By: Duane Duggan | At Home Colorado
Most people consider their single-family home they live in as an investment in real estate. In fact, when they fill out a financial statement, it is even listed as an asset. It’s true that the home will likely go up in value over the years, and as the loan is paid off, it could represent a significant part of a person’s net worth. However, in the truest sense of the word, the personal residence is really a liability rather than an investment.
Think about it: for your home, you are paying the mortgage payment, taxes, utilities, maintenance, etc. It all adds up to a pretty good amount of money being expended each month with no money coming into the equation from the property. It really is a liability.
Now think of a single-family rental property. If you have an amortizing mortgage on it and the rent pays the mortgage and expenses, each month you build equity via principal reduction. Eventually rents go up and the property becomes free and clear. It produces cash flow that you can use for buying groceries or daily purchases, for example.