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Asset Or A Liability

Is Your Home An Asset Or A Liability?

The much debated topic of home ownership, I see questions floating around on Quora and Facebook asking if the home you live in is an asset or a liability? Some argue it is an asset if there is equity, others argue it is a liability because it doesn’t produce income. So who is right and who is wrong?

In my opinion, the home you live in is both an asset and a liability. This isn’t my way of avoiding the question, but it is my way of looking at real estate.

My First Primary Residence

I purchased my first house when I was 21. New mortgage payment was more than double what I was paying in rent, and the potential rental rate of this property was less than half of what the mortgage payment was.

I bought myself a big huge liability.

The only potential win for this property was if the overall real estate market went up in value. Unlike investment real estate which is valued based off the income it produces, single family homes are most often valued based on comparable homes in the area.

Unfortunately with my first house, within the first year of ownership the value went down from $230,000 to $190,000. Lowest value was in $150,000 range, maybe even less.

This lesson proved to be invaluable and had I not gone through this experience, I may not be as savvy of an investor as I am today.
The timing was also perfect. Had I bought a year earlier, which would have been 2006, I may have owned several homes before the 2008 market crash which would have been even more devastating to my finances.

My Second Primary Residence

I am one of those people who believes that failure is a stepping stone to success, so I took that first house epic failure and changed my strategy on the next personal home buy. This time, I focused on what I could do to make the next property I purchased to live in both an asset and a liability.

So I bought a duplex to live in. The mortgage payment was around $1,400, and the other side was renting for $900 so my mortgage payment was only $500.

I knew that once I moved out, my unit would rent for at least $900 so I would actually make $400 per month in cash flow.
This spurred a whole new decision making process for me that has changed the way I look at the homes I buy to live in.

I lived in the duplex for a year, and was able to save up a substantial amount of money while my real estate career was just taking off.

To this day I still own this duplex and it currently cash flows $967 per month

My Third Primary Residence

My third primary residence purchase after the duplex was a custom home on acreage. I knew this one was severely undervalued. The price that I could buy it for was less than the cost to build it, and the market was in a recession.

I also knew that I could rent it for much more than what the new mortgage payment would be. The mortgage was only $2,000 per month yet fair market rent was $2,400.

Note: I had an adjustable rate mortgage at 2.65% fixed for 7 years which helped keep the payment low.

We purchased this house at the foreclosure auction, sight unseen in 2011 and sold it in 2016 for more than double what we paid for it 5 years earlier.

We decided to sell because it required too much upkeep. 9.5 acres was a lot. Weekends were for field work. It included pulling weeds, mowing the grass and constant watering and fertilizing. It just didn’t fit our traveling lifestyle.

We decided instead to build a house further south on less acreage. This could take up to a year. We made a decision to move out and then to sell.

Renting seemed like the most logical decision since we would only need to live somewhere for a year, but we would have been spending between $2,600 – $3,000 per month in rent…

Doing the math that would be $31,200 down the drain for an entire year of renting.

My Fourth Primary Residence Purchase

I had to find another option as I just couldn’t wrap my head around paying that much in rent. I decided to buy an entry level house in town. My plan was to convert it into a single family rental after we moved out, but it had to cash flow.
We found the perfect place in less than a month. A 4 bed 2 bath single story home in with a huge detached shop. It was being remodeled by a builder client of mine, and he planned on having me list it for sale once he was done. I instead offered to buy it for what we would have listed it for, and he agreed.

The purchase price was $310,000 and I put 10% down for $31,000 out of pocket, which is the same as I would have spent in a year of renting.

We lived in that house from May 2016 to July 2017 and ended up spending $20,124 in mortgage payments.

Our new tenants are moving in on August 1st 2017 and are paying $2,400 per month in rent, so our monthly cash flow is $723. These tenants have no need for the detached shop, so we plan to rent that out for an additional $500 – $600 per month, bringing our total monthly cash flow to $1,223.

In 25 months we will be completely repaid for our initial down payment on this property.

