My Property Investment Tip #4
Your own home is actually a LIABILITY (not an Asset)
Controversial?! …But true! Hear me out and you will agree.
The basic definition of an Asset is something that you own that you can sell for money.
But as the old ad used to say “Oils ain’t Oils” and “Assets ain’t Assets”!
Just because something meets the basic definition of an asset, it doesn’t mean it’s taking you forward financially.
It could be going down in value (not up) and costing you cashflow money from your wages to maintain it.
It took me several years to work out the best way to teach this to people and I finally came up with the following definition of what a ‘REAL Asset’ was:
1. It must be of value and able to be sold for money (common definition); but more importantly!…
2. It must go UP in value with time (not down); and
3. It must make a profit. ie Generate and income, pay its own bills and have a profit left over.
Now think about it…. if all the assets you focussed on acquiring met this criteria would you get richer or poorer? … Answer: Richer!
Now if you acquire assets that don’t go up in value, then is your net worth going up or down?… Answer: Down!
And if they cost you money week to week (rather than make a cashflow profit), is your income growing or shrinking?…. Answer: Shrinking!
So now let’s apply the 3 rules of a real asset to some common things.
Your car.
Of value? Yes.
Go up in value? No.
Produce a profit? No.
It’s a liability!
Your house. Now prepare yourself… you’re about to realise that 99% are wrong (funny that when only 1% are wealthy
)
Of value? Yes.
Go up in value? Yes
Produce a profit? NO!
It’s a liability!
You won’t get rich by having a big house and paying it off from your work income. Live modestly as you can. Keep your costs low and invest in REAL ASSETS.
Then when those real assets make you rich enough, build your dream home with the money then.
I hope these posts are valuable and helping people.
Let me know if you need a hand in any way.
– Daimo
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Daimien Patterson is the CEO of Integrity Property Investment, a property investment company based in Australia. He regularly produces books, blogs and videos on the topic of property investing, helping thousands of people create financial security and freedom through education and property investment. Get started today.