CEBU CITY, Philippines - Many people take for granted the idea of a house as an asset.
The popular notion is that a house is the greatest investment in one’s lifetime because this is where you create memories with your family.
This concept is being challenged by pragmatic considerations.
Is a house really one of the best assets to leave one’s heirs? This has been challenged by the increasing difficulty today of owning and maintaining a house.
An asset is supposed to add to one’s riches and make you happier. If it does the opposite, could one still call it an asset?
House as asset
Here are some concepts arguing that a house is indeed an asset:
Conventional wisdom says that the value of a property will always increase, especially over a long period of time.
That is why real estate is such a good investment. Some argue that even if some properties do lose their value, over several decades the value of properties generally grow.
Even personal finance gurus like David Bach and Robert Kiyosaki profess that the best way to get rich is through real estate (even as they continue to build their riches through their bestselling books).
Your house could be considered an asset because if you did not own one, you would have to pay rent.
Instead of paying rent for property one doesn’t own, some say it is better to pay for the amortization or mortgage for a home you will eventually fully call your own.
If you chance upon property sold way below its market value (as in a rush sale of an owner leaving the country), that property would be considered an asset you can probably sell at a higher price later.
Financial statements consider home ownership a definite asset. Once this is in your balance sheet, it can open several opportunities.
For one, it can facilitate bank loans using the property as collateral. It can also be a basis for apply for a tourist visa to the United States and other countries.
There is also the psychological value attached to a house which creates a sentimental value that goes beyond its financial worth. Even a torn-down house, in this context, could be worth more than any amount of cash.
House as liability
Those who say a house is not necessarily an asset have this to say:
The price of a property may increase, but you don't actually get that money until you sell the house. The value is only good on paper.
Three million pesos in the bank is much better than having a P3-million house.
This brings us to the argument of opportunity cost. The money you put in a house makes you less liquid and gives you less leeway to use cash for investments or to grab financial opportunities that may come your way.
Robert Kiyosaki has an interesting idea on this. His assessment of a house as an asset or a liability hinges on his definition of an asset. He says an asset should increase cash flow rather than decrease it. In other words, a thing is only an asset if it helps bring in cash for you. With the big expenses of owning a house, like paying utilities, property tax, lawn care, repairs, insurance and the like, he prefers to think of a house as a liability.
If you are still paying for the house, you even have to pay interest on the mortgage or amortization.
The bigger the loan you pay on your house, the more your house becomes a liability. The trick, therefore, is to get out of debt as quickly as you can.
Whether or not your house is indeed an asset or a liability, many say it is advisable to treat it as an asset.
Such a mindset keeps one's lifestyle in check and helps ensure you do not spend beyond your capacity.
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(Tuts Paradela is a licensed real estate broker, who helps a non-government organization in livelihood development. His website is www.ceburealestates.com.)
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