My Fifth Primary Residence Purchase

I have to admit, going from a 3,000 sf home on 9.5 peaceful acres to a 1,600 sf house on a 9,500 sf lot in town was tough. The year went by pretty fast, and we were really excited to move back to the country.

Having been unsuccessful in finding land to build on, we finally found a great option on 1.25 acres just outside of town.


The new house met all of our criteria (listed below) and it included a detached hot tub room, which we converted into a home office, saving $495 per month in an office bill that I was paying.

We also have the option of keeping it as an Airbnb, hosting outdoor events, converting a huge detached carport into a shop with an apartment, turning it into an assisted living facility or an adult family home (It’s a 4 bedroom rambler).

Now that I’ve given a few examples of how I flipped my strategy for buying personal homes to be more of an asset than a liability, I want to share my break down on what I look for exactly.

The rents must be the same or higher than the new mortgage payment.

Back to the age old question: Is it better to buy or to rent?

My very simple answer to this:  if you can own a home (and afford to make necessary repairs) for less than what it would cost to rent that home, then it makes sense to buy.

The benefits of tax write offs and the flexibility of renting the home later and letting the tenants pay it off is greater than renting for years and paying off someone else’s mortgage.

Where I think most people go wrong is they buy a house where the mortgage payment is higher than that house could ever rent for (like I did) and their only winning strategy for this property is future appreciation.

They could also be stuck with this property if they want to move and the market has gone down (like I was).

It must be a value add opportunity.

Examples of this would be a detached shop or garage that could be rented out or a mother-in-law apartment. Even a 4 bedroom rambler is pretty rare. It could be eventually used for senior housing.

Large lots offer a value add opportunity for future development. Anytime I see an in town property on an over 10,000 square foot lot, I run math. I crunch the numbers to see if the cash flow metric is met. If so I run the numbers on future development.

The purchase price is less than the replacement cost.

A home is built using commodities. Those commodities are copper wiring, lumber etc. Those commodities will always have a certain value.

In recession periods home values go down. In the last recession many homes were on sale for less than their cost to build or replacement value. This is a great indicator of value.

These days it is harder to find properties that meet this criteria, though in some Midwestern cities it is still possible.

There should be multiple strategies for income and exit.

An exit strategy is always a consideration when it comes to deal analyzing even if I know I plan on a long term hold. I look for opportunities in splitting off units (usually in the form of a condominium project), tearing down and building new, selling to an investor, selling to a retail buyer (owner occupant) and selling shares in an ownership entity.

If a property only has one winning strategy, like in the case of my very first purchase, it’s likely not a great deal.

In conclusion..

You can create an entire portfolio building strategy out of buying properties as a primary residence and converting them to rentals later. This strategy keeps you focused on buying properties that will be a future asset in your portfolio.

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About the Author

Jennifer Beadles

I’m Jennifer Beadles, and together with my family, we are living the day-to-day of a financially independent family thanks to our rental properties.

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3 thoughts on “Is Your Home An Asset Or A Liability?”

  1. Great post Jennifer! Thanks for sharing your experience.
    Another big advantage of using an investment mindset in primarily homes is the generous tax treatment for the sale of primary residences. The first $250k (if single) or $500k (if married) of capital gain is tax free if you meet the qualifying conditions (readers: check with your CPA for info).
    Thanks again for sharing your experiences. I’ve always found it disheartening when people get dogmatic on the debate. Technically speaking, like you said, it’s both an asset (the structure and the land) and a liability (any loans you have on the property). Each investment should be considered individually. There is no one sized fit all–the hard work needs to be done with several hours researching and spending time in Excel.

    1. Avatar photo
      Jennifer Beadles

      Thank you Greg, and I’m so glad you brought up the potential for a capital gain exemption on the sale of primary residences. I had left that huge benefit out of this post and we were able to personally take advantage of that on our primary residence sale last year.
      You are spot on that real estate is not one sized fits all. There are multiple different strategies and ways to invest depending on a persons goals, time frame and desired lifestyle.
      As always you are a wealth of knowledge!

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