that 0.02% ROI. And also to know if his calculations added back in the un-paid rents resulting from living in the house that you own.

    1890 was a nice year but why didn’t Mr. Schiller use something more applicable to us now – such as 1945 – as the start-date?

    I’m not looking to pick a fight here but I am reminded somewhat of Twain’s comment regarding lies. He said that there are three kinds of lies in the world.
    1. Lies
    2. Damned lies
    3. Statistics


    • Good news Stephen, you can indeed see Mr. Shiller’s data!

      He is looking at the real price appreciation of houses, this does not take into account any cash flows associated with owner-implied rents. His message is just that, over the long run, you can expect your house to increase in value at about the rate of inflation. It is not at all sensitive to the start date. The big outlier comes after 2000, in the charts he provides you can see the historical context of a bubble forming quite clearly.

  4. Mike McKinzie

    At first, I thought this was a April’s Fool Post! The whole idea that “if something makes you money it is an asset and if it cost money, it is a liability” is reducing ALL of life down to ONLY MONEY. How sad is that? Take a car for instance, it COSTS money and it MAKES money (taking us to work, etc.) A college education costs money but you gain skills to make money. I don’t want to cause a rift, but there is so much empirical evidence to contradict the authors premise that I find the blog more fiction than fact.

  5. Eva Salas

    I have been reading Kiyosaki’s books for approximately 10 years, and do understand the concept of a home being a liability. When we moved in to our new home 7 years ago, we had visitors stay a lot, mainly my husband’s family, and we had 2 guest bedrooms for their use.

    A couple of years ago, I started renting out 1, then both of the guest bedrooms, (mainly to temporary and commuter tenants who stay a few nights a week.) This has turned my “liability” in to an asset to some extent, as the rents cover the mortgage and utilities each month.

    Our visitors now sleep on a blow-up bed in my office!

    • Erin N.

      I think you’re really getting at the meat of Kiyosaki’s teachings. I read Rich Dad, Poor Dad in my early 20s. I wasn’t able to follow his advice at the time….long story. Now I have the freedom to do it, and this is where I’ve gotten in 5 years.

      Year 1 – Rent townhouse (750 sqft, at the beach) for $750/mo plus $200/mo utilities. It was costing me $950 to live every month.

      Year 2 – Get married 🙂 Move into duplex that spouse owns. (our side 800 sqft. Working class neighborhood). Collect rent $1075. Pay PITI $575, Utilities $425, allot $161 maintenance/vacancy. Now it’s costing us $86/mo in rent and utilities.

      Year 3 – Buy 4-plex at the beach. Keep duplex. Live in one of the 4 units at the beach (800 sqft). Combined rent from both properties – $6650. Combined expenses PITI $3379, utilities $975, $982 allotment for maint/vac. Now we pay no rent/utility expenses and pocket $1214/mo.

      Year 5 – Buy huge 5000sqft estate at the beach with pool. Rent guest house and half of the main house. Live in 2000 sqft. Keep both other properties. Combined rent $11,325. Combined expenses PITI $6983, Utilities $1325, Allotment for main/vac $1668. Now we have a nice, big house that I love. At the beach with a pool. And we pay no rent/utility expense and pocket $1349/mo.

      I had beat it into my own head that I needed to purchase assets, not liabilities. That meant I couldn’t buy a house to live in that cost me money out of my paycheck every month. I actually don’t think I could ever buy a house the “normal way” now that I’ve done it this way for the last 5 years.

  6. Christian Bors

    This is turning into a fascinating discussion. I am all for life is about experiences and you can’t place a numerical number on that. However, I am a firm believer that a personal residence is a liability. I would love to have the luxury of installing multiple heating systems and driving a m3 Beamer, but I can’t justify spending money on something like that. Also, my bank account won’t let me haha. Buying a personal residence is definitely worth it, however buying the multi million dollar house might not. At this point in my life, and maybe for the rest of my life, I always try to make logical decisions. Justifying careless spending with experiences is a poor excuse for making a bad investment.

