Is Your House an Asset?

“Managing your own property can be a full-time job.”
– Robert Kiyosaki

Is the house you stay in an asset? Or is it not?

This might be an important question to ask as one’s views towards their properties can greatly influence their actions and management of the related finances, which is more often than not, a hefty sum of money.

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To begin, here are some reasons why some people might argue that their houses aren’t assets.

No #1: It Does Not Generate Revenue

So what exactly is an asset? In the business world for example, making money is undoubtedly a key objective for any company.

If you are in the business of making/selling shampoo for a profit, then the machines used to make the shampoo are your assets as they are necessary to earn revenue for you.

However, the house that you stay in does not earn revenue for you. No income is brought in by sheer virtue of owning a piece of property.

Unless you rent a room out or something, your house isn’t a money-making machine or a cash cow.

No #2: It Constantly Incurs Expenses 

Rather than putting money in your pocket each month, it actually takes money out regularly. Electricity bills, replacement of furniture / appliances to mention a few.

Not to forget one of the largest expenses which is the mortgage. Many would even classify these installments as liabilities spanned across many years to come.

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On the flip side, there are some reasons for people believing that the houses they own and stay in are assets:

Yes #1: Prospect of Value Appreciation 

This could be a contentious point depending on where you reside and the nature of the property market etc.

Nevertheless, some home owners believe in the long-term prospect of the house appreciating in its value faster than the rate of inflation – and might intend to sell their houses for a profit in the future.

In similar light, investors like Warren Buffett views his stock investments as assets the minute he buys them, and generally intends to keep his holdings for a very long time.

And he doesn’t pay too much attention to the short-term fluctuations of the market.

Yes #2: An Intangible Asset 

The business world would associate intangible assets with things like patents, trademarks or even brand recognition (http://www.investopedia.com/terms/i/intangibleasset.asp).

However, some home owners might see their houses as intangible benefits in the personal sense – It is a home.

Security, comfort, the association with family and loved ones etc. are among various intangible benefits that can hardly be given by a hotel or a short-term rented apartment.

Kinda hard to argue against this point.

Conclusion

So what say you? Do you think it’s an asset?

Personally, I don’t have an answer to whether the house you stay in is an asset. And I don’t think its right or wrong to think either way.

More importantly, whether one chooses to see the house as an asset or not, there are some points that are crucial in terms of managing the related finances:

a) Diversify & Create Other Assets Columns

For myself, an average person who isn’t a property guru or some sort of equivalent, I think that pouring everything into a house to reside in may not be the best thing to do.

Whether I view it as an asset or not is inconsequential here.

An acquaintance recently made a mid-career switch to the banking industry, and decided to take out a (USD$) 7 figure housing loan to finance her new up-scale apartment.

Despite a combined 5-figure monthly family income, the mortgage alone will tie up a significant amount of future inward cash flows from their monthly salaries for the next 20-30 years.

Perhaps some of these cash could be better diverted to build other assets to potentially generate even more cash returns?

b) Be Open To Paper Assets

Some of us may only view items that we can physically see and touch as ‘assets’, including our houses.

While I used to think in this way for a very long time in the past, I currently think it might be interesting and useful to take serious notice of other forms of assets, like paper assets (Stocks, bonds, ETFs etc.)

We may not physically see the actual cash notes on a daily basis, but they might potentially be huge assets if we do our homework and invest wisely.

And the best thing about it is you can start off with a relatively small amount of money!

Here is an article on paper assets:

http://www.richdad.com/Resources/Rich-Dad-Financial-Education-Blog/April-2014/have-you-considered-paper-assets.aspx

Cheers!

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Cheers,

Nicholas.

 

 

 

 

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