Liability or Asset: Is Owning the House You Live in a Wise Financial Decision?

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There is no doubt that Rich Dad Poor Dad author Robert Kiyosaki is likely one of the most well-known believers of the philosophy that purchasing a property isn’t actually an investment unless you very carefully buy one with the sole intention of purchasing a property that is worth the investment. This is simply because a property that you own is actually a liability in almost every possible sense.

The basic difference is that anything that increases the amount in our bank accounts is an asset, but anything that eats away at the money in our bank accounts is a liability. Our houses are considered a liability because even if we have paid off our loan, the cost to constantly maintain them will take money out of our pockets. So OK, yes, in terms of value, a house might be extremely valuable; however, when it is eating out of your pockets every single month, is it actually worth the cost?

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Related: Should You Buy Your Own House or An Investment Property First?

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The Harsh Truth Regarding Maintenance

The sad truth is that when you live in a home you buy, when something goes haywire and breaks, you will have to fix everything using your own hard-earned money and using your own precious time. Honestly, that is hundreds to thousands of dollars and hours (which you will never get back) that you will never be receiving in return since your home simply won’t be able to appreciate in value as quickly as it is falling into pieces.

The Harsh Truth Regarding Tying Yourself Down

In today’s society, there is a movement amongst the members of Generation X and young Millennials to avoid being anchored to a spot by buying a home. Just as Robert Kiyosaki often emphasizes, if you do not buy a home for the sole purpose of it being an investment and you decide to just live in it yourself, the house becomes a liability in every sense of the word.

After all, in addition to cash liability, it also becomes a liability due to the fact that if you purchase a home to live in yourself, you will not possess the luxury of being able to simply move around whenever you wish to. With the growing number of cases where your house won’t sell when you put it back out on the market — or even worse, when you end up owing more on your mortgage the worth of the property — this is definitely a messy situation you don’t want to sink into. 

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The Harsh Truth Regarding Renovation

Sure, flipping has become very popular, thanks to mainstream shows, and now multiple people have begun using it as a seemingly foolproof excuse to spend $20k revamping their property. This may be a good move, but only if you plan on selling the house ASAP. This is simply because if you keep living there, things such as the renovated spaces losing their glam and property taxes rising might just undo all the benefits of your expensive investments.

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

So if you haven’t already noticed, if you choose to rent out a property for another person to live in, this gives almost an entirely different scenario. This is because when you turn your home into an investment only, you will have a rich source of ongoing cash flow depositing into your bank account, and the only thing you will have to ever worry about is maintaining the property (and that is something a property manager takes care of anyway). Having someone else pay your mortgage down is extremely beneficial to you.  

What are you waiting for? Take that rent money, and in a couple of decades, you will undoubtedly reap the amazing benefits. 

What do YOU think? Is it wise to buy a house for anything other than cash flow purposes?

Let me know with a comment!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

47 Comments

  1. James Wise

    I have seen several people write articles taking the stance that renting your own home as opposed to owning it is a good financial decision. That is literally the worst financial advise I have ever seen. Makes zero sense.

    I have even seen some writers go so far as to say owning rental properties is a good idea but owning your own home is a bad idea. How is that even possible to advise someone of that?

    That is like saying the landlord of the home you live in made a good decision to rent his house to you for more than his mortgage so he can earn cash flow while you build him equity, but at the same time it would have been a bad decision for you to own the home and pay the same mortgage which is cheaper then the rent payment and build yourself the equity.

    • Nick Matteson

      I disagree with you, but I also disagree that its *always* a better idea to rent. Any blanket statements are usually oversimplified. As usual, I think the answer to this debate is : It depends….

      In my relatively affordable neighborhood it would take 7-10 years to start break even if you calculate ‘cost to own’ vs. ‘rent’ over time (San Francisco City). I haven’t found a single unit that could cash flow right here if I bought a place, without gambling on appreciation to make up for the monthly losses. Appreciation is a significant wild card in the west coast for sure. I acknowledge that. Its priced into the market.

      But, just saying it’s not so cut and dry of a decision as you are suggesting. If I were to move away from my neighborhood in less than 7 years I have a pretty darn good chance of losing money. I move every 2-3 years on average, based on my history. So, even though nobody can tell the future on appreciation rates, as healthy as they are in the SF city long term, I can bank on losing money if I buy my pad.

