The Difference Between an Asset and an Investment: Three Simple Qualifications

The Difference Between an Asset and an Investment: Three Simple Qualifications

In a recent article titled “Sorry to burst your bubble but owning a home won’t fund your retirement,” Globe and Mail reporter, Rob Carrick takes aim at a common financial misperception.  He goes on to say, “Don’t buy into the group-think about home ownership being the key to wealth.” I couldn’t agree more and congratulate Rob on trying to provide some great advice. The only way to create personal wealth is through the purchase of income-producing assets and I think we can all agree that a personal residence provides only negative income, i.e. takes money to operate.

In my book STOCKS for FUN and PROFIT, Adventures of an Amateur  Investor,” I go a step further and explain that a personal residence isn’t even an investment, as commonly espoused. It is an asset, like a car, but I have three simple qualifications for an investment:

  • Interest paid to finance the purchase must be tax deductible. Even if financing isn’t used, it would be tax-deductible if used.
  • The purchase has, or has the potential to provide a steady stream of cash flow, and
  • The purchase has the potential to appreciate in value.

A personal residence only meets the third criteria, and unlike the Meatloaf song “Two out of Three Ain’t Bad,” one out of three ain’t good. Owning a home is a lifestyle, not an investment decision. Although, that house would be quite a lifestyle!

Please follow and like us:

3 thoughts on “The Difference Between an Asset and an Investment: Three Simple Qualifications”

  • Hello! I’m at work browsing your blog from my new iphone
    3gs! Just wanted to say I love reading through your blog and look
    forward to all your posts! Carry on the fantastic work!

  • Great post. I was checking continuously this blog and I’m impressed!
    Very useful information specially the last part 🙂 I care for such information a lot.

    I was looking for this certain information for a long time.
    Thank you and best of luck.

Leave a Reply

Your email address will not be published. Required fields are marked *