Lending
Lending Money Vs Buying with Cash
When it comes to Lending money for a home or purchase of a boat or anything really you need to consider if what you are buying is asset. A simple way of thinking about it is to consider an Asset as anything that generates income. A liability is something that does not generate income but requires money to be put into it. If you are Lending money at a lower interest rate then what you are getting from your High Yield Savings then this is a great situation to be in.
Lending to buy a Home
If you are Lending money to buy a your own home and you have a mortgage then this would be considered a liability. Unless the value of the property is going up at a rate that is higher then your yearly mortgage repayments. When it is paid off and going up in value then it may be an asset. In some cases people struggle to get a loan because of a bad credit history. You can fix your credit history if it is not accurate.
Lending for Investment Property
Is really only an asset when it is producing positive cash flow. If Lending money to buy it means the mortgage is higher then the rent then it is also a liability. Lending money initially so that the rent covers the mortgage and expenses is a way to create an asset.
Lending for a Boat or Car
It is often considered a good idea to buy items like boats and cars with cash as they are depreciating items. However it may depend on how you use it. Lending money to buy a boat or car that you rent or let out may mean that you earn more then the loan repayment. So it may then be considered an asset.
Credit Cards
When you buy something on a credit card you are effectively Lending money. If you pay your credit cards off each month then you are getting your goods for free for up to 55 days or more. So your credit card could be an asset. If you can pay them off each month it is a great way of Lending money. However if you don’t pay them off then you will pay high interest rates often on items like clothes and food that have no way of generating income. In this case the credit card is a liability. There are ways to reduce the interest rate on your Credit Cards.
