Your House Is Not an Asset

Your House is not an Asset

Your House Is Not an Asset

It was a shocking revelation when someone said that Your House is NOT an Asset. Then I happened to read this book Rich Dad Poor Dad by Robert T. Kiyosaki, who also said the same thing. My mind was numb with this statement.


What is an Asset?

For quite a long time, I believed that everything I owned was an asset. My car, my motorcycle, my stereo, my PlayStation, my computer, and of course, MY HOUSE!

Why do I believe that? Its because I have been taught that way my whole life. My father and my mother said the same thing. My high school economic teacher said the same thing. My college teachers (well, they don’t have a professor degree) also said the same thing.  It made me believed that everything I owned was an asset.My Car is not an asset

It is partly true that everything I own is an asset at least, from an accounting point of view. Bookkeeping, for example, will always put everything that I own in the assets column. If I owe something, they will be put in the liabilities columns.

So here is the kicker. You’d think that when you pay off your mortgage, you don’t owe anything to anyone for the house. You own the house. But that’s not necessarily the whole truth.

You still owe things for this house.

What does Full Paid Mortgage House Ask For?

  • Insurance
  • Renovation
  • Water and Electricity Bill
  • TV cable
  • Internet
  • Lawn Care and Landscaping
  • Property Tax
  • Neighborhood Security
  • etc.

There are a ton of things that your house will ask from you and they will all cost you money. I have heard that a neighbor filed a complaint because his neighbor did not keep their lawn beautiful. Sounds crazy, right? But you can waste your time and money for a complaint like this.

So my simple understanding about an asset is: Assets will give you money while Liabilities will take your money away.

In the above case, your house takes your money away. Your house is not an asset!


My House Value Will Rise Over The YearsYour house is not an asset

You don’t know property investment, Arief! My house will increase in value and I can sell it to make a profit!

You are right and you are wrong.

You are right because…. Your house value will rise over the years. But compared to what? If you are comparing it to the price when you purchased it then you are right again.

But there are other factors that will make you wrong.

You are wrong because…. The main factor for this is inflation. Your money will lose its value with the increase of inflation. Do you remember how much a chocolate bar was 10 years ago? An ice cream cone, perhaps? How much do they cost now?

In Indonesia, while I was in elementary school (this is 30 years ago), I bought a bowl of meatballs for Rp100,-. Today, it costs Rp30,000,- a bowl. That is a 30,000% inflation! It is a 1,000% inflation per year.


Isn’t Inflation Good for The House Price?

Yes and No. (Why do you keep answering like this?)

Yes. Because a house is a good instrument to hedge against inflation. The house price will increase accordingly to the rate of inflation. Even the house might do better than the inflation rate.

No. Because a house is just a good instrument to hedge against inflation. (Hey! Isn’t that the same answer?). It is not only your house that will increase in value but the whole property industry. It means when you sell your house, you might not be able to buy another house and make a profit. Unless you buy a smaller and cheaper house.

That’s why I said that a house is a good hedging instrument against inflation. Your money on the house retains its value over the years.


I Can Flip The House for a Bigger House.

Oh yes, you can. If you have appraised your current house and the price has doubled, even tripled, from when you first signed that mortgage. And now you are thinking about getting a bigger house, this is totally possible.

The new appraised value will make a down payment really easy. You just need to pay the new mortgage and you have a new house. A bigger house! Yay!!

Now you have a bigger liability! Congratulations!

You have a:

  • Higher mortgage payment
  • Higher insurance rate (because of your house value and your current age)
  • Bigger lawn care expenses (It is a bigger lawn, right?)
  • Higher electricity bill (A bigger lawn needs more lightings, right? How about heaters during winter?)
  • Etc.

I’m not saying that you shouldn’t enhance your life. I am just saying you should consider what you think about an asset is.


Invest for Cashflow, not Appreciation

Do you remember when the house market bubble crashed during 2007-2009? The subprime mortgage crisis?Positive cashflow is important

If you bought a house during its peaked price in 2006, you would have “lost” a lot of money. The housing price has not yet returned to its glorious days in 2006. If you need money immediately, you would have to sell the house under the market price and you’ll “lose” even more money.

That’s why you need to invest for cashflow. A positive cash flow will add money to your pocket.

Your house will always give a negative cash flow unless you don’t live in it and rent it out.

Invest in yourself first. Financial education is a must nowadays. You cannot think with an outdated financial knowledge. I really recommend you to read some of Robert T. Kiyosaki’s books.

Start with Rich Dad Poor Dad. Add Cashflow Quadrants and Guide To Investing after that. You will find new perspectives on your personal Financial Statement.


