As rates continue to drop, more and more homebuyers are trying to enter the housing market. And there’s nothing inherently wrong with buying a home to live in, but there is one thing a lot of homebuyers seem to overlook: a primary residence is not a performing asset.
Today, we’re going to have an important conversation on performing assets — and where buying a home fits into the equation. You’ll learn about assets, liabilities, and why you may want to put off buying a primary residence for now. I’m also sharing a few ways to convert your home into a performing asset. Don’t miss this episode of Investing in Real Estate!
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In general, when you make a large purchase, it’s either going to be an asset or a liability. A liability is something that you owe to someone else; it takes money out of your pocket every month. Let me give you some examples: your car loan, credit card debt, student loans.
Assets, on the other hand, are things you own that have a cash value. Your savings account, your 401k, and your cars. But there’s another important sub-category you should consider: performing assets. A performing asset is a type of asset that produces cash flow you can use to finance your daily life.
And whenever I talk about this, people get confused about where their home falls into this categorization. After all, most of us have been taught that buying a home is the pinnacle of success in the United States. And I’ll agree that a home can be a solid asset since it appreciates year after year… but it is still not a performing asset.
In most cases, your home doesn’t produce cash flow for you. In fact, it probably takes money out of your pocket every month due to your mortgage, taxes, and repairs. So what if, instead of sinking your funds into a home, you could buy a performing asset, that helps build your net worth and provides you with a bit of monthly cash flow.
From there, you can leverage that asset and build out an entire portfolio of assets that can fund your lifestyle.. and then you can live wherever you want, whether that means renting a home on the beach, or buying your dream home.
It is always more financially intelligent to buy performing assets than liabilities. So if you can buy a rental property instead of a home, that’s a great option to consider.
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