What is a Real Asset? You will be surprised!
Now that we’ve differentiated between assets and liabilities, and defined a real asset as something that increases in value and puts money in your bank account, let’s take a look at some examples using this definition:
Take a car for example, something most people would list as an asset. It is something of value, but it goes down in value and doesn’t produce an income. Therefore it is a liability.
What about your own home? A lot of people have trouble with this, while it is something of value that does go up in value, it does not produce an income for you. You still have to pay some expenses towards it, so it is also a liability.
An investment property, just like your own home, is of value and goes up in value, but it produces an income in the form of rent and a tax return. The rent and tax return are going to pay the bills and produce a passive income for you. Therefore, it is a real asset.
| A REAL Asset | Car | Own Home | Investment Property |
|
Something of value |
YES | YES | YES |
|
That goes up in value |
NO | YES | YES |
| And produces an income | NO | NO | YES |
Figure: Comparing assets
What else do you think could meet the criteria of a real asset?
If you want to retire early, you will need to have a passive income to support you financially. The only way to have a passive income is to own real assets. Once your real assets start replacing your work income with passive income, you won’t need to work anymore and you can retire comfortably.
Stay tuned for more daily insights from Wealth Through Property.
~Daimien Patterson