# Is my home really an asset?



## gardner (Feb 13, 2014)

I've been doing the usual net worth estimations and I am inclined to exclude my residence as an asset, except in that it might (but doesn't in my case) offset a mortgage debt. My reasoning is that I can't realistically sell it without either becoming homeless or creating a new, comparable expense. And it doesn't generate any income. In a net worth estimate I treat it as 0.

I have a rental property that yields 6% after expenses on its original cost and 2.6% or so on its assessed current value. I count that as an asset because I could sell it, and it does generate a yield.

Is this crazy reasoning?


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## nathan79 (Feb 21, 2011)

You don't need to own a home, you could rent.. so yeah, it's an asset.


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## CPA Candidate (Dec 15, 2013)

The definition of an asset is something that arises from past events and has future economic benefits. In this case the future benefit is conversion to cash by sale.


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## OnlyMyOpinion (Sep 1, 2013)

So for a complete listing of your total assets it should be included. But if you are looking only at your liquid assets, or your assets/accounts that will form the basis of retirement or future income then I would consider it not necessary. We don't include ours (2 of them) in our retirement calcs. They are likely to see the light of day only as 'estate' assets. 
I think what you include as liquid assets is likely to vary over time as well. We don't include our new car, but a young person whose car is a big part of their value certainly might want to.


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## gardner (Feb 13, 2014)

OnlyMyOpinion said:


> We don't include ours (2 of them) in our retirement calcs. They are likely to see the light of day only as 'estate' assets.


This is my thinking. Yes, if something terrible happened, I could sell up and rent, but I'm not really planning for that.


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## CalgaryPotato (Mar 7, 2015)

It's an asset that pays you a dividend equivalent to the rent you aren't paying every month. (minus expenses of course)

If you sell it, you'll no longer realize those "dividends" just like if you sell your stocks, you won't get those dividends anymore.

OnlyMyOpinion has it right on though, even though it's without a doubt an asset and an important part of your net worth, you have to understand how it fits into your overall financial picture. if all your net worth is in a house, then cash flow will be an issue regardless of your worth.


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## peterk (May 16, 2010)

CalgaryPotato said:


> It's an asset that pays you a dividend equivalent to the rent you aren't paying every month. (minus expenses of course)


Yup that's the way to look at it. It's imputed rent. Definitely an asset.


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## Ag Driver (Dec 13, 2012)

In my opinion, a house is considered an asset. 

Anything tangible can be considered an asset, so long as there is a perceived value. If no one is willing to pay you money for your item, it can no longer be considered an asset. Some assets maintain value, some depreciate over time, and some appreciate.

In terms of net worth, I do not add my depreciating assets. Well .... really, I only include my house in my net worth.


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## crazyjackcsa (Aug 8, 2010)

As was stated, anything tangible is an asset. The clothes on your back, the food in your fridge. I wouldn't include them in any sort of retirement plan or net worth calculation but they are assets. I don't include my home in my retirement plan. I do include it in my net worth calculation.


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## Just a Guy (Mar 27, 2012)

I always liked Kiyosaki's definition of assets and liabilities. 

An asset is something that puts money in your pocket, a liability is something that takes money out of your pocket. 

So, while you own your house, it's a liability. When you sell it, it's an asset. You never really know your real estate's value until someone pays you for it, everything else is wishful thinking in most cases. 

I do believe that, for the majority of people, a house is a forced savings plan. It's savings that most people wouldn't have if they didn't buy a house.


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## heyjude (May 16, 2009)

Your equity in a house is an asset. Your mortgage is a liability. If your equity is greater than your mortgage, then on a net basis, you have an asset. The converse is also true.

The cost of maintaining the house is an expense, but if you rent out the basement, or your adult children pay you rent, your house is generating revenue. 

If you need long term care, the money you realize from the sale of your house will most certainly be an asset!


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## steve41 (Apr 18, 2009)

Anyone ever heard of 'down-sizing'? Or has that been made illegal?


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## gt_23 (Jan 18, 2014)

gardner said:


> Is this crazy reasoning?


