28/04/2021
๐๐ ๐๐๐๐ ๐๐๐๐๐ ๐๐ ๐๐๐๐๐ ๐๐ ๐ ๐๐๐๐๐๐๐๐๐
๐๐ ๐๐๐๐๐๐๐๐?
If you ask an accountant, they will tell you that it is an asset. If you ask a businessperson, they will tell you that it is not the case! What are your thoughts?
๐๐ก๐๐ญ ๐ข๐ฌ ๐๐ง ๐๐ฌ๐ฌ๐๐ญ?
According to the Oxford dictionary, an asset is a thing of value, especially property, that a person or company owns, which can be sold to pay debts or make money. Investopedia describes an asset as something that adds an economic value and can generate cash flows, i.e., you can sell it to get money.
๐๐ก๐๐ญ ๐ข๐ฌ ๐ ๐๐ข๐๐๐ข๐ฅ๐ข๐ญ๐ฒ?
According to Investopedia, a liability is something a person or company owes, usually a sum of money. Oxford explains a liability as to the state of being legally responsible for something. Thus an asset will earn or can earn you money whilst a liability costs you money to have. So does your house bring you money, or it takes away from you so much so that a slight increase in electricity tariffs digs holes in your pocket?
๐
๐ข๐ง๐๐ง๐๐ข๐๐ฅ ๐๐๐ซ๐๐๐ฉ๐ญ๐ข๐จ๐ง
From a finance standpoint, a house is an asset as it can bring you money; you can either sell it or use it to borrow money as a security. Financiers argue that the value of the property appreciates over the years. But, that is not always the case; your property can depreciate.
๐๐ฎ๐ฌ๐ข๐ง๐๐ฌ๐ฌ ๐๐๐ซ๐๐๐ฉ๐ญ๐ข๐จ๐ง
In business, a residential house is a liability as it does not generate any income at the moment whilst the owner stays inside. According to Real Estate investor and author of Rich Dad, Poor Dad, Robert Kiyosaki, โan asset is something that puts money in your pocket and creates some cash flow, whereas a liability is something that takes money away from you.โ Kiyosaki firmly states that a house is not an asset, rather a liability. โYour home is your bankโs asset if you could read a financial statement.โ
๐๐ก๐๐ญ ๐ฆ๐๐ค๐๐ฌ ๐ฒ๐จ๐ฎ๐ซ ๐ก๐จ๐ฎ๐ฌ๐ ๐ ๐ฅ๐ข๐๐๐ข๐ฅ๐ข๐ญ๐ฒ?
A mortgage is a loan you get from a bank to purchase or build a home. Repayments are lengthy and extend for up to 20 years with predetermined monthly payments. For years, the borrower will repay the debt, with interest, before the loan is cleared and the property is owned. So, the mortgage house is not yours, because it is the bankโs before you clear it. On average, for 20 years of the mortgage payment, you will have paid interest of over
P1 Million ($91,300.02) on a P1 Million mortgage totaling more than P2 Million ($182,600.04) in total payments. Should you not afford the installments, the bank will repossess the house and auction it. Note that the mortgage costs more than the value of the home, and thereโs another thing called the real estate crash when demand and value for homes fall dismally. Therefore, it is not always assured that the value of the house will appreciate, many considerations come into play, such as location, size, and many others. You could be paying a lot more than the value of your home.
๐๐ก๐จ๐ฎ๐ฅ๐ ๐ฒ๐จ๐ฎ ๐ญ๐๐ค๐ ๐ ๐ฆ๐จ๐ซ๐ญ๐ ๐๐ ๐?
It depends on what you are taking it for, and business-wise, it is advisable to take a mortgage for real estate investment. In that way, you are borrowing to create cash flow, and you can increase your monthly installments to reduce the total interest paid. Borrowing against your house for things that do not generate a cash flow is not advisable, such as buying a car. But, it is a different story if you use your house as security to buy a bus, rather borrow to generate money. Create good debt instead.
Letโs say that you take a P1 Million mortgage to build a property that brings in P18,000 per month (10 bachelor pads at P1,800 rent each unit per month). Then instead of paying P8,178, you pay monthly installments of P12,000 or up to P15,000.
This will allow you to cut the 20 years to at least ten years, thus reducing the total interest paid by half. And by the time you finish paying the mortgage, not only do have property but can amass P216, 000 ($19, 980) annually in revenue. With this, you can acquire more property and gradually increase your cash flow to more than P1,000,000 ($93, 000).
๐๐จ๐ซ๐ญ๐ ๐๐ ๐ ๐ซ๐๐ฉ๐๐ฒ๐ฆ๐๐ง๐ญ ๐ฉ๐ฅ๐๐ง๐ฌ ๐๐ญ ๐ญ๐ก๐ ๐๐๐๐ ๐๐ง๐ ๐๐ญ๐๐ง๐๐๐ซ๐ ๐๐ก๐๐ซ๐ญ๐๐ซ๐๐ ๐๐๐ง๐ค๐ฌ.
