Black Money Business Jobs : Is a home an asset?

Discussion in 'Black Money Business Jobs' started by Shikamaru, Aug 31, 2011.

  1. Shikamaru

    Shikamaru Well-Known Member MEMBER

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    Yes and no.

    Yes: From the definition of asset provided by Wikipedia, an asset represents ownership value that can be converted into cash.

    NO: A house is not an asset. An asset, as re-defined by Kiyosaki in Rich Dad, Poor Dad, is something that generates money for you. A house, in this context, fails to qualify. It is a dead loser from the moment it is bought i.e. taxes, repair costs, insurance, interest on a mortgage, etc.
     
  2. MsInterpret

    MsInterpret Well-Known Member MEMBER

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    I thought that a home can go up in value, depending on location, upgrades, ect., so wouldn't it be an asset in this scenario?
     
  3. Shikamaru

    Shikamaru Well-Known Member MEMBER

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    Let's look at it like this ...

    Assume we purchase a $100,000 home by mortgage.
    In 30 years time, you will have spent $300,000 on a $100,000 home to discharge the mortgage agreement.

    This assumes we stay in the home for 30 years.
    This also assumes that we won't take out any home equity loans either.

    In effect, we bought (1) house for ourselves and (2) for the banker.

    This doesn't even include property taxes, repairs on the home, insurance, utilities, etc.

    Now let's complicate the picture a degree.

    We are using FRNs as the medium of exchange. This medium of exchange depreciates in value. We will lose purchasing power over time making those extras such as property taxes, repairs on home, etc. more expensive in terms of number of units needed to discharge those debts.

    I think we can see, given the current US housing bubble, that the cliche that house prices always go up is false.
     
  4. Clyde C Coger Jr

    Clyde C Coger Jr going above and beyond PREMIUM MEMBER

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    In the Spirit of Sankofa,

    .......Unless its owned, rented out and/or made liquid its a liability, another way of saying what's been said by posters.

    Peace In,
     
  5. MsInterpret

    MsInterpret Well-Known Member MEMBER

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    Well I know that house values always don't go up. But some people renovate homes, especially older ones and some of these homes are seen to go up in value depending on the condition of the home.

    For example, there is an area in my city called the Stadium District, awhile back like maybe 10 years ago, these homes would probably go for I dunno lets say 300,000 now some of them have sky rocketed into the millions, based upon location and history in these homes. So these homes would not be considered an asset?
     
  6. Shikamaru

    Shikamaru Well-Known Member MEMBER

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    If we use the second context of the definition of asset, no.

    Let's look at it this way.
    The purpose of an asset, in accordance with the second context given, is to make money. An asset puts money into your pocket.

    If we buy a house for $300,000 followed by an increase of value up to $1,000,000; The house will not qualify as an asset until sold. When sold, we now have actual or realized gain. Until the house is sold, we have potential gain.

    In the meantime, the home is steady sucking money out of your pocket rather than putting money in.

    A home may have an assessed value of $1,000,000.
    The home selling for the price has yet to be seen until the a deal is made. The market may not support the assessment of $1,000,000. Market value may only be $750,000 or $500,000.

    The second context of the term asset is based on the idea of cash flow.
    How much cash flow does the home provide us?
    For most, that cash flow is NEGATIVE through its expenses i.e. insurance, utilities, property taxes, etc.
     
  7. Shikamaru

    Shikamaru Well-Known Member MEMBER

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    The example you've given is a bit different.

    Those people who buy homes at a discount, repair, followed by selling those homes are "flipping houses".

    It is the concept of buy low and sell high.

    Those people (who do it successfully) are making money and have assets in both the first and second contexts of the term provided initially in this thread.

    The distinction can be very subtle at some times and very sharp at others.
     
  8. MsInterpret

    MsInterpret Well-Known Member MEMBER

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    So the more the house goes up in value, so does the insurance and property taxes...That I can understand.

    But basically was getting at if someone were to sell this house it would only be an asset then. But I get it. Thanks for clearing that up.

    :)
     
  9. Shikamaru

    Shikamaru Well-Known Member MEMBER

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    Bingo.
    I concur wholeheartedly with you.

    There is also the implication that we will be net positive.
    It is possible that the expenses and liabilities exceed whatever equity we have in the home.

    In the aforementioned case, we'll be in the red.
     
  10. Shikamaru

    Shikamaru Well-Known Member MEMBER

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    Now is as good of time to introduce another term, value.

    The two ancient divisions of value are value of use and value of exchange.
    Value of use is utilitarian. This value measures the utility of an item.
    Value of exchange involves price. This is the assessed or actualized value during a sale of an item measured in price. The former is popular for purposes of taxation. The latter has to do with items exchanged between buyers and sellers.

    There are multiple economic theories on value, titled Theory of Value.
     
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