Last month I listened to Paula Pant interview Chris Hogan, the author of ‘Everyday Millionaires’. According to the measurements used in that study, it may well be that we are on our way to being millionaires, but I am not sure whether I agree with the definition of millionaire, as they took into account the value of their houses.
Three years ago we moved from a small terraced house to a four bedroomed detached property. Mr Simple had sold his own property – a modern starter home – before he moved in with me for a while. We wanted a house with a large garden, as we love growing our own vegetables, so in many ways we bought the house for the garden rather than the size of the building.
At that point in my life I had not discovered the FI/RE movement. The reason for the move was not only to have a bigger garden, but also to move nearer to Mr Simple’s place of work. I transferred to another office within the same organisation. The house we live in is about equidistant between our two places of work. In that way one would say that the move was in line with the FI/RE principle of reducing your transportation costs, as each of us had a twenty-minute journey to work. Now I say ‘had’, as Mr Simple has been made redundant since we moved house and my office has been shut due to efforts on the part of my employer to reduce overheads. Fortunately, I am able to work at home a lot, but when I do have to go to the office it is an hour’s drive away.
Not only is it in this study that the value of a property is considered an asset, but many FI/RE blogs post monthly net worth updates which include the value of their house minus any outstanding mortgage balance that they owe. The question that I have is whether the value of your house should be considered in your net worth calculations. According to Robert Kiyosaki of Rich Dad Poor Dad when calculating your net worth you should not include your home.
We have about £370,000 equity in our home, but that money is not accessible to us, as we don’t plan to sell it and even if we did we would still need somewhere to live. We could buy a smaller property and therefore invest some of the money, but not all of it.
Robert Kyosaki not only believes that you should not consider your house an asset, but in fact it could be considered as a liability. A house has to be maintained, there is decorating to do, it needs cleaning and you have to pay to heat it and light it, as well as other bills such as council tax. The bigger the house the higher the bills, so even though some would say that a large house means a higher net worth, in fact it could be stated that the greater the value of your house the bigger a liability it is.
Now that we have this house and I have got the FI/RE bug I plan to consider how to turn it into an asset. At present there is a considerable amount of decorating to be done, which Mr Simple has turned his hand to now that he doesn’t have full-time employment. Ideas that come readily to mind are AirBnB, renting out a room to a lodger, hosting overseas students and renting out the driveway for parking as we live near an airport. I need to do some research on each of these and plan to share my findings with you over the next couple of months.
Do you see your house as an asset or a liability? Have your turned your house into an asset? I know that Gentlemans Family Finances has delved into the world of AirBnB. Have you tried this or any other ways of making your house pay? I’d love for you to share your experiences.