Pretty much, although flawed reasoning is probably more appropriate. Yield and liquidity have nothing to do with classification of an asset.

Since you're probably the only person in the universe that cares what your net worth is, it really doesn't matter much what you do. However, if you're going to spend time measuring something, you might as well measure the right thing!


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> I always liked Kiyosaki's definition of assets and liabilities.
> 
> An asset is something that puts money in your pocket, a liability is something that takes money out of your pocket.
> 
> ...


This is actually not true at all. Lots of assets require maintenance expenses, like a thoroughbred racehorse for example.

When you sell your house it doesn't become an asset, the cash proceeds from the sale do.


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## mind_business (Sep 24, 2011)

Well, the right answer is that OF COURSE a house is an asset, as per traditional definitions. However, whether you want to track that particular asset is up to the individual. I have no idea if I'm going to own a house during retirement, so for me it's an asset I need to include in my calculations. I don't track asset value for today's benefit, but rather what will I be worth at retirement, or at an FI age.

Tracking a quickly-depreciating item like a car however, is of no benefit to me to track. Yes it's an asset, but I couldn't be bothered constantly applying high depreciation rates.


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## gardner (Feb 13, 2014)

mind_business said:


> OF COURSE a house is an asset


Yes. It's my fault for using a word with a specific technical meaning.

I was thinking of blocks of capital/assets that are likely to yield retirement income, or form part of liquid retirement savings over the next 30 years. Obviously "asset" is not the correct term. Maybe "performing asset" might be closer. In any event, enough others have echoed my instinct that feel vaguely sane in my reasoning.

Over the long haul I suppose the home will in fact be sold, but I will be 35 years in the ground and my wife will be 107.


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## Islenska (May 4, 2011)

Never use my house in the great asset/equity debate because you have to live somewhere and for us at some point the house would simply become a nice condo and at some point the condo become a..............

Suppose you could argue, sell and rent but it is still all in the mix!


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## Just a Guy (Mar 27, 2012)

gt_23 said:


> This is actually not true at all. Lots of assets require maintenance expenses, like a thoroughbred racehorse for example.
> 
> When you sell your house it doesn't become an asset, the cash proceeds from the sale do.


He doesn't imply that it has no value, but if it costs you money it's a liability (maybe small vs. it's value, but still a liability). As for racehorses, trust me, they are a major liability, as in "how do you make a small fortune in horses? Start with a large one". 

For the most part, equity in a home is dead money, earning very little if anything usually (last decade excluded of course), and it can get quite ugly if you add in all the interest, taxes, maintenance, upgrades, realtor fees, legal fees, bank charges, etc. (which most people convieniently ignore when they talk about selling their homes for "a profit").


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## Plugging Along (Jan 3, 2011)

I count my home as an asset. It reduces a negative cash flow/out flow by not having to rent. 

I don't include it for my retirement planning in terms of generating income, but the fact that. Don't have to pay $2000 a month in rent to me it has to factor as an asset. Also, as others have said, you can sell you home and downgrade, or even take out a reverse mortage. 

I would also argue that my kids would consider it an asset If they inhereted it. As I already , hope that will will leave something to our kids and grandkids, it's still an asset to me.


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## andrewf (Mar 1, 2010)

Yes, houses are assets that generate implied cashflows from expenses avoided, namely rent less cost of ownership (property tax, insurance, maintenance and perhaps utilities).

Example detached house in Mississauga renting for $2100 + utilities. It is probably worth ~$500k-600k. So owning it would yield $2100*12 - 1.25%*$550k for property tax - ~$3500 maintenance / year = $25,000 - $6,875 - $3,500 = $14,625 per year, or a yield of 2.65%. You could probably call that a real yield, because you would expect rents to rise in line with inflation over the longer term. Of course if the value of properties rises faster than inflation, it looks like a much better investment and vice versa.

http://www.kijiji.ca/v-house-rental...ss/1068257341?enableSearchNavigationFlag=true


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## nobleea (Oct 11, 2013)

Just a Guy said:


> I always liked Kiyosaki's definition of assets and liabilities.
> 
> An asset is something that puts money in your pocket, a liability is something that takes money out of your pocket.
> 
> So, while you own your house, it's a liability. When you sell it, it's an asset. You never really know your real estate's value until someone pays you for it, everything else is wishful thinking in most cases.


