There are very compelling arguments for why your house, as well as other “assets” are in fact, not assets at all, they are liabilities. For the purpose of this article, I am focusing on why your house is not an asset.
When you purchase shares of stocks, that money is considered an investment. This type of investment appreciates in value and can be considered an income producing asset. Your money is working hard for you.
When you purchase a home, you live in it, you pay the utilities, repairs and maintenance, insurance, and property taxes. Slowly you build up equity (ownership interest) however, this “asset” is not income producing. In reality, you are bleeding money. The equity you build in your home is not working for you. Instead, you are essentially putting money into a savings account earning 0% interest. Furthermore, the tax breaks you receive through owning your home do not offset the total costs. Appreciation in home value is not guaranteed (Great Recession). Location is touted as the most important factor when figuring out what to buy but, neighborhoods change for better or worse.
The lesson here is not to avoid purchasing a home. The lesson is to be aware your house is not an asset because it does not produce income. Remember, there is a possibility that you lose money on the purchase.