PROPthink

We very often here this cliche “Our house is our biggest investment“. Unfortunately, that is NOT true for most of the people. Why? Because for them, the house and its mortgage are actually the biggest burden and liability. The house could give you pride and joy, it could give you good shelter and even could give you happiness, but in the investing world, for most of the case it’s still the biggest liability you ever had. It could be your “biggest purchase” but whether is it an investment or liability, it’s actually depends on you.

(Whenever I refer to “house”, it actually can be broaden to all kind of real estate property such as: house, unit, apartment, town house, villa, condominium, flat, duplex, etc. So to avoid confusion, I will use term “home” instead to refer to it)

Asset vs Liability

Before we continue further, let us agree on the definition of asset and liability in investing world (The definition will be slightly different if you are talking about accounting). Simply put, asset is everything that can appreciate in value -or- produce income. Everything else is liability. To check whether something is an asset or not, do this 2 step test:

• Can it  give you regular income ? -or-
• Can it appreciates in value over time ?

If you cannot answer “yes” on any of the test above, it’s not an asset. For example: the car you just buy from the car yard. Unless you have a rent-a-car business, courier business or similar that uses car, your car is not asset.

What is Investment? Investment is an act of buy and/or selling asset to produce income and/or capital growth.

Make Money From Your Home

Your Home Is Your Biggest Liability

Your home might be your biggest liability if it meet one criteria: it has been mortgaged i.e: you have to take a homeloan to acquire it. Why? Because essentially you took a debt to buy something for your consumption. It’s exactly the same with buying those plasma TV on your credit card. Here are the similarities:

• The goods are only for consumption (to be used)
• The interest paid for taking this debt is not business cost, i.e: not tax deductible
• You cannot afford it, but you want it now, hence getting a debt to acquire it.
• You don’t use it to making money.

The only different between your home and that TV is in long term your home can appreciate in value, i.e: you can sell it higher than when you buy it. So, your home is your asset, the TV is not.

Your Home Might Become Investment Asset

Now that the home is actually meet the criteria as asset, the next step is how to make it an investment asset that will make you money. Not some asset that doing nothing and act more like liability than asset. How to make your own home become productive investment asset:

• Do home-based business from home.
• Rent out that unused extra bedroom for extra money
• Take the equity from the home to acquire other investment asset

By doing those activities, you home is now involve directly with your money making activities and earn your home a status as investment asset.

Conclusion

Your home might be the biggest purchase , hence to make the most of it you need to make it become investment asset. In other words, since you use a lot of money to acquire it, it will be better if you can use it to make more money.