Kiyosaki was a talentless hack. His definition is questionable. What about a non-dividend paying stock? Those don't put money in your pocket until you sell. Much like a house. Google, Berkshire Hathaway, eBay, Gilead - are they not assets?

A house is an asset. A mortgage is the offsetting liability. You can have as many tracking sheets as you want.
Net worth should include everything.
You can also track investable assets. Or liquid assets.

All that matters is that you're clear to what you're measuring and how, and that you're consistent. (House purchase price. No, purchase price plus inflation. No-tax assessed value!, no maybe comparable sales value.)


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## Just a Guy (Mar 27, 2012)

I didn't say it was perfect, I just like that definition. I know people who put cars into their net worth, I don't. I know people who include insurance policies (as if it does them any good once they're dead, yes it's an asset to their beneficiaries), I don't. 

I think there is a big difference between liquid net worth (cash/stocks/bonds) and illiquid net worth (real estate/business ownership). The liquid side is pretty safe to calculate at full value, but the illiquid stuff has to be calculated at a fairly high discount to its actual value...in fact it may be virtually worthless (businesses for example) without the owner's involvement. 

There is no one good definition in my opinion, do I think my real estate holdings are worthless, certainly not, but I also don't fully value it on my net worth statement. With my rentals, the definition works quite well; rents put money in my pocket and pay off the mortgage when they are full, and inspire me to keep them full so they don't cost me money. 

I've got a clear idea of my liquid net worth, and a good idea of my total net worth...but I still like kiyosaki's definition. It keeps me from getting complaisant. 

The rest of his work is mostly "feel good" writing with no substance whatsoever, but it has its place when you need some cheering up for going the road less travelled.


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## gt_23 (Jan 18, 2014)

Just a Guy said:


> He doesn't imply that it has no value, but if it costs you money it's a liability (maybe small vs. it's value, but still a liability). As for racehorses, trust me, they are a major liability, as in "how do you make a small fortune in horses? Start with a large one".
> 
> For the most part, equity in a home is dead money, earning very little if anything usually (last decade excluded of course), and it can get quite ugly if you add in all the interest, taxes, maintenance, upgrades, realtor fees, legal fees, bank charges, etc. (which most people convieniently ignore when they talk about selling their homes for "a profit").


Again I disagree. Both technically (accounting) and practically, a racehorse like a house, is an asset. You can lose money on racehorses, but that's the same as any other asset. My grandfather actually turned a 50k container of horse sperm into a $1MM racehorse; the capital gain was far greater than his cost to raise and maintain the horse for the 3 years he owned it. He lost money on other horses too...

Whether you need to write-down an asset when you realize its worth much less than you paid for it, or you're lucky and have a big capital gain, doesn't change the fact you own an asset. The nature of how you finance the asset, with debt or equity, also has no bearing.

Imagine you bought a piece of raw land for $100k. Every year you have to pay $2k in property taxes to keep the land. In 10 years a developer comes along and offers you $1MM for the land. I don't know many people who would not be inclined to view the land as an asset, even though it has no yield, and costs you to maintain it.

Finally, I think you and Kioysaki both are making the mistake of equating an asset with a good investment, and a liability with a bad investment, even though both types of investments are in fact assets.


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## Just a Guy (Mar 27, 2012)

To me a bad investment is a liability. Speaking of racehorses, I know people who have gone down to the track with a trailer and been given horses for free. The reason, despite being well bred and technically valuable, they cost way more (on a daily basis) than they are worth. Thus, each day they are owned, they represent negative equity to the owner. Sure, you can hope to hit a winner, but then you'd probably think Vegas is the investment capital of the world.

