Your house: an asset or a liability?
November 28, 2008
There’s an interesting discussion going on in the PMT Forum, about one’s residence and whether it is an asset or a liability.
By definition, an asset is anything that can directly or indirectly contribute future cash flows. A liability, on the other hand, is anything that can result to a transfer or disposal of an asset.
In this context, is the house an asset or a liability? Here are a few thoughts from some PMT members.
After reading [Robert Kiyosaki's Rich Dad, Poor Dad] book, I realized that [a house] is not an asset but a liability since it doesn’t give income but just creates more expenses. So it cannot be considered an asset.
According to neo:
IMHO, a house is an ASSET (period!). Just because it incurs expenses doesn’t follow it’s a liability. I-compare n’yo ang house sa San Miguel Corp’s factory. Di ba panay cost ang nai-incur dun? Wala namang income dun e. Sabi nga sa accounting, isa yung “Cost Center”. Kung baga, yung house ang factory where you, as a “product,” are being “manufactured”. The corporation, basically, has the power over the manufacturing cost. You, as the owner, also has the power what cost to incur in your house.
Isang point pa po. Ibenta nyo po yung house nyo (asset) for 2,000, malamang may bibili. Ibenta nyo po yung utang nyo sa credit card (liability) worth 3,000 for 2,000. May bibili kaya?
Either of the two. House may be considered an asset because it is one of the basic necessities of every individual. However, this is not always the case. A house is either an asset or liability, as it will depend on certain circumstances.
We were also renting some place as our home before, but decided to have a house on our own, because we know that it is to our disadvantage to be paying something which would never be our own. It is just like depositing money in a bank, which you will never get your money back. So, we purchased a house with monthly amortization that is within our means. We now own the house, and maintaining the same is also within our capabilities. So, our house can be considered an asset.
Now, we are considering selling our current house, as it could no longer serve its intended purpose and we intend to use the amount to construct a bigger house. Maliit lang kasi and there is no more room for expansion. But the problem is we have a hard time disposing it. So in this case, our house may be considered as liability and this also includes the lot where we intend to build our new house. Nakatiwang-wang na lang kase.
Of course, a house is a liability. You have to spend to maintain it, repair the roof, clean the backyard, and repaint, fix the plumbing. But it is a liability that you would gladly have! You see, life isn’t only about seeking assets. That would make it so boring and materialistic! A home is a matter of pride, and it gives a tangible sense of security. You can pass it down to generations after you! It is part of your legacy, a part of you that will outlive you, and your descendants after you will look to it with pride and say, “My father acquired that with hard work and faith!”
What do you think? Join the discussion in the forum thread Do you consider a house an asset or a liability?