    • Drew Sygit

      CHRISTIAN: the point of the article was to get people to understand a home is rarely a “great” investment because it is a liability. If one understands that and buys within their means, they can usually have disposable income to actually invest in their future.

  7. Ed L.

    This whole concept falls apart because not owning a home doesnt alleviate the need for housing.

    The 15 year note on my home is only $1250 per month including taxes and insurance. Nice new 2000 sq ft house in town. Purchased in 2008 for $175,000. Appraised last jan for $205,000

    A comparable 3/2 apartment would easily run $1500 per month.

    Comparing rent vs buying at those figures is a no brainer.

    After 5 years

    I will have saved $15,000 in rent payments.

    accrued $40,000 in equity.

    saved approximately $6,300 in tax writeoffs for mortgage interest.

    0 rent increases except for relatively small tax and insurance increases.

    If home values keep pace with 2% inflation I will have a potential gain of $17,500. Tax free.

    That’s almost a $80,000 advantage to owning in just 5 years compared to renting. I think I can afford to pay a plumber or hvac technician every once in a while.

    That’s putting zero value on not sharing walls with neighbors. Zero value on having a private yard. Zero value on being able to have a pet, change a paint color, or make any improvements to the house.

    Of course these number can all change from market to market. In Palo Alto, ca it wouldn’t make much sense to buy. In 90% of the US it’s probably a idea worth considering.

    • Mike McKinzie

      It all comes down to YOU HAVE TO LIVE SOMEWHERE! If renting is a better financial option because it is just too expensive to buy, then fine. But to make a blanket statement that owning your own home is a liability just because that equity might be working better for you in another investment is narrow minded and short sighted. Like the old Mastercard commercials, some things are PRICELESS! Like Ed Lee stated, the benefits of owning your own home are many, probably the most of which is IT IS YOURs!!

    • Andy Gross

      I agree with Ed’s argument, but I would caveat that there are entry/exit costs when purchasing a house, such as realtor and closing fees.

      Even if a house isn’t an investment per se, it is a way to mitigate your cost of living over the long term.

      • Drew Sygit

        ED, MIKE & ANDY: the point of the article is to show the average homeowner that their castle isn’t usually the great investment they think it is.

        Yes, you have to live somewhere!

        If you want to invest in real estate though, you need to really look at the home you live in and understand the opportunity costs associated with it. Once you understand this you can begin (hopefully) your journey to be a true investor — which is someone who makes their money work for & support them, as opposed to the masses that are working for money.

    • Lol I was thinking the exact same thing! It’s the dumbest idea ever.
      If you are renting you are paying someone else’s mortgage and in most cases and then some!
      It’s a liability if we see living with having a roof over your head as an avoidable cost.
      Shoot just buy a cheap van and live in all life.
      This article and idea is insane.

      • Drew Sygit

        How would your financial worlds change if you could rent your current home out for enough to cover the mortgage/taxes/insurance/maintenance on it AND have enough left over to cover the rent on a home you found acceptable to live in?

  8. Kyle Hipp

    I definitely agree that one’s personal residence is a liability. It is irrelevant that we all need to have a place to live as that doesn’t change the fact that it is a liability. A vehicle is also a liability but in both cases choosing how to fill that need can make a lot of difference. I just spoke with a girl a couple years younger than me (27) today who was seeking advice on what vehicle to lease next. I stated that leasing a vehicle is the most expensive way to operate. A car salesman immediately disagreed, stating that if folks are looking just at monthly payments it can be cheaper. Gave me a chuckle but the girl said she is completely ok with having a car payment for the rest of her life. We all have the choice on where we want to spend our money.

