Car or House First? - Income Producing Asset

One question that will constantly play around in your mind will be which should I buy first, a house or a car? Some financial advisor recommends buying a house first instead of a car. This is because a house is considered an asset whereas a car is a liability.

We all can see this from the price of houses that increases throughout the years in comparison with a car which always loses its value. This is due to the car's performance being deteriorated as time goes by and a lot of newer cars are being introduced with more powerful technology.

Regardless of that, a car also fulfills the characteristics of an asset since you can always sell it back for money.

But, which shall be a priority of our list, especially for the younger generations struggling to even make money let alone buy a house or a car.

There is this one concept known as an 'income-producing asset'.

The Definition of Income-Producing Asset

Income producing assets are businesses, investments and real-estate that yield a consistent and recurring revenue. This is usually given in the forms of cash, dividends or interest

If we were to decide on buying this type of asset, then we would choose the ones which will give the highest profit gain. This, of course, depends on the level of risks you are willing to take.

In contrast, a non-income producing asset is a type of asset that does not give any income. However, it is still a type of asset since you can always sell it back for cash. Some people would prefer to have this type of asset to get the benefit from the cost of the asset itself.

One example of this category would be real estate which has been acquired for the purpose of long-term investments and is vacant. If you were to decide on buying this asset then it is advised that you buy it at the minimum price.

How about Cars and Houses?

It really depends on the situation and how you make use of those assets.

A car can be considered an income-producing asset if you were to use it to generate income. For instance, you want to use your car for e-hailing services like Grab or Uber for some cash.

On the other hand, if you were to use your car simply as a means of transportation to go to work, then, in this situation it will be categorized as a non-income-producing asset.

This can also be said for a house. If the house was for rent then there is a positive cash flow from the rent itself. This is an income-producing asset.

If the house was used as a place to stay for yourself and the family then no income is being generated. This is a non-income-producing asset.

It is recommended that if you were to buy non-income-producing assets, then you should make sure that the benefits you get outweigh the cost that you are going to bear. Simply buy them at the lowest price you can get them or else turn them into an income-producing asset for some money on the side.

At the end of the day be sure to cut your coat according to your cloth. You simply don't want to overspend and end up being in debt. Be sure to get financial help from an expert before you get into any decisions.

Which of these do you think is more important?

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