Buying land for 100k and owning it for a decade, doesn't mean it will be worth $1M to some developer. The economy could tank, there could be reasons why it becomes worthless (contamination, etc.). I've seen it happen many times. In some cases it's more gambling than investing. There's a wonderful train wreck of a post on another board which talks about a land bank "sure thing"...it's worth a read, even though it's long...

http://www.financialwisdomforum.org/forum/viewtopic.php?f=29&t=105756

Having write offs, when you have no gains to write off are pretty much useless. Many start up businesses talk about all their write offs, yet never worry about the income that they need to write off...there's a reason many fail quickly.

I'll grant you that some bad investments do still have assets, especially if you cash out early enough and don't hold on hoping for the turnaround...but in my experience, my bad investments have usually turned out not to be an asset.


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## Mookie (Feb 29, 2012)

Just a Guy said:


> So, while you own your house, it's a liability. When you sell it, it's an asset. You never really know your real estate's value until someone pays you for it, everything else is wishful thinking in most cases.


By this reasoning stocks are also a liability because "you never really know the stock's value until someone pays you for it".

A house is worth something, and is therefore an asset, plain and simple. I agree that you may not want to include it for retirement planning purposes, or include only a portion if you plan to downsize but for pure net worth calculations, it definitely counts. Net worth = all assets - all liabilities.


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## Just a Guy (Mar 27, 2012)

No, the stock market is a fairly good metric on a current value...barring a sudden crash. If you own a stock, the value is pretty easy to get...unlike a house which may sell immediately, or may sit on the market for years...Apple stock is Apple stock, unlike a 500 square foot house, or a multi-million dollar mansion...the demand isn't the same for them. Try selling a house in Calgary today...nothing is selling because of uncertainty (and no one dropping their prices) from what I've been reading. You could sell your Apple stock tomorrow for about $128/share give or take if you lived in Calgary, heck you could be anywhere on the planet as long as you had access to phone or Internet...I guess that means you could even be on the space station. 

Of course, non-publicly traded stocks are a crap shoot, and pitentially worthless. 

There's some ghost towns for sale in Manitoba and Saskatchewan that you can buy...the whole town, less than $10k...been on the market for years...at some point they must have been worth something.


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## nobleea (Oct 11, 2013)

Just a Guy said:


> No, the stock market is a fairly good metric on a current value...barring a sudden crash. If you own a stock, the value is pretty easy to get...unlike a house which may sell immediately, or may sit on the market for years...Apple stock is Apple stock, unlike a 500 square foot house, or a multi-million dollar mansion...the demand isn't the same for them. Try selling a house in Calgary today...nothing is selling because of uncertainty (and no one dropping their prices) from what I've been reading. You could sell your Apple stock tomorrow for about $128/share give or take if you lived in Calgary


It's exactly the same as a stock. The thing is with houses there is no such thing as a Market order. It's all Limit order with an Ask. Houses will always sell at the Market value, just like stocks will, because that is the definition of market price. If someone listed their Apple stock at a price of $150 today, it would not sell, since the market price is $126. It could sit on the market for 60 days or more. Would you say that there's a crash in Apple since no one bought your stock at your list price? Of course not. Future stock prices are based on economic growth and upkeep of company growth (or upkeep/maintenance of a house), new products (renovations), etc. They are exactly the same, the difference being the market price is not updated in real time, and there are a lot more 'classes' of stock.

This isn't a grey matter. It's very black and white. A house is an asset, period. Whether you consider it a useful asset or not is up to you. Just like a company-owned manufacturing plant will be listed as an asset by a company even though it doesn't generate income directly and actually has a lot of expenses.


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## GreatLaker (Mar 23, 2014)

I consider my home as an asset because it has value greater than any liabilities associated with it. Hard to value accurately until someone buys it, sometimes not very liquid, cannot sell a part of it if I need some quick cash, but it is an asset nonetheless.

I don't include it in Quicken as an asset because on a short-term basis the value assigned to it would be somewhat arbitrary. But I do include it as part of my net worth for long term financial planning. It will likely be part of my estate eventually, and also could provide money for long term care should I ever need it. For those reasons I think it is important to consider it an asset and plan for what to do with it over the long term.


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## CalgaryPotato (Mar 7, 2015)

I don't even get the argument that a house isn't an asset. The fact the price could drop tomorrow is no different than a stock. As I said earlier the primary value that a house as an asset gives is it's "dividend" of free rent for me every month. Even if my house price drops I still get that value.


