Your House = Asset.

**wully00** · 07-24-2007 12:10 AM

Pulled this off the wealth topic... that one was getting kind of heated. Can anyone justify why you would not consider your house an asset with any better reason than "it doesn't make you cash"? My retirement accounts don't give me monthly cash payments, but I still consider them to be assets :-)

**freedom.project** · 07-24-2007 12:26 AM

I personally look at it from he Rich Dad view.

Your house is worth so much money but...it still has expense such as utilities, maintenance, repairs, taxes, etc

But you retirement account is something you put money into and cost you little to nothing to have.

Any questions?

**wully00** · 07-24-2007 12:33 AM

I read Rich dad, it was one of the big things I disagreed about. Utilities you will probably still pay if you have an apartment, along with a few others. The last few years being the exception, usually houses would appreciate much most in a year than you would spend to maintain them.

I wish retirement accounts were free... they still manage to charge you for things here and there.

**sarathy** · 07-24-2007 01:53 AM

I think on the same lines as you but with this logic. If you sell your house for cash... where would you possibly live?!

**wully00** · 07-24-2007 01:58 AM

Even if you own a property and rent it out, you still incur all the same costs of owning the property and then you have to pay rent for somewhere to live.

But thats a different arguement, I read three of the the RD books and I still never understood what he was talking about. Anyone understand this?

**Val3360** · 07-24-2007 02:00 AM

Buying a house is usually an asset, but say you buy a house in an area that is booming for $800,000.00. Before you know it, the market's bubble has burst and houses are sitting unsold for years at a time... The economy in that area becomes depressed and the value of your home dramatically declines and is now worth only $500k, and you are still left owing $700+

Big "what if", I know, but it is an example of ahome being a liability vs an asset

**Young Spark** · 07-24-2007 02:01 AM

Are we speaking from the perspective that the home is being rented out or owner financed? If so, then I believe it to NOT be an asset if you are renting it out. Since you are basically "renting" the home out, even though your generating monthly income, its still YOUR property and has responsibilities such as paying for property maintenance, property taxes, etc. These are liabilities (which is the opposite of an asset.) When you have something that requires you to pay out money from your pockets or using the income it is generating for you, I typically conform it to be a liability, not an asset.

Now if your owner-financing the home, then I would consider it to be a asset. Its collecting passive income for you (your collecting the payments for the sale of the home... the home was sold to the new buyers meaning the property taxes and everything is the new homeowners responsbility.)

Now if you have a mortgage on a home, its a LIABILITY as well. After all, 2 things, 1... the mortgage company owns the home, not you... so its their asset and your liability until you pay it off. Secondly, you have to pay property taxes on it and maintenance fees and everything else. Anything taking money out of your pocket = liability.

That's why I don't believe a home to be an asset unless your either owner financing it or own it free and clear of no mortgages, liens, etc.

**wully00** · 07-24-2007 02:06 AM

I just don't see how this is possible, for example:

I buy a house for $100k. I have a $80k mortgage with a $20k down payment. While the liability is the mortgage, the house is the asset, so when they net out the whole property would show up on your balance sheet as a $20k asset.

Is this correct?

**Val3360** · 07-24-2007 02:07 AM

I believe that if you are using the property as an INVESTMENT (ie, rental) than you are investing in the wrong thing. A wise investor would be buying the property for the equity and not the monthly income it bring in.

**wully00** · 07-24-2007 02:11 AM

I agree rentals not the best source of income, but buying property is an investment no matter what you do with it. It should always be an asset... that is what I understand. It doesn't matter if you let it sit, rent it out, or live there theoretically.

**crackah** · 07-24-2007 02:17 AM

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

**wully00** · 07-24-2007 02:24 AM

Thank you! So at least some of us are on the same page...

**Young Spark** · 07-24-2007 02:25 AM

I just don't see how this is possible, for example:

I buy a house for $100k. I have a $80k mortgage with a $20k down payment. While the liability is the mortgage, the house is the asset, so when they net out the whole property would show up on your balance sheet as a $20k asset.

Is this correct?

Although I am no real estate expert and I can't answer this without researching... I can tell you, if the mortgage company has $80k in it and they own the home, I couldn't see how it would be YOUR asset.

The property and home is owned by the real estate company, not you (the mortgagor) so really its no benefit to you unless you pay it off and then owner finance the home. I say owner finance it BEFORE renting it out. Sure you'll be selling the home... but why should you owner finance:

1. If you owner finance opposed to as receiving a lump sum from the buyers mortgage company... you'd be better off. If you owner finance, you can make a return on your money (you collect interest for selling the property.)

2. If you own a home with $15k left on the mortgage, you'd want a $15k down payment... that'll allow you to pay the remaining $15k balance for the mortgage and you owner finance the remaining portion.

Example: Your owner financing your home for $260k ... it has $15k left on the mortgage ... you take the $15k and pay the mortgage off. You then owner finance the remaining $245k.

Let me do a quick example for you:

You have a buyer for your home that you are selling for $260k --- with a $15k mortgage left on it. The buyer doesn't qualify for a loan from the bank but their credit report looks good and everything seems fine to you. They have $15k for the down payment. What do you do?

You accept the $15k down payment and pay the mortgage that you still owe off with the down payment. You then draw up a promissory note (or "a note") with the real estate property being security of that note. So if the payments start to lag, or they fall behind or give up on the payments, you can repossess the home and foreclose it or resell it.

Anyway...

Now $260k-$15k = $245k --- so you carry back a note for $245k that has an annual interest rate of 13% and amortized for 30 years with no future balloon payment. Time to whip out the financial calculator.

Assuming by the above example: Your monthly income will be $2,710.19 --- and that's passive income (meaning your earning income with little or NO work at all.) Not bad huh?

**Young Spark** · 07-24-2007 02:32 AM

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

I beg to differ... it is NOT controlled by you... the property title isn't in your name until a mortgage is paid off. Now if you own the home free and clear, then I will agree with you. But if a mortgage company owns it then the answer of it being controlled by you is no. The mortgage company can at any time foreclose on you if the mortgage payments aren't made... so how is it necessarily controlled by you?

**zoobie** · 07-24-2007 03:17 AM

Originally Posted by freedom.project

Your house is worth so much money but...it still has expense such as utilities, maintenance, repairs, taxes, etc

But you retirement account is something you put money into and cost you little to nothing to have.

True. But of course, owning a house and lot is still an investment.