๐๐๐๐ ๐๐๐๐ ๐๐๐๐๐๐๐๐
๐๐ฆ๐จ๐ฎ๐ง๐ญ: P1,000,000
๐๐๐ฉ๐จ๐ฌ๐ข๐ญ: P100,000
๐๐ง๐ญ๐๐ซ๐๐ฌ๐ญ: 10%
๐๐๐ซ๐ข๐จ๐ - 20 years.
๐๐จ๐ง๐ญ๐ก๐ฅ๐ฒ ๐ฉ๐๐ฒ๐ฆ๐๐ง๐ญ: P8,645
๐๐จ๐ญ๐๐ฅ ๐๐๐ฒ๐ฆ๐๐ง๐ญ: P2,084,400
๐๐จ๐ญ๐๐ฅ ๐๐ง๐ญ๐๐ซ๐๐ฌ๐ญ: P1,084,400
๐๐๐๐๐๐๐๐ ๐๐๐๐๐๐๐๐๐
๐๐ฆ๐จ๐ฎ๐ง๐ญ: P1,000,000
๐๐๐ฉ๐จ๐ฌ๐ข๐ญ: UNSPECIFIED
๐๐ง๐ญ๐๐ซ๐๐ฌ๐ญ: UNSPECIFIED
๐๐๐ซ๐ข๐จ๐ - 20 years.
๐๐จ๐ง๐ญ๐ก๐ฅ๐ฒ ๐ฉ๐๐ฒ๐ฆ๐๐ง๐ญ: P9,485.17
๐๐จ๐ญ๐๐ฅ ๐๐๐ฒ๐ฆ๐๐ง๐ญ: P2,276,440.80
๐๐จ๐ญ๐๐ฅ ๐๐ง๐ญ๐๐ซ๐๐ฌ๐ญ: P1,276,440.44
* ๐โ๐๐ ๐ ๐๐๐๐ข๐๐ก๐ ๐๐๐ ๐๐๐๐๐ฃ๐๐ ๐๐๐๐ ๐กโ๐ ๐๐๐๐๐ โ ๐ป๐๐๐ ๐ฟ๐๐๐ ๐ถ๐๐๐๐ข๐๐๐ก๐๐๐ ๐๐ ๐๐๐ ๐ก๐๐ ๐๐ ๐กโ๐๐๐ ๐ค๐๐๐ ๐๐ก๐๐ ๐๐ ๐๐ 04 ๐๐๐๐โ 2021. ๐โ๐ ๐๐๐๐กโ๐๐ฆ ๐
๐๐๐๐ฆ๐๐๐๐ก๐ , ๐ผ๐๐ก๐๐๐๐ ๐ก, ๐๐๐ ๐น๐๐๐๐ ๐๐๐ฆ๐๐๐๐ก๐ ๐๐๐ ๐๐๐๐๐๐ฅ๐๐๐๐ก๐๐ ๐๐๐ ๐๐๐ฆ ๐๐ ๐ ๐ข๐๐๐๐๐ก ๐ก๐ ๐โ๐๐๐๐ ๐๐ก ๐กโ๐ ๐๐๐๐๐ .
* ๐๐ ๐๐๐ ๐กโ๐ ๐๐๐๐๐๐ ๐ผ๐๐ก๐๐๐๐ ๐ก ๐น๐๐๐๐ข๐๐ ๐๐๐ฃ๐๐ ๐๐๐๐๐๐๐๐๐ก ๐๐๐ โ๐๐โ๐๐ ๐ก๐๐ก๐๐ ๐๐๐ก๐๐๐๐ ๐ก ๐๐๐๐ข๐๐ก๐ .
๐๐ก๐๐ญ ๐ข๐ฌ ๐ญ๐ก๐ ๐๐๐ฌ๐ญ ๐ฐ๐๐ฒ ๐ญ๐จ ๐จ๐ฐ๐ง ๐ ๐๐จ๐ฎ๐ฌ๐?
Note that the bigger the house, the bigger the expenses.
You may have to hire a garden boy, the house helpers, security, and many more. All these deduct from your salary plus the mortgage, car payments, school fees, and your take-home gets little.
There isnโt a straight-cut way to own a house, and it all depends on individual circumstances. However, from a business point of view, it is advisable to have something that finances your dream home, some cash flow on the side to relieve you of all the house expenses. Have something pay your mortgage and cut your payments at least up to 50%. You may even consider renting out your mansion and rent in a cheaper house until the mortgage clears. But then we all have different preferences, and some people find convenience much better than saving a couple of Pulas.