      I can however purchase and rent a place out 30 miles away in the East Bay, and cashflow with a healthy +$300 a month. We did just that, and I am a happy landlord and renter at the same time because of our specific situation. (I also don’t prefer to go move out to the far East Bay and save money, because I like ( LOVE ) my neighborhood.) We also own over 50 units split between multifamily and SFR’s and are happily renting where we live since it just doesn’t make financial sense for us to buy here. I do understand our situation is kind of unique, but I would guess that it happens all over the country in booming cities.

      For example a turd of a 2br condo is selling for $850K, and a turd of a house is selling for $1.2million in my very middle class neighborhood. Rents are about $3K and $4.5K respectively. Purchase prices are highly balanced toward equity speculation here, and rents are lagging that, even as high as they are. My experience is quite a bit close to the end of the bell curve, but I am sure across the country there are similar markets. To say its*always* a good idea to buy a personal residence is an oversimplification.

      • Zachary Kurtz

        Nick I’m in the same position living in LA. I keep looking periodically and running the numbers, but I have yet to find anything that makes sense to buy. Actually most of the places I’ve looked at have higher property taxes then my current rent. It would cost me more than double to buy the kind of place I rent currently with less amenities in a worse neighborhood.
        I look at it like this, I could go buy a condo or small house for around 1 million like you said. Even if paid in full all I would have is a house. I would still owe property tax, have to pay utilities, maintenance ( which takes up a lot of time), and all the other surprises that come with owning a home. The kicker is I have spent a million dollars and still have to find a way to produce income to pay my bills. Now if I take that same million dollars and invest it in a solid portfolio of cash flowing rental properties, stocks, and notes I will very likely produce enough income to grow my portfolio and cover all my living expenses.
        I don’t think there is one answer to this question. If I was in Oregon where I went to school and could buy a nice home one a large lot for $200,000 then sure count me in. In our situations however I think renting and buying income producing assets is definitely the way to go. It’s all regional.

  2. Scott Trench

    I’ve written on this topic before as well. My conclusion is that owning a home is generally a huge financial burden that ties down all of your liquid wealth in equity in your property. In many cases, it seems to be worse than renting. This conclusion only holds true, however, in the case of someone going from REASONABLE apartment living, to buying the absolute largest, most expensive home they can possibly qualify for. Sadly, that’s the reality of most American homebuyers it seems, and if you decide to mortgage the entire rest of your financial life for that house on the hill, you will be house-poor, chained to your job, and stuck financially until something else changes (for better, or for worse…).

    On the other hand, if you were to purchase largely the same type of place that you might live in as a renter, you would probably come out ahead in the long run in most major cities.

    The conclusion I reached is that for a reasonable person, buying and owning your home destroys wealth when compared to living for free or being homeless 😉 but it is LESS BAD than renting.

    Now, if you actually want your home to help you BUILD wealth, instead of merely losing wealth at a slower rate, then you’ll need to house hack or do a live-in flip. If you are interested, I wrote on the topic and have a fancypants spreadsheet to compare renting, homeownership, and “house-hacking” here:

    https://www.biggerpockets.com/renewsblog/2015/08/01/pain-free-way-build-wealth-real-estate/

    • James Wise

      Scott,

      I have not read your article but I respectfully disagree with the rationale in your comment.

      Let’s quickly go over a quick scenario.

      Bob buys a house for 100k. He only puts down $3,500 and his mortgage is $800. That $800 includes taxes and insurance.

      Bob lives in his home for 30 years and decides to sell. Bob sells his house for 100k and walks away with $92,000.

      Tom rents a house valued at 100k. Tom spends $1,200 in rent for 30 years. Tom’s landlord sells the house. The new owner wants to move in so he gives Tom a 30 day notice. Tom walks away from the house with nothing.

      30 years after moving in who came out on Bob or Tom?

      You did make the point that a person buying a reasonably priced house comes out ahead and only a person buying an expensive home comes out behind but even that stance does not hold water.

      With only 3.5% down needed to purchase a home at $400,000 only a $14,000 down payment is needed. $14,000 to a person who can qualify for a $400,000 home is a very small amount of money. Hardly ties up any liquid wealth.

      • Scott Trench

        James I think my point is more this – if you were to continue renting the place for $800 per month, you’d probably be wealthier at the end of 30 years than the guy who bought the $400K place with 3.5% down. You went from renting a reasonable apartment to paying a mortgage on the most expensive place you could possibly qualify for. Your mortgage is probably around $3K, and while about 50% of that payment might go to equity in your home over the course of the amortization, the remainder of your payment is split between interest, taxes, and insurance. Even with tax breaks, you’ll probably destroy more wealth living in that home than in the $800 apartment as a renter. That just seems to be what Americans tend to do, and then call it an “investment” – You also pick up maintenance expenses and the other fun stuff that comes with being a homeowner.

