For an average Filipino, the biggest investment he or she can make is to purchase a property residence. Imagine, if you buy a property, you will have a residence and an investment as well, right? However, some may argue that your house is not an investment or an asset. In a financial perspective, an asset is a resource producing income to the owner. Obviously, a house does not produce income especially if you live on it. This is why some argues that a house is a liability. If you have a residential property, you have house liabilities to pay which is primarily related to the financing method you chose to acquire your property. However, the argument seems flawed as even though your property does not yield actual profits, its value appreciates over time. With this, things can be very confusing. So, the biggest question right now: is a house an asset or liability? Let’s try to answer this question.
Difference Between Asset and Liability
Assets are anything that you own but in business perspective, it must yield profits or earnings to the owner. With this, an asset’s main characteristics are ownership, economic value, and resource. To put it simply, for something to be considered as an asset, you must own that resource and it must have economic value meaning it can be sold or exchanged for a sum of money. Additionally, it is considered as a resource because it gives the owner an opportunity to yield future economic benefits whether through direct or indirect use of that asset.
Obviously, liabilities are debts. These are obligations of an individual or an entity that must be settled depending on the terms or agreement with your creditor. Mortgage is a popular term when it comes to property acquisition. This is a term used to describe the obligation of a property acquirer to a creditor for the money lent to him in relation with the purchase. The property will serve as a collateral in case that he or she would not be able to pay the dues.
Is a House an Asset or Liability?
Despite knowing the difference between an asset and liability, it is still confusing whether to distinguish your home as an economic resource or an obligation. To answer this question, the classification of your house depends on your usage aside from being a residential property. Here are five questions to ask yourself in order to help you distinguish whether your house is an asset or not.
1. Is the monetary value of my home increasing?
Normally, the value you paid for your house increase over time. This is due to some factors like establishment of business districts, nearby tourist attractions, commercialization of your area, or even inflation. This is the primary reason why real estate is seen a safe investment even if it needs a huge amount of funding. All areas aim to develop over time so more often than not, your property value will increase along with the commercialization of your city or residential location. If you are fortunate enough that your property is located in highly urbanized areas, it is easier to sell your property in times of need and it will surely yield high profit as well.
2. Does it produce an income to you?
As defined earlier, an asset should produce future economic benefits to you. One way to have an economic benefit is using it through business. If you want your property to yield profits, you can consider converting it into a rental business. In a rental business, you can lease the entire property, or if only a small portion of your house is available, you can choose to convert it for bedspace rental. Since property acquisition needs a lot funding, majority of the population is not financially capable to purchase a house right away. So, to answer the shelter needs of the working population, renting becomes the best immediate option.
3. Do you plan to convert your home as a lodging or vacation house?
A board and lodging house is a type of rental business as well. However, the people availing your lodging do not have long-term contracts with you. Generally, people would rent your space for a night or two to cater their shelter needs temporarily maybe because they are a tourist in your area or for staycation. Another difference with board and lodging is that it needs to be fully furnished or at the very least, it has the basic appliances and furniture needed by an individual for their daily activities. The most common way to advertise your home as a vacation house is through Airbnb.
4. Is your home instagrammable or ready for filming?
If your home is aesthetically pleasing, why not convert it into a filming space right? This might be a niche market but if you are confident enough about the design of your home or you feel like that it has the potential to be a filming location for TV dramas, movies, or short films, then this is the best business for your home. Additionally, who wouldn’t be so proud to see your hard-earned property in shows or films, right?
5. Do you have a small business, or you work-from-home?
If you are starting to become an entrepreneur, your home can serve as your office or even a stock location. Instead of renting a separate space for your business, if you are still small, your home will surely serve the purpose. In this way, you may indirectly profit from your home by saving office space expenses. Aside from being a small business owner, your home is your investment if you work freelance or a remote employee,. Apart from having a comfortable living space, you need a conducive space to be productive. Instead of going to a coffee shop or somewhere you can work, with a few tweaks in your home, you can make it suitable for work so you can save costs on going out on different places to be productive.
Owning a House Offers a Lot of Flexibility
If you are asking your if your house is an asset or liability and its sole purpose is for residence, you can consider your house as a liability. But there is a but! It does not mean that it will just be a liability over its life. Having a residential property is not just about paying your house liabilities or just living in it. Such ownership gives you flexibility especially when you are business minded. From the questions enumerated above, we can see the potential of converting your home into something profitable whether the earnings are directly or indirectly accrued. Nevertheless, this just proves that owning a home offers more advantages than disadvantages particularly paying for house liabilities.
Afterall, if you have your own home, it gives you a lot of peace of mind. In life, satisfying your needs is the best investment you can make because it makes you feel secured. When you are secured, you would have a clear mind and you may feel more productive because all you have to think of is how you can improve your living or sustain your life. With this, instead of contemplating so much whether a house is an asset or liability, why not start looking for your property prospects?
If you plan to invest on real estate, you may check our affordable house and lot model and offers here at Bria Homes. We know that property acquisition is difficult financially. So, we are open to different financing methods like bank housing loan or Pag-IBIG housing loan. To learn more about our models and offers, you may contact us through our Facebook page.
Written by Steven Hernandez