Is a house part of your net worth?
This question has been asked so many times that I have lost count….
“Should my self occupied house be a part of my net-worth for investments”.
My answer is NO. A capital No.
Take a case of a young individual – say 30 years of age. If he has just bought a house for Rs. 100 lakhs with a Rs. 20 lakhs down payment, his investment statement looks so lopsided!
It will take him like forever to change the equation to look somewhere near balanced. For a 65 year old however, his portfolio will look balanced whether the house is included or not. Let us face it, for most people the house is NOT an investment – it is a psychological need of needing a ‘roof’ over his/her head where they can live peacefully. The cost of funds, the ROI, the appreciation make NO SENSE at all – it is only in the books, because it is not a home, it is a house.
A house is bought emotionally, not very mathematically – and it is fulfilling a need, but not an investment need.
So when you calculate your networth remember to include your provident fund, ppf, paid up value of the life insurance policies, cash, mutual funds, equity shares, gold biscuits, ….etc. but NOT your golf club, camera, car, house, jewellery – these are ‘usage’ assets. You have not bought them for it to appreciate – but for use. If it appreciates, that is a bonus.
Yes there are many financial considerations – is it cheaper to rent or buy, what is the yield, is your job secure, will your wife continue to earn or will she take a child break…..but ‘it will appreciate’ is NOT THE REASON TO BUY.
Hey remember it is your house, not just a mortgage 🙂
Milind N
Hi sir .Those of us who were lucky to have exposure to Subramoney…Knew already…
1 How House is not an investement asset but an emotional asset and hence any appreciation of house in which we are staying is of no use…at the most its Notional…ON PAPER …NOT REAL !
2.Why renting is better than owing atleast in absurd real estate markets like Mumbai .We intend to keep renting for as long we could.We now know that Houses are poor investements and Businesses are great investments .So we are Renting in former and owing Businesses…Brick by brick everymonth .
3.We have learned how to arrive at real cost of house ,which is not what Agent tells us .It is EMI*No of Installments+Maintainance over years+Stamp Duty .We learned not to be product of Innumaracy
4.We have not invested in huge emis to create illiquid portfolioes of Houses …INSTEAD we are investing in HDFC ,GIC HF,LIC HF and the biggest lenders SBI ,Icici HDFC Banks .Amounts which otherwise would have gone in paying emis are getting invested and Growing Handsomely.Besides some money is also available for AKSHAY PATRA as well !
SIR…I will say only 1 thing…BIG MANY MANY THANKS .Your readers are learning lessons and practising in their lives.Even Non finance people like me have learned and today can think on these lines …ONLY BECAUSE OG SUBRA
PrAvEeN
If you say you had two flats in outskirts of a gud city ppl r looking at us, but if I say I own 1000 ITC, HDFC etc they r looking at us like fools 🙂
Siddhant
Very very apt advise,but the invisible script running in every young persons mind is “Ijjat ka sawal hai” I am quite sure most of the people who buy the house buy it not because it is a good opportunity but because of the family pressure, who drill the Script of owning a house in the mind, Very very very tough to resist it, I have been able to but I know how hard it is…..
karthik
Subra .. Apt one…Thanks
kapil
While its true the primary reason for buying a first house is not necessarily appreciation, it is a big factor. Else why would I just not rent. Also, if the house appreciates quite a bit I have the liberty of selling it and moving to a smaller property or move to renting depending on my life stage.
For a 30 year old his networth would be:
assets: 100 Lac in house
liability: 80 L loan
so net worth: 20 L
Nishanth
Loan-free House can be counted as a part of networth in one situation – If the owner intends to take out a reverse mortgage on it ..but due to the social circumstance of “inheritance” in India, many people hesitate on this.