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Your Home Is Not An Asset – Here Is Why

My first introduction to the Financial Independence community came after reading Rich Dad Poor Dad. This book was a fundamental shift in mindset for me where I learned why your home is not an asset. This comes down to one simple principle. Your home is not an asset because it isn’t by definition an asset. Let’s explore the definition of an asset and a liability for further understanding.
Defining An Asset and Liability
There is one and only one critical thing you need to understand. An asset puts money back into your pocket. It is that simple. If you want to read a more complex explanation of an asset, you can click the link above.
Now let’s define a liability. A liability is something that takes money out of your pocket. Again, it is that simple.
Things People Believe Are Assets That Are Liabilities
Now that we have defined an asset and a liability, it is time to better understand things people have mixed up.
The first and most common is someone’s home. If you were to ask most individuals, they would tell you their home is their greatest asset. Let’s take a look back at the definition of an asset. An asset puts money into your pocket. Does your home put money into your pocket? If you aren’t house hacking, the answer would be no; therefore, your house by definition is not an asset. If you want to better understand how to turn your home into an asset, read the article I wrote about house hacking
Another common thing people think is an asset is their car. Your car takes money out of your pocket through insurance, gas, and common maintenance. For these reasons, your car is also a liability and not an asset.
How To Retire Early
Want to understand how you can become financially independent at a young age? Acquire assets and get rid of liabilities! It is really that simple. Once you have enough assets producing cash flow to fund your lifestyle, you will be out of the rat race. It is really that simple when you boil it down to the nuts and bolts.
The Key Problem With The World We Live In
The main issue with the world we live in is technology. We are being conditioned to believe we need things that bring us no value. These things are liabilities as they all take money out of our pocket. Some liabilities are much worse than others. The large car payment you took on to project a lifestyle you want people to believe you are living. The nice luxury watch you purchased to try and impress people. The larger home you purchased because you want to live in an uppity neighborhood.
These things are liabilities that draw you into a financial trap. You will never be able to get out of this trap if it you continue getting drawn in. You will continue wanting more and more. The last thing you purchased isn’t bringing you happiness which leads you to wanting the next thing. This cycle is an ever ending loop that is tough to get out of.
Key Takeaways:
  • An asset puts money into your pocket.
  • A liability takes money out of your pocket
  • Accumulate assets and get rid of liabilities. This will exponentially fast track you to financial independence.
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How to Eliminate Your Largest Monthly Expense – Different Ways of House Hacking

The typical American spends 30% of their take home pay on housing. This isn’t a bad thing, but it is the simple truth in America right now. To eliminate your largest monthly expense, opens you up to many investing opportunities. Want to have a high savings rate and be able to invest more? Eliminate your largest expense. For 99% of Americans, the largest expense is housing.

How To Cut Your Largest Expense

There is one very simple way to cut the largest expense you have every month. House Hack! No reason to over complicate things. Let’s keep it simple.

What Is House Hacking?

House hacking is a term coined by Bigger Pockets that describes living in a home and renting it out. There are a few different ways to go about house hacking. Let’s highlight each one of them.

Strategy 1: Purchase a Duplex/Triplex/Quad

The first strategy involves purchasing a multi-family property. The goal is to buy a property where you can live in one of the units and rent out the other unit(s). This allows you and your family to have your own privacy in your unit. I highly recommend this strategy if you have a family and privacy is important to you. Many markets have multi family properties where this strategy will be effective. If you are able to either cover your mortgage, or come close to it, you are winning.

Strategy 2: Purchase a Single Family Home and Rent Out by Bedroom

This is a little different of a strategy more commonly used by a younger professional. It is also commonly used by someone just graduating college and used to living with roommates. This is the current strategy I am implementing in my first house hack. There are a few things you need to ensure before implementing this strategy.

First, you need to ensure there are no restrictions from your HOA to rent out by the bedroom. There are certain HOA’s that have clauses in their contract to prevent people from doing this. If the property has an HOA, make sure to read through their documentation.

Second, make sure there is enough parking space at the home. It is important everyone has enough parking at the home. Ensure you have enough parking where you wouldn’t cause a nuisance to neighbors. This will help ensure you and your neighbors get along.

Third, try to find an optimal floor plan to prevent more than two rooms sharing a bathroom. Convincing someone to share a bathroom with more than one other person is difficult. It is possible, but just more challenging. Having three people share a bathroom would also cause rents to be lower.

These are all important things to think about if you want to implement this strategy.

Strategy 3: Purchase Single Family Home With Mother-In-Law-Suite

This is a strategy I am looking into for my second house hack. I would prefer a multi-family, but I can also look at properties having a mother-in-law suite. The thought here would be to rent out the Single Family Home and live in the suite. This would be great for markets where many are looking to rent out an entire home and it’s common to have a mother-in-law suite.

Key Takeaways:

  • Focus on the elimination of your largest expense. Housing.
  • House hacking is the single most powerful tool you can use to be able to invest more money. The more money you don’t spend on housing, the more you can invest.
  • There are many ways to eliminate your housing expense. Explore the different options that might work for where you live.

Don’t forget @TheYoungRetireeBy33’s 3 Core Principles:

1 – Your money should make money for you⠀⠀⠀⠀⠀⠀⠀⠀⠀
2 – Start early to realize the power of compound interest⠀⠀⠀⠀⠀⠀⠀⠀⠀
3 – Eliminate your largest expense by house hacking