        I think that I answer more of the questions and comments you pose here in more depth in the article. I’d encourage you to check it out!

        Obviously, in most cases renting vs buying the SAME property – the owner will probably be better off in most cases. That’s just not what seems to happen most of the time.

    • Bernard W.

      One way I like to think of it is to think of buying a personal residence as a combination of 1) buying that house as an buy&hold rental investment, and then 2) renting it to yourself.

      Now compare it to the alternative of renting the personal residence and investing in something else. Either way you’re paying the same rent, so it becomes a question of whether this particular house is a better investment than whatever else you might be doing with that money (properly accounting for taxes, different financing options, etc).

      In many cases the possibility of low money down financing swings it in favor of the owner occupied, but not necessarily always – a rent controlled or stabilized property, for example, significantly changes the calculus.

  3. Bill Bell

    One additional consideration I did not see included in the article is insurance. Insurance costs on a home can be a huge burden, especially dependent upon where the property is located. Insurance rates are rising extensively and if prone to disaster related insurance such as flood or wind/hail risks, the burden to a homeowner can be financially troublesome when coupled with base mortgage and taxes.

    As a renter, property insurance costs are avoided, and though landlords assume these costs which may impact proposed rental rates, market value drive where rental rates settle, thus as a renter these costs are avoided. Of course expenditures such as failed appliances and/or major maintenance expenses are also avoided as a renter.

    • Brandon Hall

      Everyone says that – “market value drives rental rates” however that doesn’t make sense in regards to insurance as all comparable homes will likely need to meet roughly the same insurance requirements. Thus, if an area is deemed disaster prone, all landlords carry disaster insurance and all landlords pass that cost onto the tenants.

      So in the end, renters still pay for the insurance.

  4. Sarah Ward

    I have read on this viewpoint several times and it does contain merit, but as stated above, only when the alternative is living for free. I like what Scott says here:

    “The conclusion I reached is that for a reasonable person, buying and owning your home destroys wealth when compared to living for free or being homeless but it is LESS BAD than renting.”

    100% on point! I would much rather live in a home that I decorate, own pets in with no deposits, and build equity in without the worry of moving costs incurred when rental rates increase annually. The whole purpose of investing in real estate is to improve quality of life through financial means and owning a home that you personalize is part of the quality of life equation. If I am saving money by couch surfing or living in my mama’s basement, it isn’t worth it to me.

  5. Kyle W.

    The real answer is: IT DEPENDS. It is very situational and I have found myself in the past determining it was better to rent my personal residence while owning several rentals myself, and a few years later moving and it made more financial sense to purchase a home at that time instead of rent.

    In the case where I rented, I paid $275 for a 3 bed 1 bath SFH (rural area) where buying even a halfway decent home would have been over 100k. Renting made sense.

    The second case, the crappiest rentals were $500+ for a small 2 bed 1 bath and in bad shape. Ended up purchasing a house for 28.5k, put in 6.5k and had 35k total investment for a 3 bed 2 bath 1500 sq ft 2 car garage. Buying made much more sense in this case.

    Another factor to consider is something that doesn’t have dollar amount in a sense. When you own your home and not having to report to a landlord, having them enter your home at anytime with 24hr notice, being able to paint, decorate, add on, do whatever you want with the space, have pets, etc etc etc. You must analyze each situation individually and there is no one right answer in this asinine rent vs own debate!

  6. Mike McKinzie

    Hmm, my mortgage is $500 a month and if I had to rent my house, it would rent for $2,500 a month. I can make a LOT of repairs for $2,000.00 a month! Renting would take a LOT MORE out of my bank account than owning! Also, like many others, I have used the EQUITY in the home I live in to buy more rentals, how is that a liability. My Personal Residence IS a bank for me!!

    • Bernard W.

      Of course if the rent is substantially higher than the mortgage, it’s a no brainer. But then, that would likely be a sound buy & hold rental property as well. Sometimes the situation is flipped – for example, some rent controlled apartments in new york rent for much (sometimes thousands) less than a mortgage on a similar property would be.