    I bought our first single family home just over 2 years ago. We have put roughly $40,000 in cash into the property in those two years. We moved the kitchen, took down a wall to make it larger and have a more open concept feel and turned the old kitchen into the first floor bedroom. Rearranged the side entry. Painted the entire interior, stained the original cedar shake exterior on the upper of the exterior and replaced the lower wood lap with vinyl. All new energy efficient vinyl windows, blew insulation into the walls. Installed an interior drain tile system in the basement with a sump pump and finished off the basement along with adding a 3rd bathroom in the basement and an 5th sink in the house in the basement laundry room. We did a ton of landscaping, added a firepit area and that still has a bit to go with bringing in a decent amount of dirt. Also built a new 12′ × 18′ with a 6′ wrap around deck off the back. My favorite project about 2 weeks after moving in was taking down the old 1 car garage and installing a new 24′ × 26′ garage with 9 ‘ ceilings and extra storage in the attic pushed back to the back of the lot with a new cement driveway.

    I could have done a lot more with that $40,000. If I hired out that work I would have easily spent $80,000 but we have probably gained $50,000+ in value. However we didn’t need all that. We could have stayed in out cramped 1 bedroom lower of my first duplex but momma is happy, and so am I (albeit tired). I chose to spend my money on this house not because it was a wise investment but because I wanted it.

  9. Brandon Stevens

    The author makes a few valid points and many many many times uneducated homeowners buy homes on a 30year note live in them for 5 years and then sell only to realize little to any appriciation and are lucky to break even after paying fees. When you and up typical homeowner costs over those 5 years they almost certainly lost money whether they want to acknowledge it or not.

    We see it everyday, we buy houses from these people everyday knowing they didnt make a dime or lost money…In which case the author is right, in general terms the home was a liability.

    I suspect most of us on here are simply smarter than that, even when it comes to our personal residences, we buy in an up and coming area, we buy homes we can add value to, we don’t use 30 year notes, etc… Our homes are purchased like investors.

    This article should probably talk more about the correct way to buy a home not bash home buying in general.

  10. Obi Tagbo

    There’s this thing called unavoidable fixed costs in life… these things aren’t liabilities. You would have them regardless.
    Renting is like buying food from the local mom and pops store. They buy it from wholesalers who buy it from farmers etc vs growing your own food or raring your own cattle.
    If you rent, you are paying someone else’s costs…. all the costs and argument that’s displayed in this article applies to the “apartment” you’d be renting… only difference is you pay for them and get NOTHING back.
    You get 0 equity, no tax breaks and a lot less flexibility.
    The best argument this theory has is – buy a property and rent it to yourself… which Ironically is the same thing as having a mortgage.
    The only benefit renting has is the option of moving and the flexibility of not being anchored down.

    • Holden Latimer

      Of coarse shelter is an unavoidable cost of living just like eating, and just like eating you can have a wide range of costs associated with that expense. You can chose to have steak & lobster or burgers and fries just like you can chose to buy or rent. To state that the only benefit of renting is mobile flexibility is overly simplistic.

      Depending on the market in which you live there is wide range of costs associated with ownership vs renting. If you live in expensive markets (California, New York, etc.) there can be a very real/logical argument made for renting. Also, maintenance costs are vastly different when comparing owning and renting. Anyone who tells you it is cheaper to own a home probably never has owned and doesn’t factor carrying costs like maintenance. Sure you build equity in ownership, but that is only after putting up a large down payment and paying carrying costs. Also, appreciation is no guarantee and your home could actually go down in value (see 2008).

      Anyway, I do not respond with the intent of telling people owning a home is bad. Eventually I plan on owning a standard home as well but only after I can afford to make that choice 😉

    • Drew Sygit

      Please create a Profit & Loss Statement (not a balance sheet) for your home and then tell us all if it’s an asset or a liability! Who’s closer to financial freedom, the person who understands what their home’s financial status really is or the person who is ignorant of this?

      Knowledge may set you free and open your eyes to new ways of looking at things – if you chose to.

