If you read the dictionary definition of the word ‘asset’, it would tell you that it is any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Well, that may be the definition of the word, but what is a true asset? Is it something that sits on the bottom line of your balance sheet or is it something more? The real determining factor of what makes a true asset is something that generates an income in excess of the expenses it takes to retain it. Real estate investment can be that asset, but just remember to make your money when you buy it and not when you sell it.
Okay, so how does one do that, you ask. Well, when it comes to property investment, the golden rule is always to buy a property that represents good value. This may take a lot more research and time to find, but there are plenty of good property deals are out there. Buying a property that offers good value will mean that you are already ahead of the curve and won’t have to wait for the next boom to see any real capital appreciation in the property’s value.
To determine whether the property is a true asset, you will need to work out whether the costs of maintaining the property and paying the monthly expenses are less than the income generated by said property. The operational income, which is the rental amount minus tax, should outweigh the total monthly cost of owning the property. The profit generated from this true asset, if managed correctly, can then be used to save up or purchase the next true asset.
Even though a primary residence doesn’t generate an income and has some running expenses, it can also be a good asset which benefits from capital appreciation in the long-term.