The Internet of Things (IoT) is an emerging paradigm focusing on the connection of devices, objects, or “things” to each other, to the Internet, and to users. IoT technology is anticipated to become an essential requirement in the development of smart homes, as it offers convenience and efficiency to home residents so that they can achieve better quality of life. Application of the IoT model to smart homes, by connecting objects to the Internet, poses new security and privacy challenges in terms of the confidentiality, authenticity, and integrity of the data sensed, collected, and exchanged by the IoT objects. These challenges make smart homes extremely vulnerable to different types of security attacks, resulting in IoT-based smart homes being insecure. Therefore, it is necessary to identify the possible security risks to develop a complete picture of the security status of smart homes. This article applies the operationally critical threat, asset, and vulnerability evaluation (OCTAVE) methodology, known as OCTAVE Allegro, to assess the security risks of smart homes. The OCTAVE Allegro method focuses on information assets and considers different information containers such as databases, physical papers, and humans. The key goals of this study are to highlight the various security vulnerabilities of IoT-based smart homes, to present the risks on home inhabitants, and to propose approaches to mitigating the identified risks. The research findings can be used as a foundation for improving the security requirements of IoT-based smart homes.