Is Your Own House Always An Asset?

The life-lessons that have been passed onto us by our elders are all age-old yet rock-solid concepts. There are pearls of wisdom, such as – ‘don’t spend more than you can earn’, ‘save’, ‘plan your life and finances’, ‘get a job’, ‘get a house’ – and the list goes on and on.

Most of these teachings are actually timeless in nature. However, as times change, there are some that might need a bit of reconsideration. For instance, let’s take the advice of ‘getting a house’.

Houses have been preached and projected as all-time reliable investment options. For the kind of investment we make in support of our houses, they are, in most cases, the costliest possessions we have. Adding to that the rate of inflation every year, a house you bought some years ago would mostly be sold today for a profit. Since your house is mostly appreciating & can be liquidated for cash, the advice of ‘getting a house’ seems legitimate.

However, the question is – how are you using your house? You are doing a fair bit for your house – what’s it doing for you in return?

Let’s quickly take our leave of absence from the conventional principles of accounting. Instead, let’s look at a theory that the American author Robert Kiyosaki talked about in his book, ‘Rich Dad Poor Dad’, and see how that ties in with the Indian perspective of things.

When buying a house, most of us pay a down payment and take a bank loan to acquire the house. Going with the general intent for buying a house – we’re occupying it. Now, in most cases, it’s just the monthly salary we have that we’re using to pay back the bank’s debt. On top of paying the EMI for the house from the salary, we’re also spending money for the upkeep and maintenance of the house. And in most of the cases, this needs to be done for a long duration, since most home loans are of high value, and hence are spread out across a long period of time (say, 10 years).

This sounds like a money drain.

The house itself, meanwhile, does nothing to alleviate our situation.

Yes. But the house still does nothing. You would probably end up with the profit from selling the house (after repaying the bank loan), and some tax obligations that will eat into those profits. Of course, the house would no longer be yours.

What do you do in such a scenario?

Assets are instruments that work to put money in your pocket. They can be in form of securities, bonds, stocks, real estate, et cetera. The intent is to acquire such instruments that can easily cover for your liabilities, and use them wisely. Your house can become an asset, if you rent it out and it starts to pay you money.

Life isn’t a get rich quick scheme. You need to learn patience.

Start by going for a humble rented place, the rent of which this ‘liability-turned-to-asset-house’ of yours can cover, and still leave you with money.

This is an upsetting but true. Most of the attempts at owning things too early and without proper planning results in us creating situations for ourselves where we lose money to keep up the façade of ‘everything is fine & under control’.

Start making efforts to acquire more assets – tools that put money into your pocket without you having to scale your time to make them work. Let your money work with these tools to make your more money, and take care of your liabilities. When you have your assets in place, they’ll take care of both your liabilities, and your expenses. That’s exactly when you’d have things working out for you.