Is Your House an Asset

Is Your House An Asset?

Financial advisers argue that your house shouldn’t be included in the calculation of your net wealth because your house does not generate any return on the investment. In other words, your home provides security but not an income. You can’t eat your house.

Your house certainly appreciates in value and if it’s your principal place of residence, it is Capital Gains Tax free on sale of the property. If you sell your home, you have the choice either to use the money for investment purposes or to roll it over into another residence, in which case the opportunity to invest is lost. Of course, it is possible to use part of the sale proceeds and capital gain for investment purposes.

Excluding reverse mortgages, it is generally accepted, in financial terms, that a house is not part of a person’s net worth. However, there is another way of looking at your home. Superannuation has two stages, the accumulation stage, your contributions, and the income stage, where the accumulated super is returned in regular payments, for example as an allocated pension.

If you think of your home in a similar way, then in the early stages of life, ‘the getting ahead’ stage, the equity in your home can be used as security for investment purposes, particularly for investment in residential housing.

Financial Institutions consider residential property as first class security. It’s even better than cash in the bank, because the lending authority can take a mortgage over the property offered as security.

Using your house as security allows you to leverage into investments that you may not otherwise be able too. Under these circumstances, your house becomes an asset that can contribute to the wealth-building phase of your life, with proper risk management.

However, as with superannuation there comes a time when you move from the accumulation phase and at this point, it may no longer be appropriate to use your house as security. When this occurs, your house no longer contributes to your earning capacity and ceases to be a ‘financial’ asset.

For many people, using their home as an asset in the accumulation stage of their lives assists them to become financially secure, or even independent, by the time it is appropriate for their home to revert back to ‘non asset’ status, in financial terms.

This is not advice. The article is for general information purposes and to create awareness of the issue only. Readers should seek independent advice before taking any action. John Maher produces the property magazine Inside Property WealthTM, is a registered practising valuer and a Fellow of the Australian Property Institute. John can be contacted through http://www.insideproperty.com.au.