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"It's always a matter of money"! Having enough money, one no longer have to work for a bunch of a__holes if they want! I'm now retired and glad that I no longer have to work for a bunch of a__holes!
I'm not an historian or expert, but IMO, manual labor was society's imposition to make someone else rich and people who don't own a home, provide rent and money to buy food and maybe save a nest egg for their retirement! During the caveman days work was just a daily necessity to work the land and hunt for game in order to survive!
The invention of the barter system and free trade brought around the mandatory 40 hr work week and government established rules and regulations telling everyone when one can retire or not!
Location: Chapel Hill, NC, formerly NoVA and Phila
9,778 posts, read 15,788,843 times
Reputation: 10886
Quote:
Originally Posted by eRayP
Your right. Many people think that a home is an asset but they are wrong. It is a liability. An asset puts money in your pocket, a liability takes money out. Even after you pay your house off you still have to pay taxes and upkeep (money going out). What column does your house go on on a balance sheet. If you own real-estate, rent it out, after paying all expenses and still have a positive cash flow it is an asset.
Too many believed that the housing market always went up therefor the value of their house went up. They would also borrow money against the "perceived" value of house. I say perceived because it is just that, unless you sell you do not realize the profit or loss.
I am not sure if I explain it as eloquently as mathjak107 but a house is a liability.
A paid-off house (or one with postive equity) is an asset that has expenses associated with it, just like most assets. For example, suppose you have a mutual fund. That is an asset, but it has expenses, sometimes 1% of its value. What about stocks? That's also an asset. Do you pay a percentage each time you sell or buy? Those are expenses. What if you buy a solid block of gold? Do you put it in a safe-deposit box? That is an expense. Few assets are free of costs associated with them.
We own a house in Virginia. It was our residence for 12 years until about a year ago. The house is worth about $550K. At the time we left, we owed about $100K on it ($1700 per month). We paid $6K annually in taxes ($500 per month) and $1200 in insurance ($100 per month). And I'll estimate $3600 per year in expenses ($300 per month). Therefore, our total expenses per month were $2600. Our house had 7 years until mortgage payoff time at which point our expenses would drop by $1700 per month.
If I am to understand you correctly, you are saying that while I lived in that house it was a liability, not an asset. How much was it a liability for?
If we sold our house at the time we left one year ago, the house would have conservatively sold for $550K. We would have had to pay back our $100K loan and about $50K in real estate commissions and settlement expenses. We would have walked away with $400K. Yet the day before we sold, the house was not an asset? At what point does it become an asset? At settlement when we get handed a $400K check?
Now fast-forward one year. We still own that house in Virginia. We took another $100K out of the house and reworked our loan on it for a longer period, so we now owe $200K total on the house ($1000 per month). The taxes are still $500 per month. Insurance is less since we have no contents (<$50 per month) and expenses are the same ($300 per month). We collect $2600 per month in rent. It is still worth $550K+. We have a positive cash flow of $750 per month. So you are saying just by moving out of there and collecting rent that exceeds our expenses, the house is suddenly an asset yet it wasn't before?
The house WAS an asset before - an asset that I was living in. It had positive worth that exceeded its liabilities. You can see that I could turn that asset into a rental with a positive cash flow or a sale with a large cash proceed.
Now, if you are underwater on your house then it has negative net worth (worth = asset - liability). But if the worth of the house is above what you owe, then it is an asset.
On a balance sheet, the value of the house goes on the left on the asset side. The amount you owe on the loan goes on the right on the liability side.
Seems that the main topic is being hijacked about what a house is worth or is it an asset or liability!
Are there any financial advisers or experts out there to tell us all if a home is an asset or a liability?
I say it's both depending on the circumstances!
Location: Chapel Hill, NC, formerly NoVA and Phila
9,778 posts, read 15,788,843 times
Reputation: 10886
Quote:
Originally Posted by Art2ro
Seems that the main topic is being hijacked about what a house is worth or is it an asset or liability!
Are there any financial advisers or experts out there to tell us all if a home is an asset or a liability?
I say it's both depending on the circumstances!
Yes, we have slightly veered off topic. I think one has to put his house in perspective when considering retirement. If you live in a 4-bedroom house where you raised your 3 children and the house is paid off and worth $500K, then it's realistically an asset - regardless of what an accountant would call it. Let's say this retired couple will likely downsize and sell the house before they retire. They would need to figure out how much a smaller house, meeting their retirement needs would cost. If they do research and figure out that such a house would cost $300K then they can realistically count on having this $200K from their current house once they retire.
If on the other hand, a couple is living in a small home worth $300K that they never expect to leave, then it makes less sense to count on the equity in their home to live on. Although, it should still be a consideration. If they own the house free and clear, they *do* have access to that money. And they would be able to take out a mortgage or home equity loan on the house in the future if they needed the money. This couple is certainly better off than someone who buys a $300K home in the beginning of retirement and has zero equity in the house.
I think that's why it bugs me when people say a house is not an asset. If two couples own identical homes each worth $300K, yet couple A has a $250K mortgage and couple B has $0 mortgage, clearly couple B has more worth than couple A. And saying that both houses are liabilities does not make much sense because clearly they are not equal situations.
A paid-off house (or one with postive equity) is an asset that has expenses associated with it, just like most assets. For example, suppose you have a mutual fund. That is an asset, but it has expenses, sometimes 1% of its value. What about stocks? That's also an asset. Do you pay a percentage each time you sell or buy? Those are expenses. What if you buy a solid block of gold? Do you put it in a safe-deposit box? That is an expense. Few assets are free of costs associated with them.
Yup. I can't believe someone is claiming an asset worth as much as a house isn't actually an asset because one has to spend money on it.
you can call anything an asset . my shoes , my furniture and everything else i own are an asset depending how far i want to count residual value on possessions.
until the day comes you sell it your going to pay bills on it.
if you want you can track your equity in it. why shouldnt you .
but it does not feed the income side of things . its only a liabilty that represents your housing expenses .
all it represents is cash flow until its sold and any equity can be reimbursed against expenses.
my car is a liabilty ... if i own it long enogh past the stage where its just an old car it may become quite valuable. if i sell it and make money it will realize itself as an asset at that point but until them it makes me poorer.it represents my transportation costs.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,778 posts, read 15,788,843 times
Reputation: 10886
Quote:
Originally Posted by mathjak107
you can call anything an asset . my shoes , my furniture and everything else i own are an asset depending how far i want to count residual value on possessions.
until the day comes you sell it your going to pay bills on it.
if you want you can track your equity in it. why shouldnt you .
but it does not feed the income side of things . its only a liabilty that represents your housing expenses .
all it represents is cash flow until its sold and any equity can be reimbursed against expenses.
That doesn't make any sense. So according to you if you have a monthly maintanance fee on a stock mutual fund account, you wouldn't count the mutual fund as an asset because it has expenses associated with it. Let's assume the mutual fund account is worth $10K. This mutual fund is not necessarily generating any income. The yearly fee is $100. You haven't sold it yet and cannot pay bills with it. Right now it's costing you money. Is it an asset? What if hasn't made you any money in months? In fact, next month its worth is $9K. Is it still an asset? Or is it not an asset until you sell it and/or it makes you money and/or has no expenses associated with it? Because if that is your definition then a mutual fund is not an asset.
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Having enough money, one no longer have to work for a bunch of a__holes if they want! I'm now retired and glad that I no longer have to work for a bunch of a__holes! 
