[Young Spark]

^^ No hard feelings, many people get confused by the title. I am not totally sure if the investors go through all that but for us consultants, we mainly collect copies of the note, purchasing agreements, copies of various other things (including a contract to check the payor's credit reports, etc.)

But yeah, that is basically it, we conduct the deal and the investor runs through the "data" and everything and saves it and once the deal closes, the note is "assigned" to him/her (the investor.)

The value about all of this: You can sell a part of your note, the balloon payment or sell the entire note for a large lump sum. Thats the benefit.

[Young Spark]

The secret's out you've discovered my true aspirations.

Great sarcasm, even more laughter for the soul.

Again, you are correct...even if you arent you'd never admit it.

I admit I don't know every aspiration of business but I know enough to actually RUN a business without employees... which is what I am doing now. Its called "self-employment."

Good, I simply wish to show others how ignorant you are so they dont take anything you say serious. You state these ridiculous assumptions of yours as fact. Perhaps you should be asking rather than telling.

Its the negativity to leadership I was speaking of, I don't take shyt from nobody who can't be positive with me (and make it serious.) If you can speak to me with respect, don't expect respect back. Point blank!

You have proven your inability to listen to reason. I could talk until I'm blue in the face and you will still stand by your original position.

B.S. --- I listen to what others say. True, alot of the times I stand by my OPINIONS, but I listen to FACTS. Facts have more priority then my opinions because facts are TRUE and PROVEN. So until I see hardcore evidence that my opinions is just the opposite, I stand by my opinions and I put them into theories, if my opinions are irrelevant then I'll give the benefit of the doubt. Sort of what me and Josh were speaking about the title being in possession of the seller (in the case of a private mortgage) or the mortgage company (in the case of a mortgage company lending.)

We met in the middle, a home is an asset (TRUE) but the mortgage is the (LIABILITY) --- in my OPINION, I believe a liability to overshadow an asset. Once again, my OPINION! SO DON'T SAY I DON'T LISTEN!!!

I think the only thing I've done constantly as you state, is point to the errors in your logic. If a single person questions you as a result then it has been worth it.

Um, yeah, whatever. I won't even attempt responding to this comment.

[Power-C]

Originally Posted by crackah

Its an asset because it gives future economic benefit, and its the result of a past transaction, and because its controlled by you!

Yes that is the "Generally Accepted Accounting Principles" definition for an asset, but lets look at it this way. I believe it can be either.

I buy a house for $1,000,000 (I live in California), and pay $200,000 down (20% to give me a good interest rate on the $800,000.) 30 year fixed rate mortgage @ 6.0% is about $4800.00 a month.

Now that we have that set up, let me show you 3 different scenarios.

1) An "alligator"- type property.

So you bought this house as an investment, and decide to rent it out. You charge 5000.00 a month to "make" $200 profit. The problem here is that there are other costs associated with a property than the mortgage.
Here are the other things you must factor in.

-Management (around 5-8% of purchase price) <- not neccessary
-Utilities (landlords usually pay water/trash)
-Maintanence (don't expect your tenets to mow your lawn or fix their sink!)
-Depreciation (Your friend for tax benefits)
-Taxes (BIGGEST cost usually associated with it)

That $200 dwindled to nothing, and yet you still owe. This property is called an alligator because you still have to feed it to keep it running.
You should NOT hold a property for possible appreciation in the future.

Here it is a LIABILITY

2) A "Cash-flow" type property. You instead are able to put $500,000 down (50%) and still are able to charge 5000.00 a month for rent. Montly mortgage is around 3000.00

-Management
-Utilities
-Maintanence
-Depreciation
-Taxes
And still $600 bucks a month in your pocket.

This property is an Asset here..

3) A residence. ??

Robert Kiosayki of Rich Dad Poor Dad defines an asset as something that puts money in your pocket, while a liability is one that takes money out. He defines a residence as a liability for 2 different reasons,
1) It takes money out of your pocket, and
2) The money used for a huge expensive house could have been used to create another asset.

IMHO, you have to live somewhere, and if you find a house in an appreciating market I would say buy it even if you are losing money at the moment.