  7. Chad W.

    We just went through this decision and for us the math said to buy a home here in Sacramento vs. renewing our rental lease which was raised. Yes, there are costs, but even setting aside 25% of the monthly mortgage amount for repairs / renovations, we still save money versus the rent we would be paying on the home we are currently in. Of course we also enjoy the equity, the tax breaks, the “preferred debt” and the ability to stay in one place for more than a year without the price going up.

  8. Alexander Ball

    As stated by many here — it just seems to depend. I am not a professional or experience by any means, but I did buy a house to live in after renting for all of my adult life. However, I bought the house as a quality of life choice for my dog!

    I loved living in the smallish urban college town I rented before, but my lovely pooch never really had the opportunity to run around off-leash. I found a half acre in a lower middle class neighborhood in the country, bought it for cheap, installed a fence, and I get to enjoy watching my little mongrel race around in his own back yard when we aren’t going for long walks in our neighborhood.

    Now that he is getting older, and doesn’t want to spend two hours a day sprinting back and fourth I’m looking to purchase a multifamily and house hack with my girlfriend paying rent and living with me in one unit, while renting out the other unit. My dog just needs leisurely walks on the sidewalk and a bi-weekly slow jog, and it makes more sense for my life.

    If I never had a dog — I’d still be renting in my area. But for me, that would have been the wrong choice. I’ve put 10k into my home since I bought it three years ago, and it has increased by ~35k in value (according to comps). Even considering the financing, closing costs, removing costs, etc, I’m still coming out at least 7-8k ahead after living somewhere for 3 years.

    I did hate my commute everyday, so, there is that.

    It seems like this choice really depends on every single individual. What is good to think about, however, is that this is an OPTION, that it COULD be the best thing for you and your INDIVIDUAL situation. If you had asked me 5 years ago if I thought that renting for more money could ever be better than owning for less, I would have never agreed. Now I see how that could make the most sense. What if I am offered a job across the country for 30k more a year, but my house keeps me from moving. Then your home is costing you hundreds of thousands of dollars over your life time in opportunity costs alone!

  9. Julie Marquez

    I grew up in a nice home in a nice neighborhood that my parents owned. I believe they wanted something good for our family. So it all depends on what you want, and what you are willing to deal with.
    I never knew the term “househacking” until I came to bigger pockets, but my parents have been doing that for as long as I can remember. We always had the basement mother-in-law apartment rented out, and that made sense to me to help pay the mortgage, and allow us to afford the home (while the invested in lots of other real estate). Interesting debate, as it all hinges on what you want.

  10. Mike S

    It’s absolutely a liability but you have to live somewhere. I see owning a home as lessening my loss. At least I get some principle pay down, tax benefits, and appreciation. I get to do basically whatever I want there too.

    Things are situational for everyone though. I’m a municipal firefighter so my job won’t be moving anytime soon and the local economy has been strong every through the recession. If I was a job hopper I would probably rent.

  11. Colin Smith

    Unless you’re planning on moving within 2-3 years, there is no reason why renting would be better than owning from a financial standpoint. Rent should always try to cover the mortgage, taxes, insurance, vacancies, property management, maintenance, capX, and still cash flow. That means as a renter you have to pay ALL those expenses. Some would argue renters aren’t paying maintenance and capX, but let’s face it, the landlords are using your rent to pay for them. When you own you’re still paying all of the above expect replace mortgage with interest. You should in theory see your principal again which makes it a forced savings account. Then on top of that, your house should, in theory, be appreciating in value while you can use the house for tax deductions (interest and depreciation). So in no way does it make more sense to rent over owning. Another way to look at this is if you were stay in your home for 10 years there is a very good chance that your rent has gone up, however, you’re mortgage would still be exactly the same assuming it’s fixed.

    The only way I see renting as a more viable option is if you plan to move within 2-3 years as appreciation and mortgage pay down may not be enough to pay for all the closing costs involved when selling a home.

    From a non-financial standpoint, I do see other reasons to rent over owning… Ability to be transient, less stress over things breaking, and maintenance. However, I think one could easily make the argue that the amount of money saved would be enough to cover the expenses and have someone else do it for you at a reasonable rate.

  12. John Negomir

    Resort towns are a possible exception to owning, along with other areas where the majority of rentals were purchased far below current market values and the landlords are not depending on the income to generate a profit at current market values. Cost to purchase in those areas is driven by scarcity and buyers who are not dependent on local wages, yet rents are generally somewhat dependent on local wages. With appreciation a landlord or owner occupant can still make a good case for investing, but occupants with a shorter horizon can also make a case for renting.

