Your house is not an asset. That’s right! Your biggest asset is not an asset, your house is just a home and is most probably your biggest liability.
People think that their house is an asset, which will only go up in value over time, but they are wrong! As a financial planner, I would ask people to declare their assets and their liabilities; Mr Husband would proudly declare his house as an asset and I would have to shatter his world by telling him that he is in big trouble.
What is an asset?
An asset provides you with cash flow. Cash flow is king! Not cash, not your home! Your home sucks cash flow, costing you money every day of every month. Anything that does not provide you with cash flow, like your home, is a liability.
According to Robert Kiyosaki, writer or Rich Dad Poor Dad, your home is not an asset and I agree with him, he is a sophisticated property investor and invests in property through which he receives cash flow. Mr Husband will correctly tell me that he could sell his house one day for a fat profit and then buy a smaller home for a lower price. He could, but he could win the lottery too.
Thinking your house is an asset caused the financial crisis
People have been brainwashed to think that residential property goes up and up in value! It’s probably the biggest lie ever. Residential property, like any asset class goes up and down in value and can go badly wrong. The reason why the financial crisis happened is because of residential property and the non-existent lending standards by the banks.
Banks were throwing money at anybody with a heartbeat. The great thing about investing in residential property is that you don’t have to use your money. People thought they just had to invest in property and they would become zillionaires.
Property is dependent on location and price and market conditions. A good location today might become Hillbrow tomorrow. Your property is not your property until you have paid your bank their money back. Until then your home is not even yours, never mind an asset!