Home ownership is cornerstone of the American dream and is a sign of success. Home ownership is also viewed by many as an investment vehicle due to the expectation of continually soaring home values. But in recent years, due to changing economy realities and also social norms among other reasons, a lot of assumptions surrounding home ownership are increasingly coming under question.
A key debate revolves around whether people should rent or own homes. Those who are against renting say that rent is a drain and not an investment while those who are for home ownership see it as an investment vehicle. But on close examination, both a wrong viewed from the asset/liability prism.
An asset can be defined as anything which creates a positive cash flow and generates an income stream while a liability is the opposite.
In Rich Dad Poor Dad, Robert Kiyosaki argues that home ownership is not necessarily an asset or investment because at the end of each month a negative cash flow exist. Thus, depending on how things are structured, how ownership is actually a liability due to all mortgage cost and also cost associated with the house.
But if things are structured correctly, a home can be turned into an asset. For example, owners of duplexes can rent out the other half in the hope of generating enough money each month to cover their mortgage payments while possibly reaping a profit. With the rise of Airbnb, almost every has the chance of turning their property into cash cows. Even if you rent and don’t own a home, you can always Airbnb where you live depending on how the landlord is receptive to that. Even, though that option might be unrealistic up to a point, it shows the possibilities which exist when it comes to using Airbnb to turn where you live into an asset.
Misunderstanding of issues to do with assets/liabilities when talking about housing comes down to misunderstanding as already pointed out. This has wider societal consequences because an understanding of this distinction can be carried over to other financial areas. In debates around so-called income inequality in society, a key driver is a misunderstanding of what assets and liabilities are. In many cases, for those who tend to be on the higher end of the income spectrum, their assets outweigh their liabilities while many people who are not on that end of the spectrum tend to have their liabilities outweighing their assets.
In housing decisions, a good understand of concepts to do with assets and liabilities is key. With that knowledge, things can be arranged in such a way that a net gain happens and home owners have a passive source of income.