There’s a famous book which says that as long as a house does not generate any returns, then it’s a liability. Only when a house generates positive returns, should it be considered an asset.
Well, that’s the perspective of an investor. However, what about the view of a B40 household, who has just about enough for monthly expenses and nothing much else?
We are often told that if we cannot afford a home, we should just rent. After all, rental is affordable these days.
However, this advice cannot be more wrong because with rental, it’s totally and absolutely not an asset regardless of how people want to argue about it.
When we pay rent of RM600 per month for a year, that’s RM7,200 to the owner. When it’s over five years, that’s over RM35,000 to the owner.
Assuming the rental we pay is NOT enough to cover the owner’s monthly mortgage, is the owner “suffering” from this liability which continues to give him or her money every month?
Now, imagine paying rental for the next 30 years and suddenly it’s time to retire. What has happened to all that rental money? It’s gone.
Imagine however if we had that “liability” where the monthly payment was higher than rental by RM200. The home did NOT give us any returns and in fact the banks were earning interest from our mortgage payments.
However, the home ensures that over the long run, the money paid does not all go to the owner or the bank or anybody. Some of that money, together with capital appreciation, does 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?
Do understand 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 can afford an affordable home for your own stay, get one. Waiting and doing nothing is not going to turn “nothing” into an asset.
This article first appeared in kopiandproperty.com
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.