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Can property really be an asset?!

A home can be a double-edged sword, there are debates on whether it is an asset or should be classified as liabilities. Of course, there is nothing wrong with owning a house. It is a good milestone to achieve. Let’s explore more to understand different perspectives of house ownership.

But first, let us find out

What is an asset vs liability?

Asset

According to investopedia, an asset is “any tangible or intangible item that has value in an exchange.” It needs to have an economic value that you can own or control with the expectation that it will provide a future benefit. Essentially it will increase or boost your bottom line (income) or reduce your expenses. 

Some of the examples of assets could be cash, investing tools (stocks, bonds, mutual funds, properties, cryptocurrencies, NFTs, gold, silver etc). In ideal cases, assets will appreciate/ increase value over time. 

Liability

Liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events. In short, it is something that you owe. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage.


Is property an asset or liability?

With the understanding of asset and liability, you may realize the property that you own or stay right now, could fall into liability. In most cases, property could be a liability. 

Your primary residence does not fit into the definition of asset. You are not generating any income from it, in fact, you are paying monthly installment for your mortgage. Your primary residence could turn into an asset, only when you plan to sell it. The price that you locked was probably $500,000, but at the time of selling the market value could appreciate to $650,000. You will then be able to take profit from it.

Can property be an asset?

The short answer to this is: YES, it could be an asset. Physical property can be lucrative assets but bear in mind that property is highly illiquid. You can’t expect to have buyers looking for you in hours or days. 

If you decide to pursue real estate investing, then you would need to study on strategies for you to make it an asset. It is always easy on the book, as long as income (rental) > expenses (installment), it would be a good investment. You would need to find creative ways to cover the cost of your mortgage. For example, you could buy multi units property so that you could rent out at a higher total rental. 

There will always be other factors for you to take into consideration such as location, facilities, amenities, environment, prospects, that will make your property attractive and a good deal. 

Is house ownership important?

Buying a house is still a good choice for most cases, if you plan to have family members. Your house is a smart way to pass on your wealth. If you want to use your home as a tool to transfer generational wealth, then you will have to pre-plan your estate. 

Should you still buy a house or rent a house in this case?

The choice will depend on your situation and preference of living styles. 

If you have stable income, family, and intention to stay in the area for at least a number of years, it would be wise for you to look for house ownership. You will not need to worry about the place to stay. 

If you are working to improve finances, and are not stable yet, then renting would be a good move as you have the flexibility to move to other places within your budget after your rental agreement ends. You do not wish to lock yourself in a long term commitment that could be draining to your financial life. 

Bottom Line

A property can be an asset but your primary property (for staying) is unlikely to be an asset, unless you rent out extra rooms to cover your mortgage. 

Prior to jumping into property investment, do make sure that you study and understand the market demands on your potential property investment as a well maintained unit does not guarantee to have rental needs. Other factors such as location, amenities, facilities etc are important.

A house is still important, disregarding whether you are buying or renting it.

You need a place to call home,it has always been a gathering place, shelter, and sanctuary, providing escape from the busyness and intrusiveness of the world

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