Is your home a liability?

Is your home a liability? It is dependent on several factors

Is your home a liability? In recent times, there has been a repeated argument on the subject of how a home you live in is a liability or an asset. This debate is not new, and would probably endure as long as there is the real estate business.

Some of the most common arguments are that “People investing in homes are losing money’ or that ‘Instead of buying a home, stay in a rented one and use the money to build more houses for others to buy from you.’

While it is fair for everyone to have an opinion, its equally wrong for them to preach their opinion as fact without clarifying the details and side factors that also matter.

So instead of rationalizing the argument with a counter argument/opinion, I will rather have us think through it and decide for ourselves.

I will start with what I know,

‘Every property can be a liability if not bought wit sense, managed appropriately or left to chance’

Going by the Oxford Dictionary, liability is defined as

1. the state of being legally responsible for something.
2. a person or thing whose presence or behavior is likely to put one at a disadvantage.

For purposes of this article, the second definition applies more than the first but they are both appropriate. And if we are to equate this to having property as your home, then it infers that for your home to be considered a liability, it means that it is now serving at a disadvantage and in money terms, it is costing you more than you can or should be paying for it. And I will come back to this because it is an issue to contend with.

Here are a few logical ways that your home is costing you more than it should or you should be paying for it or by living in it.

1. Is your home a liability? The answer could be yes if it is expensive to live in (rental value) – If you are not the owner, would you be able to pay the amount that your property should be earning you? For example, David is a single father of three kids who are all abroad now, yet he lives in a 6-bedroom duplex that he is hardly ever present in. His work requires him to travel a lot so it’s just the house help and security guards who are there.

He has a hotel apartment in Abuja that he goes to for work – it’s a smaller apartment that he owns and it’s and serviced too.

For David, living in Lagos is a rare occurrence and mostly during the holidays, of which in most cases he is paying for the house servicing through what should be his savings (business is not as good or stable anymore).

• The cost of living in that area is high considering your lifestyle. Examples here include the fact that there is no good supply of electricity, so you are always running a generator OR the roads are bad and you have a low standing saloon car or a saloon car that is sensitive to certain factors like ‘needing to swim’ on your way to work and after it rains.

• Its maintenance is beyond your current finances – and to this point, I am not talking about the fact that the person is not earning enough or more than they used to. But I am highlighting the fact that at some point in time, you have more needs gnawing at your income so certain things need to be tweaked.

Now if you note the points listed, all of them as standalone points do not make for your home to be a liability but when coupled or considered alongside others they could rate as liabilities.

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Accepting that there might be outlier situations where all or some of these points would apply but still not make the property become a liability would include:

1. The fact that the property is a source of equity release being used as funds for another income generating opportunity – also present on the premises. So instead of paying rent elsewhere you are saving that extra cash expense by being covered as a part of the risk-mitigating expenses also because you are more accessible to the business by being closer.

• The property is paying for itself in rent – you might have the opportunity to rent out certain parts of the property to other ‘tenants’ in which case you are not solely responsible and the charges that come are either shared or paid in full by their costs. Yet you and your family enjoy the privilege of being in a space you know and created.

• Last but not least is the fact that you might not be a 9-5 worker and thus have very unstructured salary or cash inflows. If you are renting an apartment, this would be hard for you to manage as there will be times that paying rent might be a problem. However, if it’s your house, then you don’t have that as an emotional or psychological effect on either of you or the family.

Now, let’s hear from you. Do you consider owning your home a liability or an asset? Let us know what you think.

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