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1   Randy H   2012 Jul 14, 10:43am  

Heya Rob

Of course a house is an asset. A "real" asset in fact. Rich Daddio simply doesn't understand basic finance and seems to have trouble with the basic balance sheet equation A - L = OE.

2   FortWayne   2012 Jul 14, 10:48am  

Its a good article. Brings up the point on ignorance if an average buyer. Because in America we've been conditioned since day one to buy houses and told it was an investment no matter how much it cost.

That psyche needs to change, people need to wake up and see that it only benefits big banks and realtors, us the people get fucked by that system.

3   Eman   2012 Jul 14, 11:22am  

Randy H says

Heya Rob

Of course a house is an asset. A "real" asset in fact. Rich Daddio simply doesn't understand basic finance and seems to have trouble with the basic balance sheet equation A - L = OE.

The problem is that quite a few people are in the red when you take their asset minus their liability. This is the reason why we have short sales. Sorry, no equity for you. Yeah, I learned that from Seinfeld. :)

4   Rin   2012 Jul 14, 2:20pm  

I think the key is is that historically, those who'd brought their properties from 1960 till 2001, and paid it off, now, can take a reverse mortgage, and spend it during their final years, instead of selling and moving to a nursing home. That's in effect, using the primary home as an asset.

5   clambo   2012 Jul 14, 4:13pm  

A house IS an asset.
However, it may or not be an investment. As investments go, it may not perform very well.

6   FortWayne   2012 Jul 15, 1:26am  

clambo says

A house IS an asset.

However, it may or not be an investment. As investments go, it may not perform very well.

The article talks about how house becomes a liability if one spends too much on it. Just like patrick.net... similar advice.

7   Randy H   2012 Jul 15, 2:24am  

Technically, a house is a form of savings. In countries like the UK, both housing and rent equivalents are included in the national GDP accounting as savings.

8   clambo   2012 Jul 15, 2:25am  

Oh, you mean I was supposed to read the article first?
Yeah, I knew it anyway. Who needs to read articles to understand gravity for example?
Any asset you control using debt entrails more risk than one you own outright.
Unpredictable and unseen events can affect any asset, houses also but people hadn't seen it often enough to know there are risks.

9   dublin hillz   2012 Jul 16, 2:13am  

Rin says

I think the key is is that historically, those who'd brought their properties from 1960 till 2001, and paid it off, now, can take a reverse mortgage, and spend it during their final years, instead of selling and moving to a nursing home. That's in effect, using the primary home as an asset.

A reverse mortage is a loan! Why would someone take out another loan on their "equity" after paying it off and incurring interest charges in the process???!!! If someone cannot afford property taxes + HOA and capture the housing dividend (rent on equivalent property - (property tax+HOA) and they are in their 60s, I am sorry, but at that time, it's time to sell the pad, put the proceeds in a bond fund and use the interest to pay the rent.

10   dublin hillz   2012 Jul 16, 2:18am  

A house is an asset in a sense that you profit from price increase if you sell and incur pain if you have to sell at a loss. It is a tier 1 liability as long as you have to pay off the principal and becomes a much minor tier 2 liability after principal is paid off and all you have to do is pay property tax + HOA or insurance and the costs of tier 2 are much less than renting in vast majority of cases. Rent on the other hand while not officially recongnized as debt is debt nonetheless if you rent for the rest of your life. It's just that that debt is more flexible since its a form of yearly adjustable rate mortgage and you can move if you don't like your renewal offer.

11   StoutFiles   2012 Jul 16, 3:20am  

If you want to keep it simple, then a house is an asset assuming you're not underwater.

If you want to get technical, a house is not an asset until you fully pay it off; until then the bank owns the house.

If you want to get really technical, a house is never an asset because the government owns the land it sits on and can take your house whenever they'd like.

12   Mick Russom   2012 Jul 16, 3:58am  

Worst part of a home is there are no land patents or allodial titles. Dont pay your tax, uncle sam takes your home and gives it to some politician's friend.

The country is farcical now compared to its roots.

13   Randy H   2012 Jul 16, 12:37pm  

A house is always a real asset from the abstract accounting perspective. From the individual's perspective, it is a form of savings because of how US-style mortgages work (excluding exotic products). From a corporation's perspective, it is a tiered real asset generally organized into an investment structure yielding cash flow through rent or rent avoidance, or gains through sale.

That the government can declare imminent domain is irrelevant because the status of the asset rests upon an assumption of private property rights. Remove that assumption and the entire balance sheet equation is irrelevant.

The status of foreclosure is irrelevant as the house remains a secured asset against which one or more of the outstanding liabilities have recourse until such time as the ownership is changed through the judicial process.

The status of short sale only means that you are trying to sell an asset to which you owe other legal contingent obligations. You similarly cannot sell a home to which you are joint tenant unless all tenants willingly agree to the contract. That doesn't mean it's not an asset; it just means it's an asset with multiple interests.

14   Randy H   2012 Jul 16, 12:43pm  

and another thing...

PoorDaddio is an idiot who has no clue about either finance or investing. Classic case of luck misinterpreted as savvy and then exploited as hucksterism when the huckster finds out he can't repeat his savvy again.

An asset -- any asset in fact, not just real ones -- can actually be LESS RISKY when secured by debt. It is not true that debt always increases risk. All you have to do is compare the volatility of the asset itself against the volatility of servicing the debt and you will find many cases where levering an asset produces a more predictable outcome.

Finance isn't something you can simply "noodle through", nor is it something that every programmer or engineer can discover just because they know how to do lots of cool math. You actually have to understand the principles. Go take Rob's class. He'll teach you if you're not ill mannered, I'm sure.

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