Sorry for the long post, but I hope it helps and doesn't confuse you any more.



One last piece of knowledge.

The definition and history of mortgage
Mortir: French root meaning "an agreement til death"
Mortgage: Bankers and lenders hope you never pay off your mortgage, its what keeps the economy going. Thats why you always "move up" and renew that mortgage...

The definition and history of Real Estate
Real: Not real (as in real life...) but Re-Al (meaning "Royal")
Real Estate: Back in the day, the "rich" kings and lords were wealthy because they owned all the land, and allowed the serfs and other people to work them. Today you never really "own" your land, even if you pay off the mortgage. You still must pay taxes for EVER!

[wully00]

I think we have a great discussion going here.

Originally Posted by Power-C

1) An "alligator"- type property.

So at the end of 30 years, you have spend say even $500 a month on this house. Thats like $180,000. Now you own a house outright worth $1,000,000 at the time you bought it, probably with a market value of around $3,000,000 then.

Its worth feeding the alligator if it grows that big when you kill it.

[Young Spark]

One last piece of knowledge.

The definition and history of mortgage
Mortir: French root meaning "an agreement til death"
Mortgage: Bankers and lenders hope you never pay off your mortgage, its what keeps the economy going. Thats why you always "move up" and renew that mortgage...

If I may comment on this.

First off, great read... very informative and thorough facts if I may say so... I'll have to research it.

Second... I agree that banks seem to get a bit ridiculous in how they attain their properties. For instance, did you know that the money in your CD is being used to purchase properties... only yielding you maybe 5% a year and could possibly be yielding them maybe 15%-20% a year. Might sound like a SMALL difference, but its quite the opposite. Kind of a rip off if I may say so myself.

Maybe we can have some people share their OPINIONS on this issue.

[silversurfer]

Robert Kiosayki of Rich Dad Poor Dad defines an asset as something that puts money in your pocket, while a liability is one that takes money out. He defines a residence as a liability for 2 different reasons,
1) It takes money out of your pocket, and
2) The money used for a huge expensive house could have been used to create another asset.
------
The major red flag with this book's analysis starts with the existing accepted definition of the word asset and Kiyosaki deliberately tries to change the meaning of this basic word- he's wrong and why he didn't call it something other than asset confuses me. An asset is something one owns that one can sell. monthly income, profit, etc has nothing to do with the definition of asset.

The requirement of an individual being forced to live somewhere is EXACTLY what makes housing a special case and not a liability. In both economic and accounting terms, you cannot go to zero on shelter. right? If you cannot spend zero amount of money on shelter then that means that it's not an economic option. Therefore, you can never say that I may pay $3000 per month on my mortgage so I have a choice to spend $3k to live in this house. You make the determination that:
Mortgage = $3000
Mortgage for house in less-desirable neighborhood = $2000
Rent for apartment = $1800
Rent room in house = $1000
Stay at parent's house = $400 chipped in for utilities
So the Mortgage is at the most an additional $2600 or most likely an additional $1200 per month. and a lot of that is merely cash flow, that flows into the house's equity.

When Kiyosaki says that people should not buy properties that are "under water" aka maintenance and mortgage are higher than rent, that's great in theory but VERY difficult in practice. In many parts of the US for the last 5 years it's been impossible to buy property with no money down or the minimum deposit and cover one's mortgage with rent. Prices simply got too high in all markets thanks to loan availability. since people cannot get bank loans for rent, rents can be kept low. I wanted to buy rental property as early as 2000 and the best I've seen was an apartment building where my estimates showed me making $25 per unit profit THIS YEAR. I would be interested to read actual specs of a rental real estate purchase made by anyone on this board in the last 3 years where they made a profit from day 1. Prices are way to high for all that.

This reminds me of a person who claimed on another board to buy a house for $125k and sell it for $275k. A real estate investor asked them to explain the finances. The proft story quickly changed when the rehab costs were added, taxes, real estate agent fees added, etc.