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## rikk (May 28, 2012)

I consider my home/house to be a tangible fixed asset ... it's ironic to me that the cash to which assets are converted in the net worth exercise is considered to be _the_ asset when it's worth varies day by day and depreciates with time ... or could just be the Merlot effect again ... cash, Merlot ... liquid assets :hopelessness:


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## hystat (Jun 18, 2010)

My house is an important asset. It pays me monthly by reducing my monthly rent to zero. 
I can sell it and live off the $ for a decade. I can also rent part of it- it's bigger than need be.
It has more than doubled in value since I bought it.


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## GreatLaker (Mar 23, 2014)

How much something went up or down, or whether it lets the owner avoid costs such as rent is not relevant to whether it is an asset.

From a financial planning and budgeting perspective, cash flow is important. Capital gains are important for measuring net worth, especially when planning how to meet future expenses after you stop working. But they are not relevant to determining if something is an asset.

If something has positive economic / financial value it is an asset.


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## peterk (May 16, 2010)

GreatLaker said:


> If something has positive economic / financial value it is an asset.


Sure. But what if it _can_ have positive economic value in theory, but in reality it does not... Then what? If you own a house in Alberta right now you're gonna have a hard time finding it's positive economic value!


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## nobleea (Oct 11, 2013)

peterk said:


> Sure. But what if it _can_ have positive economic value in theory, but in reality it does not... Then what? If you own a house in Alberta right now you're gonna have a hard time finding it's positive economic value!


Guaranteed it can be sold at the market price. That price may be lower than you're comfortable with, but it can always be sold at the market price. Just like if you owned blackberry (formerly RIM) in early 2007. By late 2007, the price had dropped by half, but you could always sell it. BB being a non-dividend paying asset, much like a house.


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## sags (May 15, 2010)

peterk said:


> Sure. But what if it _can_ have positive economic value in theory, but in reality it does not... Then what? If you own a house in Alberta right now you're gonna have a hard time finding it's positive economic value!


In that case, people would say their net worth hasn't changed because the house hasn't been sold yet to realize the loss............like they do for stocks.

Like gamblers who lose.............they haven't really lost the money. The casino is just holding on to it for them.


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## nobleea (Oct 11, 2013)

sags said:


> In that case, people would say their net worth hasn't changed because the house hasn't been sold yet to realize the loss............like they do for stocks.


Which comes down to being very clear on how you will value your house (or any other asset) in your networth tracking. Will it be book value (purchase price) or market value (based on comparables)? If market value, you have to drop it when the market drops. So many people just use the number that gives them the highest net worth. When RRSPs are included, one should probably include the tax payable on them as a liability, but few do (myself included). Regardless of what method you use, you have to be consistent and clear.
In my case, I include the house value as book value, which includes value of renovations. If I'm wrong and the value is lower when I sell, then I take a write down charge, just like a company would. If you consider your family as a corporation with you and your spouse as the shareholders and directors, then it becomes very clear what should be included and what shouldn't in the shareholders equity statement (or net worth if you want to call it that). You could put your miscellaneous personal belongings (clothes, furniture, etc) down as goodwill.


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## GreatLaker (Mar 23, 2014)

peterk said:


> Sure. But what if it _can_ have positive economic value in theory, but in reality it does not... Then what? If you own a house in Alberta right now you're gonna have a hard time finding it's positive economic value!


See my first post on this thread:


GreatLaker said:


> ...Hard to value accurately until someone buys it, sometimes not very liquid, cannot sell a part of it if I need some quick cash, but it is an asset nonetheless.


It is still an asset. Just hope you don't need to sell it in a down market. I am lucky to live in an area with a good real estate market.


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## Just a Guy (Mar 27, 2012)

If it's worth less than you paid for it, or worse you're underwater on the mortgage so it will cost you to sell it, do you still consider it an asset? Just because it has value, doesn't make it an asset.