  11. Raj Patel

    I agree with some of the posts above . I think people lots of times buy a house too expensive. If you do that and not have assets that keep paying you income then you are going to be in wrong direction really fast. if apt in the area you live in costs $800-1000 then buy a house where is the payment is around $1200 or so not $2500-3000 where there is a big shock of payment. Also this way in few years with rent increases in the apt you would probably pay about the same and now you can be in plus with appreciation and mortgage paydown. As more years go and rents keeps increasing your home will look better and better and if you get a 15yr mortgage or so then after 10-12 years it looks great since if you do decide to sell your home you will get some good money back even if its only the mortgage that you pay down. I don’t think your landlord will pay that back. you have to live within your mean that you have and build assets and improve the situation and then can buy nice homes like few posts suggested. if you live in ok apt then buy an ok looking house just because now that you want to buy a home don’t buy a grand style home because then you are creating the liability. I think its just a matter of choice because liability and assets are all about money so just work out the numbers of year 1 to year 10 year 15 etc.

  12. Holden Latimer

    I don’t think the author is arguing that owning a home is necessarily a bad thing. Referring to a home as a “liability” may give a negative connotation but if interpreting the word in the general sense of referring to something that costs you money (aka as the term is used outside of the world of finance), than it is a “liability”. I think a better term would be “expense” and without question shelter is a necessary expense.

    The post rather, challenges the thought process of viewing your personal residence as an asset. If you define an “asset” as something that is generating current income, then your personal residence does not qualify as an asset (unless you are renting a portion of it). Again the argument seems to arise from how one defines “assets” and “liabilities”.

    Without question everyone needs a place to live. If you are looking to minimize your monthly expenses than the choice to rent vs buy will be determined by the market in which you live. In expensive markets you may still decide to own, but this will be a choice of personal preference rather than a choice to minimize your monthly living expense.

  13. Anna Watkins

    Sure, Drew’s statement is true as all get out, from his perspective and place in his life. If I were just starting out, no kids, no responsibilities, and wanting to get to a place where RE is my sole income, I’d be all over buying a rental and renting a home. It makes tons of money sense. That’s not where I am in my life, so his “liability” is a “reasonable cost” for me — I have teenagers (talk about liability!!! 🙂 and a W2 job I really like. I own a non-luxurious house in an area that’s crazy popular, and appraisals and taxes keep going up, but the benefits (neighbors, schools, equity line, and proximity to work) are assets to me. Before kids, I would have moved into any one of my rentals in a heartbeat, but House-hacking isn’t a way that I want to live, at least now, so I’m not moving us into a multi-family, no way.

    Liabilities and assets all depend on the goal. Wish I could get my kids interested in real estate — then THEY could buy a rental and rent a home!

    • Drew Sygit

      ANNA: what a home is on a Profit & Loss Statement has nothing to do with one’s perspective or place in life. It is an Accounting fact.

      One can also be asset rich, but cash poor.

      Have you ever played the Kiosaki Cash Flow game? Shows how you need cashflow to cover your living expenses so you can escape the rat race and be a passive investor. Maybe something to play with your kids to get them interested in real estate.

  14. Steve Vaughan

    Great arguments! Thanks for posting this accounting fact, Drew! When I first read RDPD, it was a thought shock to me, too. What do you mean my home isn’t an asset? Sure it’s something you can sell for money, but does it pay you to own it? In my case the answer is not yet.
    I consider my reasonable mortgage payment as cost of living (rent anyone would need to pay), and the separate mother-in-law apt rental income (about 25% of sqft, $800/mo) covers the taxes, maintenance and insurance +. When my ‘rent’ drops to 0 in a few years with mortgage pay-off, this will truly be an asset. The rental income should always more than cover the cost of ownership with no debt-service.
    I hope more people can locate a house like this. It’s not a typical multi-fam. It is a comfortable family house that happens to have a rental in the lower corner. Weeks can go by without even seeing the renters. I would recommend looking for one in your area. Query ‘mother-in-law apt’ and have your home truly be an asset!

  15. Alright so I had bought a home for my family back in India and I live in Chile (South America). I pay half of my salary in debt repayments and rest I pay rent & food expenses here in Chile. I am very tight on expenses and this whole situation really stresses me out sometimes. I sometimes feel that I made a huge mistake buying a home for my family. I really can’t understand how to deal with it. Should I sell the house which I bought back home or should I let things go how they are going. Can someone help me with my situation, I will be really grateful.

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