Your house liability or asset?

[eli77]

I'm thinking liability although our house in south Florida has been paid off for over a decade.

 

[Reincarnated]

As an accountant I can only see it through the lens of the balance sheet. The house is an asset, and the mortgage outstanding against it is a liability. But I understand where you're coming from that it may be a "liability".

 

[AureliusMaximus]

I'm thinking liability although our house in south Florida has been paid off for over a decade.

Privately owned property can never be an asset and let me explain why:
Its is a liability because it takes out money of you pocket each month e.g. taxes, electricity, insurance etc. Yes you might get lucky and sell the house with a profit, but it might also bright you down the drain if you have to sell it with a loss. So you cannot list "potential profits" that as an asset either. Banks will also list you as a risk and potential liability as they consider lending money to the public as more risk than businesses.

However; if you were a property investor and owned houses through a company you had formed and rented these houses out it would be a n asset as it then makes you money that you can cash in your pocket.. The tenants pay your bills and as a company you get loads of tax advantages and you can also get access to very cheap loads though the banks as they see you as a business too.


I hope that makes sense to you @eli77 ?

 

[Reincarnated]

Privately owned property can never be an asset and let me explain why:
Its is a liability because it takes out money of you pocket each month e.g. taxes, electricity, insurance etc. Yes you might get lucky and sell the house with a profit, but it might also bright you down the drain if you have to sell it with a loss. So you cannot list "potential profits" that as an asset either. Banks will also list you as a risk and potential liability as they consider lending money to the public as more risk than businesses.

However; if you were a property investor and owned houses through a company you had formed and rented these houses out it would be a n asset as it then makes you money that you can cash in your pocket.. The tenants pay your bills and as a company you get loads of tax advantages and you can also get access to very cheap loads though the banks as they see you as a business too.


I hope that makes sense to you @eli77 ?

This is the wrong way to think about it. Cash flow does not necessarily dictate classification as an asset/liability. Explain "loads of tax advantages", yea their are tax structures, rehab/CRA credits, and deductions that can make it lucrative, but they are usually exaggerated.

And also I don't know what bank you've worked with, but at virtually every bank in America you are going to get a considerably better borrowing rate on a first lien residential mortgage than a rental/investment property, probably by 100 basis points on average.

 

[AureliusMaximus]

This is the wrong way to think about it. Cash flow does not necessarily dictate classification as an asset/liability. Explain "loads of tax advantages", yea their are tax structures, rehab/CRA credits, and deductions that can make it lucrative, but they are usually exaggerated.

And also I don't know what bank you've worked with, but at virtually every bank in America you are going to get a considerably better borrowing rate on a first lien residential mortgage than a rental/investment property, probably by 100 basis points on average.

Actually you are incorrect.
As a former professional in the banking industry for almost 10 yrs as pro FX trader bank and private banker I know about this.
A private house/apartment etc. can never be an asset. Assets put money into your pocket. Liabilities takes money out of the pocket.
It's that simple!

Hence any private ownerships of properties or anything else like a car, boat etc.. is always an labiality.

 

[Reincarnated]

Aren't all assets 'liabilities' until paid for (or in the green)?

Not really, your technical equity offsets the decrease in the liability. Does not impact the treatment of the asset.

 

[jaygreenb]

I'm thinking liability although our house in south Florida has been paid off for over a decade.

You can make the argument both ways on technicality. My personal belief is not to add it to my net worth calculation. It is not that liquid and you have to add in the costs of finding somewhere else to live if you did sell. Money put into it is more for enjoyment and quality of life as opposed to ROI. If looking at it as a pure investment prospective, there are better ways to get a higher return than a personal residence. For most who are not that disciplined, it is a forced savings.

 

[Scaramouche]

Hi Eli,
Yes,I can quite understand that at times a home can seem a load to carry,but apart from the intangibles of independance,identity,dignity and security,given Governments need for inflation,a fixed supply of land and an expanding population base Real Estate is the Goose that lays the Golden Egg...There is of course the caveat,that should you live in an area where changes in say Mining or Industry have created a decline in population or poverty then this will be reflected in property values and your own income.But Eli,take heart,that aint gunna happen in Miami.