Most homes don't break even for the first 10 years of ownership (due to realtor fees, legal fee, interest, etc). The Average Canadian moves every 7 years statistically speaking. That means a house is usually a zero sum gain for the average Canadian. 

Sure if you live in the same house, pay it off, it becomes an asset...if you lose your job and are forced to sell within a year of purchase, chances are it's a huge liability.

Now, if you look at a rental, which generates a positive cash flow every month, plus pays itself off using other people's money, that is a completely different kettle of fish. It's a clear asset. As long as it cash flows, even if the value drops, it's an asset as it never costs you money. Buy a rental for 100k, sell 20 years later for 50k, you still have 50k you didn't pay for (it come from other people's money (as long as it cash flowed over those 20 years). 

Buy a home for 100k, sell it for 50k 20 years later, you're 50k poorer because your money was used to pay it off


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## nobleea (Oct 11, 2013)

Just a Guy said:


> Now, if you look at a rental, which generates a positive cash flow every month, plus pays itself off using other people's money, that is a completely different kettle of fish. It's a clear asset. As long as it cash flows, even if the value drops, it's an asset as it never costs you money. Buy a rental for 100k, sell 20 years later for 50k, you still have 50k you didn't pay for (it come from other people's money (as long as it cash flowed over those 20 years).
> 
> Buy a home for 100k, sell it for 50k 20 years later, you're 50k poorer because your money was used to pay it off


Surely you must see how silly this sounds? If you go a couple months with a vacant rental unit, do you no longer consider it an asset? Your net worth would oscillate all over the place.
Doesn't matter if you're underwater. The size of debt associated with it has absolutely no bearing on whether the house is an asset. Assets are grouped together first, and then liabilities are grouped together below that. 
You're talking about break even, which is terminology for an investment. That's an entirely different discussion, whether homes are investments or not. Are you saying if you had some stock that was trading at below your purchase price, you wouldn't include any of it as an asset? What if it was a dividend paying stock, purchased with leverage, but underwater? By your account it's an asset, but also not an asset.


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## CPA Candidate (Dec 15, 2013)

Just a Guy said:


> If it's worth less than you paid for it, or worse you're underwater on the mortgage so it will cost you to sell it, do you still consider it an asset? Just because it has value, doesn't make it an asset.


Yes it is an asset.

You can have negative equity in a home, the home is still an asset because it can be sold and exchanged for another asset (cash).

There seems to be general confusion of what an asset is versus equity.


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## heyjude (May 16, 2009)

I think some folks need to take a basic accounting class. Or at least read up on the definition of an asset.


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## Just a Guy (Mar 27, 2012)

CPA Candidate said:


> Yes it is an asset.
> 
> You can have negative equity in a home, the home is still an asset because it can be sold and exchanged for another asset (cash).
> 
> There seems to be general confusion of what an asset is versus equity.


With negative equity, if you sell you have to pay the bank the difference, if the bank decides to call the loan, or ask for a prepayment to bring up your equity portion, it's also not an asset. For the bank it's an asset, for you it's a liability even if you sell.

Ask the American homeowners in 2007/8 how good an asset they had.


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## GreatLaker (Mar 23, 2014)

Just a Guy said:


> With negative equity, if you sell you have to pay the bank the difference, if the bank decides to call the loan, or ask for a prepayment to bring up your equity portion, it's also not an asset. For the bank it's an asset, for you it's a liability even if you sell.


The home is your asset. The loan is your liability and the bank's asset.


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## GreatLaker (Mar 23, 2014)

Assets do not have to produce income. 

If you own a stock that does not pay dividends it is an asset. If you own a stock that pays dividends it is an asset that produces income.

If you own a house it is an asset. If you own a house and rent it out it is an asset that produces income.


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## andrewf (Mar 1, 2010)

heyjude said:


> I think some folks need to take a basic accounting class. Or at least read up on the definition of an asset.


Yup. Or 15 minutes reading wikipedia.


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## Just a Guy (Mar 27, 2012)

Or people need to read what others write, as in...

"I always liked Kiyosaki's definition of assets and liabilities."

I never said "this is the accepted definition", it's my preferred way of looking at my holdings...


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