Over the week, I had a quick evaluation with some friends on a question I have had in mind for a while now. The question was “is your house an asset or a liability ”. They all had the same response which was quick and precise “yes, my house is an asset”
Of course, who wouldn’t think so? Before we go further, let me give a quick definition of an asset.
An asset is defined as something valuable that a person has acquired or purchased, which has certain benefits and or generates income from. With this being defined, some have argued that not every property is an asset. This school of thought are of the opinion that a house is termed as an asset or a liability depending on its purpose.
For example, a house meant solely for your residential purpose is not an asset but a liability. This is because the property does not generate income annually or monthly instead, it takes out income from time to time due to maintenance and other fixtures. For this reason, the house is a liability, not an asset.
A property rented out to tenants in return for a fixed amount annually or monthly is an asset because it generates income from time to time.
This school of thought believe the only thing that stands between a house being an asset or a liability is Cash Flow. To turn your home into an asset, you need to create a cash flow by generating income from it.
If you agree with this school of thought, the next question that comes to mind is: HOW CAN I TURN MY HOUSE INTO AN ASSET?
One way of generating income from a property, thereby making it an asset is to earn rent from it. Renting out a portion of a property is one of the most common ways people make their house an asset. The money made from this rental income can be used to cover the cost of maintenance, fixtures and even offset some other expenses.
Your options of turning your house into an asset are boundless if only you can imagine and implement them. The only thing you need to ensure is a steady cash flow from such property; paying for the liabilities that come with it rather than your earned or saved income.
Other schools of thoughts have however argued that a house no matter its purpose (residential or commercial) is an asset.
According to them, any property can be a great asset regardless of the initial plan. This is probably why people say, “buying a house is your greatest asset” because, at any point in time, you can make a property to be whatever you want it to be. For instance, a property owner can change a house from being residential to commercial.
This however, does not apply to everyone either for personal issues peculiar to each individual.
I conclude today’s article on this note; a house might be an asset when it generates income, however, a house can at any time be remodified and used to generate cash flow whenever its owner decides. Hence, “buying a house is your greatest asset”.
What school of thought do you belong to… comment below.
This article is written by:
Prince O. Williams-Joel
Prince Joel & Associates
(Business/Digital Law Firm)
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