 

[Bible_Belt]

Grandma left it to me, so it's hard to argue with a cost basis of zero.

 

[jaygreenb]

Grandma left it to me, so it's hard to argue with a cost basis of zero.

Do you live in it or rent out?

 

[EyeBRollin]

Asset. You need a place to live.

 

[BackInTheGame78]

Actually you are incorrect.
As a former professional in the banking industry for almost 10 yrs as pro FX trader bank and private banker I know about this.
A private house/apartment etc. can never be an asset. Assets put money into your pocket. Liabilities takes money out of the pocket.
It's that simple!

Hence any private ownerships of properties or anything else like a car, boat etc.. is always an labiality.

Once the house is paid off, all you have are taxes and upkeep on it, and lots of equity you can borrow against.

What do you have when you are renting?
Endless housing payments that right now are approaching being more than or in some cases already far more than a mortgage in many places and no equity.

This is the same argument versus owning or leasing a car. Concept is the same, I will have no car payment for many years of I buy a quality car versus a never ending car payment if I lease one. It's about taking money you could be using for other things and flushing it down the toilet.

Unless your house is a shack, selling it won't be a problem in most areas, probably for far more than you paid for it. My house is up about $150K over what I paid for it and in some markets over the last 20 years it probably tripped or more.

And if you live in San Francisco, even if it is a shack with only 3 walls you can still get over a million dollars for it because they will come in and tear it down and build a new house on the land they now own.

I don't really care about a discussion between liabilities and assets, this is simply common sense.

 

[EyeBRollin]

A private house/apartment etc. can never be an asset. Assets put money into your pocket. Liabilities takes money out of the pocket.
It's that simple!

Hence any private ownerships of properties or anything else like a car, boat etc.. is always an labiality.

This is completely wrong. A house is most certainly an asset because you need a place to stay. Even a car is an asset. Yes, cars are depreciating but do you plan on walking everywhere?

 

[AAAgent]

I'm thinking liability although our house in south Florida has been paid off for over a decade.

If it’s paid off then it’s an asset. If the value of the asset you own is greater than any costs associated to it, still an asset.

so unless repairs and upkeep are more than the value, than should be an asset.

 

[Bible_Belt]

Do you live in it or rent out?

Oh hell no to renting, renters are animals. They destroy everything they touch. My family has been landlords all my life and I have often been the one fixing tenant damage and cleaning up their messes. Glamorous, it ain't.

 

[jaygreenb]

Oh hell no to renting, renters are animals. They destroy everything they touch. My family has been landlords all my life and I have often been the one fixing tenant damage and cleaning up their messes. Glamorous, it ain't.

Can't argue with that, heard some horror stories from people I know who did section 8 housing rentals. Anything dealing with the general public, whether clients or employees, will have challenges. Especially lower income.

 

[RickTheToad]

Actually you are incorrect.
As a former professional in the banking industry for almost 10 yrs as pro FX trader bank and private banker I know about this.
A private house/apartment etc. can never be an asset. Assets put money into your pocket. Liabilities takes money out of the pocket.
It's that simple!

Hence any private ownerships of properties or anything else like a car, boat etc.. is always an labiality.

Did they use spell check in the banking industry?

 

[BackInTheGame78]

Did they use spell check in the banking industry?

Most banks still use excel spreadsheets for literally everything that they update manually. It's so sad.

When I started automating all these manual things they were doing that would take countless hours and reduced some things from 8 hours to 20 minutes, they thought I was a god.

 

[AureliusMaximus]

Did they use spell check in the banking industry?

One: I wrote it in a hurry while I was on work....
and two: does it fricking matter on PUA forum?
At least I was kind enough to even bother to answer the OP´s thread question.

 

[AureliusMaximus]

Most banks still use excel spreadsheets for literally everything that they update manually. It's so sad.

Even more general companies use MS excel spreadsheets. It is an application that refuses to die.