  13. Rodney Kuhl

    Although I don’t necessarily disagree, I think it depends on the person and how you utilize it. We purchased our home in Fishers, IN in Oct of 2013. It was our first property we purchased, and how we got interested in real estate, so we don’t have any regrets about purchasing our home. Additionally, we have built up equity through mortgage pay down and appreciation that we were able to take out a $31,000 HELOC, which we plan to use to purchase more rental properties — we’ve somewhat turned a liability into a potential asset.

  14. Frankie Woods

    Asset – property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies

    Liability – the state of being responsible for something, especially by law

    I don’t think you can win this agreement when you live in the home you own.

    Even if you are free and clear, you will always be responsible for property taxes (in one form or another), insurance, electric, sewer, etc. on the property; all of which have the ability to place liens on your property. Thus, you will always have a responsibility for the property.

    On the flip side, if you are a smart investor, which I automatically believe most of the readers here are, I would think you would purchase your own home in the same manner as you would purchase a rental: significantly below retail regardless if it needs work or not. Hence, even without significant appreciation, the home should have equity in the case of a sale and provide a means to meet certain debts.

    Bottom line: I believe it’s all about how you go about purchasing the home. The purchase doesn’t have to be a bad decision if you do it right. As many have already state, you have to live somewhere anyway. Unless you are incredibly lucky or insanely creative, you will be paying someone to have a roof over your head.

    Loved the discussion this article brought!

  15. Chad French

    It’s simple: rent the home you live in, rent out the homes you own. Wealth builds by leveraging liabilities to create income. You can argue it every which way but the fact of the matter is you aren’t building as much wealth AS YOU COULD by owning a liability that doesn’t produce income.

    This is like getting a $100k credit card and spending it all on personal expenses, but in order to use it, you have to pay extra fees on top of the interest: credit card maintenance fees, credit card insurance fees, credit card tax fees. The smarter thing (not necessarily the right thing) to do would be to use that $100k credit card to buy assets so it can pay for the liability plus income on top.

  16. Jude Hughes

    This is a terrible idea, unless you plan to be homeless. As long as you buy your house at the right price and only buy as much house as you need, you will be fine.

    This article does not account for the fact that you need a place to live, and will be paying rent elsewhere. Paying someone else’s mortgage and covering their CapEx and cash flow.

  17. craig e.

    It takes a savvy investor to buy and live in a primary residence and ultimately make more than they would have had they rented it out (and rented themselves). Many variables to consider (totality of circumstances) and a lot of work to do on the front end and during ownership to make this a reality. Plenty of us here have figured out how to do it and are much happier for doing so.

    These articles seem to be written for the retail buyer, not savvy BP members/ investors who know or will learn how to come out ahead in this situation. It serves as a call to all buyers to perform the necessary due diligence before buying a primary residence.

  18. Lukas koube

    The problem with articles like this is that you get fought in an awkward position of saying real estate is a good investment, but home ownership is not. Just imagine that you are the tenant in the home you own. You are still cash flowing, but you are putting that cash flow right into your pocket.

  19. Adam P

    I am a renter with a few investment properties. I like to treat each property I purchase as a pure investment (typically in B class areas), and I prefer to live in A-Class downtown condos. The rent on an A-Class downtown condo is barely break-even when compared to owning.

    I don’t want to assess my home for investment potential. I want my home to be wherever I choose to live, and invest my money in real estate that will make a profit.

    Should I ever live in an area where rents outperform mortgages, I will buy. But from what I have experienced, a single $500k condo will rent for $3000 a month. 2 x $250k multiunit investment buildings can often rent out for $8000 a month.

  20. Bryan Drury

    About 15 yrs ago my wife and I were planning to build our dream home on the family farm.I had a wise old uncle that told me beforehand that the problem with your own home was that it didn’t generate any income.He also told me not to build a castle because it wouldn’t make us any money.Did I listen? It went one ear and out the other until about 7 years ago.We built a McMansion on the hill.About 2000 sq ft more than needed.We can pay and maintain it but it would be nice not to have to.We’re getting older and want somebody else to do that.
    So enter BP, and the concept of house hacking.It took awhile to convince my wife but after seeing success in SFH she relented.We rented out a basement room last year and it has been successful.The wife said easiest money she has made.So weather a house is a liability or asset depends on a lot of circumstances.But,hats off to my Uncle Jim and his advice,I learned from him and he was fine man.Thanks

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