Final Words

If you still don’t believe that your house is not an asset, try not paying the property tax. The government will come as fast as a hungry wolf pack. They will confiscate your house in a blink of an eye. Your house is not an asset.

Educate yourself!

Please leave your comments and questions about your house or your asset down below!

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12 thoughts on “Your House Is Not an Asset

  1. Hi Arief

    Yes you are so right, when you have a house it comes with many liabilities that often people don’t think about. If you are renting and for example the geyser goes you just call your landlord and they sort it out. If you own your own house all these unexpected expenses belong to you.

    Yes insurance will probably cover most of that sort of thing, but then you need to pay your insurance costs and not having insurance if you own a house will just be dumb.

    I loved your answers by the way, very often things are not simple and the answer is yes and no…. it is not black and white that’s for sure and you’ve made that very clear.

    It still want to own my own house though.
    The reason for this is that the rental we pay each month is equal to what we would be paying on a mortgage. But after 5 years what do we have to show for all those rental payments? Nothing at all.

    1. Hi Lynne,

      People should really know the differences between assets and liabilities. Your house still can be an asset if you have a room or a garage that you rent out. But most probably the total cashflow will still be negative. Unless you really have another house that is fully rented out.

      You should get your own house, Lynne. You said it yourself. The monthly rent is equal to pay a mortgage. Go find your house! Just remember to put this house in the “liability” column.

      ps: Accountants! I know that a house should be put in the asset column. Just read the whole article again why I said to Lynne that she should put it in the “liability” coulumn.

  2. I grew up learning from the society that buying a house is an asset. Especially in our country that if you have an expensive house, everyone’s conclusion is you’re rich. In some ways, yes it’s really is an asset for those naive eyes. But one should consider it as a liability when it’s not generating income. Unless, you’ll be renting it out for extra money. Same thing applies to luxury cars too.

    1. Hi Krisnan,

      You are so right. People has been misled by the assumption of having an asset. Your big house if not generating income, you should treat it as a liability. You have to have other assets to maintain your house’s liabilities.

      People should learn more about this subject.

  3. Thank you for the insights Arief,
    I’ve been thinking the same thing, but not as crystal clear as this. Thank you again.

    I live in Norway, a country full of people earning a lot and a need to show their bank account through very large, expensive houses. Of course, some of them have to sell it, it gets too expensive. As you stated clearly (I’m not an accountant), a house is a liability with a possible cashflow adjustment through the increasing value. Some even call that an investment.

    The most incredible stories I’ve heard are people building their houses on lease (more or less). I don’t know how they do that, or if it’s the right term for it, but it’s not just the house, it’s also everything inside. How would that be as a solution to improve the cashflow?

    Hope to hear from you, Arief.
    and again, thank you for the clarity.

    1. Hi Odd Helge,

      People tend to show their riches by having a large house and a luxury car. But most of them actually can not afford such a lifestyle. People should really learn about their personal cashflow.

      If the house increases in value, it really does not mean that you are getting richer. The hard truth will knock you down when you need to sell the house immediately. In an emergency, people will always sell the house UNDER the market value. That is why I can’t say a house is a good investment (if you are hoping for an appreciation).

      An asset always put the money in your pocket, not to take it out.

  4. I can definitely resonate with this statement. The older I get, the more I learn what the truly important stuff in life is. Your friends and family are an asset, your life experiences are an asset, everything else is kind of just, “stuff”

    This is just one of the many reasons I support and follow the tiny house movement. I think that once we learn to ‘let go’ of things, it’s only then that we truly learn to appreciate them. Great read.

    1. That is a great point of view, Mike. Friends and families are the most valuable asset. “Stuff” will be just stuff.

      Even though I want to move to a bigger house, I am actually content with my small apartment. I can afford all the bills and still have some left for savings and investments.

      Some of the tiny house movement example houses are really beautiful and inspiring. It made me feel that my small apartment is way too big now.

  5. You have hit the nail right on the head! I am a real estate agent in Adelaide South Australia and I have been working in a market where the house prices have been steadily declining for the past 3 years…INCLUDING MINE! Everybody gets so used to thinking that their asset will only ever increase…it’s not always the case. I have met many people who thought their asset would get them out of strife only to find there is no equity to refinance and they are forced to sell…usually for a price which will not even pay out the mortgage…BUYER BEWARE…it’s rough going in the Real Estate World at the moment!

    1. Hi Steve.

      Same thing also happens in Jakarta. Property price is on a stagnant for half year already. Some areas already see the decline.

      You just can’t think that your house is an absolute asset.

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