Homes are the most common (and most expensive) assets purchased by Americans. By 2006, some 69 percent of Americans bought homes, up from only 44 percent in 1940. Homeownership has been — at least until the advent of the subprime mortgage crisis last summer — an easy road to amassing wealth. From 2000 to 2006, the average price of a home in the United States soared 56 percent.
When considering the wealth created from the recent housing boom, it’s really tough to argue that purchasing a home for the purpose of resale wasn’t a good strategy in 2006. In fact, I didn’t even own a home before this time, so I missed the opportunity in making a small fortune.
But times have changed. Flipping houses for profit is a technique that has lost it’s luster. This technique forces owners to rely on the resale value of their home, which is unpredictable in a typical market. If you own a home and you are unable to sell it at a profit, you’re stuck with the loan payments. This is risky, and it’s the reason why owning a home (that doesn’t generate rental income) is a liability. It’s costing you money to hold the property, when you could be using that money to create income from another source.
The idea of a house being a liability comes from reading Rich Dad, Poor Dad by Robert Kiyosaki and Sharon Lechter. It’s a New York Times best-seller, and one of the most valuable personal finance books on the market. I recommend reading this book to anyone who is serious about investing.