Is Your Home an Asset or a Liability? My View
September 17, 2021
Is your home an asset or a liability? My answer is that a home can be an asset even when it doesn’t produce a monthly income. But that doesn’t mean every home purchase is a good investment, or that the equity in it is the same as accessible cash.
In my September 2021 video, I disagreed with the familiar claim that your home isn’t an asset because it takes money out of your pocket. I understood the point about cash flow, but I thought the statement was too narrow. My first homes played an important part in building my property portfolio.
The useful discussion is what the home is worth, what you owe, what it costs and how you use it. Those questions tell you much more than choosing one label and treating the argument as settled.
You can watch my original discussion of whether your home is an asset for the personal examples behind my view.
Separate the asset from the borrowing
A home has a value and can form part of your assets. A mortgage secured against it is a liability. The difference between the property’s value and the debt is equity, before allowing for the costs and any tax associated with realising it.
That balance-sheet view is different from asking whether the home puts money into your bank account each month. A property can have substantial equity while requiring regular spending on finance, maintenance, insurance and other bills.
I think both views are useful. If I look only at the value, I can underestimate the cost of living there. If I look only at monthly outgoings, I can ignore the financial position created by owning the building and reducing or holding the debt over time.
The disagreement in the video was really about that narrow definition of an asset. I didn’t want somebody to dismiss homeownership’s potential role in their finances simply because it doesn’t operate like a rental property from day one.
My first home became part of the investing plan
I bought my first home in 2010 for £176,000. In the video I described it as a three-bedroom house and explained that I rented out the two spare bedrooms while living there.
That changed how the property worked for me. It provided somewhere to live and brought in income that helped with the mortgage and bills. The spare rooms weren’t sitting unused while all the costs depended solely on my other income.
By the time of the 2021 video, I estimated the house’s value at around £425,000. That’s a historical valuation I discussed, not a current appraisal or a completed sale price.
The difference between £176,000 and £425,000 is £249,000 before considering costs, borrowing and tax. I wouldn’t describe that entire difference as cash profit received. The property was still part of my finances, and accessing its equity involved further decisions.
Lodgers changed the cash-flow picture
Taking in lodgers was a deliberate choice, not something every homeowner will want to do. It involves sharing your home and considering whether that arrangement suits your life and the property.
For me, it helped create a useful starting point. In the video I described the income as contributing to the money that later supported another purchase. That was part of how the first home became connected to a wider investment plan.
Anyone considering a similar arrangement needs to check the relevant mortgage, insurance and legal requirements, as well as tax. The government’s Rent a Room Scheme guidance explains the conditions for the relief; it isn’t something to assume applies to every type of letting.
I’d also consider the practical side. Privacy, shared facilities and expectations matter. A possible financial benefit doesn’t mean the arrangement is right for every household, and I’d want that decision made honestly rather than solely from a rent calculation.
Refinancing helped fund later purchases
I explained that I refinanced the first property and used released funds towards subsequent investments. Rental income and further refinancing then contributed to the way the portfolio developed.
That is how I connected my first home to later purchases in Didcot and elsewhere. The house wasn’t merely something that rose on paper; I made decisions that used its financial position to support other assets.
However, the money released through refinancing was borrowing. It wasn’t a tax-free profit simply because it appeared in a bank account, and it came with interest and repayment obligations. A larger mortgage changes the risk as well as the available capital.
I wouldn’t copy the old video’s low borrowing-rate examples into a current decision. Finance needs to be assessed on the actual terms available now, and the proposed investment return remains uncertain even when the loan payments are contractual.
My second home later became an HMO
The next personal example was a Didcot property bought for £399,000. By the time I recorded the video, I described it as a six-bedroom HMO with an estimated value around £525,000.
I discussed rent of about £4,200 a month and cash flow in the region of £2,000 a month at that time. Those were my historical figures, not a rent promise or a current operating statement for the property.
The significance was that a former home had become an income-producing investment after I moved out. Its role changed. The property needed to be considered in the context of its permitted use, conversion and operating costs, rather than as an ordinary home with a label attached.
I wouldn’t infer from that example that any family house can simply become a six-room HMO. Planning, licensing, safety, finance and suitability all need checking. The personal history explains what I did, not a shortcut around the work another investor would need to undertake.
The portfolio developed through decisions, not ownership alone
In the video I reflected on how much of the portfolio could be traced back to buying those first homes, renting rooms and using equity. I saw the early purchases as the beginning of a sequence of opportunities.
That doesn’t mean buying a home automatically leads to a property portfolio. I made further choices, accepted borrowing commitments and put time into investing. Someone else may own a similar home and choose a different path for perfectly reasonable reasons.
I think it’s important to preserve that distinction. The home gave me a platform, but I still had to decide how to use it. The later results weren’t an automatic entitlement created by completing the first purchase.
My property investment planning approach is about connecting those choices to an objective. The question is what you want your finances to do, not whether you can reproduce somebody else’s history step for step.
A planned extension isn’t a completed investment result
The video also included a proposed major extension to my family home. I discussed spending around £500,000 and expecting a much larger increase in value. That was a plan and forecast at the time, not proof that the work later produced the projected outcome.
A development budget can change, and an anticipated valuation may not be achieved. Even where an extension improves the home, the cost and resale value need to be assessed separately from how much the family enjoys the extra space.
I’d therefore avoid adding that forecast to completed historic gains and presenting the total as money already made. It belongs in a different category: a proposed use of capital with its own risks and potential benefits.
My article on refurbishment mistakes explains why spending and value creation aren’t interchangeable. A home can be an asset while a particular improvement is still a poor financial investment.
Your home doesn’t have to generate income to matter
There is also a personal purpose to a home that shouldn’t be ignored. Stability, space, location and being able to live in a way that suits your family have value even when they don’t create rental income.
I don’t think it helps to pretend those benefits don’t exist because they can’t be entered neatly into a cash-flow spreadsheet. Equally, valuing them doesn’t mean the purchase price and ongoing commitments stop mattering.
I’d look at both sides. What does the home provide, and what does it require? Is the mortgage manageable? Is there money for maintenance? Does the purchase leave room for other priorities, or absorb almost everything available?
That approach allows a home to be a worthwhile personal choice without claiming it is the best possible financial investment. It also allows someone to rent by choice without treating them as having failed an investing test.
Be careful about borrowing against where you live
Using home equity to invest can increase the range of opportunities available, but it also connects the investment decision to the security of your home. That is a material commitment, not simply moving spare money from one account to another.
I’d want to know how the extra payments would be met if the new investment disappointed. I would also consider the effect of higher rates, a change in income or a delay before the investment produced rent.
My buy-to-let mortgage guide explains the importance of assessing the finance properly. The fact that another property has done well in the past doesn’t guarantee the next one can service additional borrowing.
In the original video I was enthusiastic about using equity productively. That enthusiasm needs to sit alongside a clear understanding of debt, reserves and the consequences of a less successful outcome.
Ask what role the home should play
For me, the answer to “Is your home an asset?” is yes, it can be. My own first homes were important assets in the way my property journey developed. But that answer alone doesn’t tell you whether to buy, refinance, take in lodgers or turn a former home into a rental.
I’d start with the actual value, debt, costs and household needs, then assess any proposed change on its own merits. Equity creates options, but choosing which option to use is the real investment decision.
If you’d like to discuss how your housing position fits a wider property plan, book a free 30-minute call. You can also explore the Starter Club or find out about Done For You.