Stop looking at a home as a liability or asset. For some, it’s still a must.

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Someone searched this term “Is house a liability or an asset.” and Google referred them to kopiandproperty.com Haha. I know, there’s a super famous book which says that as long as the house does not give you any returns, then that’s a liability. Only when a house gives you a positive return that it should be considered an asset. I think from the perspective of n investor, the view is pretty true. However, let me share from the perspective of a B40 household who has just about enough for monthly expenses and nothing else.

We are often told that if we could not yet afford a home, we should just rent. After all, rental is so affordable these days. This cannot be more wrong because with rental, it’s totally and absolutely not an asset regardless of how people want to argue whether it’s a liability or expenses or whatever. When we pay rental of RM600 per month for a year, that’s RM7,200 to the owner. When it’s over 5 years, that’s over RM35,000 to the owner. Even assuming the rental we pay is NOT enough to cover the owner’s monthly mortgage, do we want to think the owner is ‘suffering’ from this liability which continues to give the owner money every month?

Now, imagine paying the rental for the next 30 years and suddenly the time to retire has arrived. What has happened to all those rental money? Gone. Imagine however if we have that “liability” where the monthly payment is higher than rental by RM200. The home does NOT give us any returns and in fact the banks are earning interest from our mortgage payments. However, the home ensures what over the long run, the money paid do not all go to the owner or the bank or anybody. Some of those money, together with the capital appreciation do come back to us. Actually, not a lot. A RM250,000 home would only become RM500,000 at the end of 30 years with a 3% increase on average every year. However, this B40 household has a fully paid home worth RM500,000 which is now an ASSET, perhaps? Happy understanding that even the most cash-rich companies today borrow money and it has nothing to do with whether it’s a liability or an asset. If you could afford an affordable home for own stay, get one. Waiting and doing nothing is not going to turn nothing into an asset anyway.

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written on 8 Jan 2019

Next suggested article: Dropping and increasing prices at the same time, depends on how we see it, really.

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