[DXTINC]

You havent been able to get rents to cover the mortgage on a SFR in southern CA in years. Sometimes I wonder where these late night "no money down" infomercial gurus live. Foreclosures in Riverside County recently hit a 10 year high with record numbers of first time home buyers in default. With the subprime meltdown and the resulting tightening of lending guidelines it'll be interesting to see what happens.

Youngspark: hey remember me? anyway...yes, that's the way banks work. You keep your money there, they meet their reserve requirements, (sometimes not even that- see fed funds rate) and they lend out the rest. Just so you know, the last thing the bank wants to do is foreclose on someone. They dont acquire property per say, they finance property.

[tnz917]

Originally Posted by Create

You know, I have read his books. Did they give you an outfit when you joined his cult?

This thread had nothing to do with RK, which is what I was trying to point out.

Luks to me like you're one of those people who can't defend themselves, starts getting aggro instead. I respected your opinion regardless how I felt towards it. I guess expecting the same in return was too much of a high standard.

You should've be in youngemployees.com instead.

[tnz917]

When you buy a house on mortgage, how can you call it asset? If you default a payment, where does the asset go?

A lot of great accounting concepts started by bending the rules. Look at the theories in Cost management, a lot of them are illegal under the eyes of GAAP. But guess what, those theories helped a lot of companies come out of trouble.

So just get over it. Buying a house with 100% mortgage doesn't increase your net worth. I can see a lot of you guys are really smart people, but horrible entrepreneurs. A lot of you can't maintain a gentle argument without being offended or offending someone else. Cry me a river just because someone doesn't agree with you.

[eich41]

Originally Posted by Young Spark

If I may comment on this.

First off, great read... very informative and thorough facts if I may say so... I'll have to research it.

Second... I agree that banks seem to get a bit ridiculous in how they attain their properties. For instance, did you know that the money in your CD is being used to purchase properties... only yielding you maybe 5% a year and could possibly be yielding them maybe 15%-20% a year. Might sound like a SMALL difference, but its quite the opposite. Kind of a rip off if I may say so myself.

Maybe we can have some people share their OPINIONS on this issue.

Well there's a few things wrong with your statement, although the general concept is correct. Banks take your deposits and give you interests on those deposits. They then take that money and lend it out at a higher rate, keeping the difference. However, it is at much lower rates than 15-20% per year. In fact, a great profit margin for a bank is in the 3-4% range. It's a volume business. That being said it's not really a rip off. Most people don't have the cash on their own to cut out the bank and make the loan directly, the bank has that much because they're pooling the money together. In addition banks provide FDIC insurance up to 100,000. So if anything happens to the bank or your money you get your money back. Which also means that the bank is taking all the risk when giving out loans therefore they deserve to make the higher return. If you don't like it you can lend your money out through prosper.com and watch your money get eaten up by defaults. I would guess that their default rates are in the 25-30% range which means that 1 out of every 3 or 4 loans you make on there, you never get back. Not worth the risk to me, I'll leave it to the banks and their credit control depts.

[eich41]

Originally Posted by tnz917

When you buy a house on mortgage, how can you call it asset? If you default a payment, where does the asset go?

A lot of great accounting concepts started by bending the rules. Look at the theories in Cost management, a lot of them are illegal under the eyes of GAAP. But guess what, those theories helped a lot of companies come out of trouble.

So just get over it. Buying a house with 100% mortgage doesn't increase your net worth. I can see a lot of you guys are really smart people, but horrible entrepreneurs. A lot of you can't maintain a gentle argument without being offended or offending someone else. Cry me a river just because someone doesn't agree with you.

Buying a house with 100% percent mortgage doesn't increase your net worth per se, however, after you make the first payment it will (assuming you didn't overpay and if you underpaid for the house it could increase your net worth immediately). But even if your house is worth exactly what your mortgage is it's still an asset. You just have a liability balancing it out. A mortgage is not your house, you can't live in a mortgage THEY ARE TWO SEPARATE THINGS. As someone pointed out Kiyosaki should not have tried to change the definition of an asset.

The discussion is moving towards whether houses are good investments which is a debate that can't be solved because there are far too many variables. The thing to remember as someone pointed out is that you have some sunk costs in that you HAVE to live somewhere and unless it's your parents basement it's going to cost you money.