Is Your Home an Asset?
Is Your Home an Asset?
The answer is not as simple as some might think. In fact there are many that think it is a liability. Robert Kiyosaki, the author of the “Rich Dad, Poor Dad” books is well known for saying that your home is not an asset, because it does not produce any positive cash flow for you.
His philosophy is that in order for something to be an asset it must produce income. A personal residence just creates a negative cash flow and therefore is a liability. Only things that produce income should be viewed as assets.
The contrarian view to this is that is that it is not a liability since home ownership does not put
you at a disadvantage and therefore it is an asset.
This debate is no different than the hearing in Washington tomorrow in regards to the “mark to market” accounting rules. It is subjective as to how you want to value assets and/or liabilities.
This is also no different than the attitude of any great competitor that is serious about meeting their goals. When Tiger Woods is on the final holes of a tournament and he and his competitor are tied, he assumes that his competitor is going to play great golf and sink all the big puts! Mariano Rivera the great closer from the NY Yankees assumes every night that he is going to have to hold a one run lead in the ninth inning.
This attitude makes people that are serious about meeting their goals much more engaged and therefore much more likely of achieving them.
If you are serious about building wealth and meeting your financial goals, you will not count your home is an asset, regardless of any accounting argument. When you don’t rely on your home as an asset, it motivates you to make certain that you are saving and staying completely engaged with your finances and investment portfolio.
Make certain that you follow this “mark to market” story tomorrow and watch the effect it has in the markets. If the “mark to market” rules of accounting are changed, and we go to a more liberal accounting standard this will have a positive effect on stocks and negative effect on the US Dollar.
Why? Simply put the easing of mark to market will help the banks capital structure and therefore make them worth more money. This will create a stock market rally and motivate people to leave the US Dollar because they no longer feel that they need a safe haven.
Mark to market is simply a means by which you can calculate the value of something based on the current market value and not the “book value” that can be much more subjective. The “market value” is objective to all at any given time.
The market value for all these bad mortgages is next to nothing right now because nobody wants them. There is no “market” for them and they are being valued based on the “market”. This is an issue that is at the heart of the financial crisis.
Accounting firms have been forced to value assets for companies using “mark to market” since the accounting scandals of 2001-02. This has caused a certain degree of controversy, because it has forced banks to mark themselves down on their own balance sheets and therefore require more capital.
Banks are always forced to have a certain degree of capital in reserves, which is based on assets. These markdowns reduce the value of bank regulatory capital, requiring additional capital which has been one of the major causes for the current credit crunch! For further reading on this topic please refer to this link:
Financial education is more important than ever and nobody will ever care more about your finances than you!
Sincerely,
Bob O’Brien
Is Your Home an Asset - To learn more about this author, visit Bob O'Brien's Website.
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With meetings in Washington today in regards to repealing the “Mark to Market” rules for accounting, I wanted to ask our readers a question: Is your home an asset? Do you count it as an asset on your own net worth (personal balance sheet)? Should you?
The answer is not as simple as some might think. In fact there are many that think it is a liability. Robert Kiyosaki, the author of the “Rich Dad, Poor Dad” books is well known for saying that your home is not an asset, because it does not produce any positive cash flow for you.
His philosophy is that in order for something to be an asset it must produce income. A personal residence just creates a negative cash flow and therefore is a liability. Only things that produce income should be viewed as assets.
The contrarian view to this is that is that it is not a liability since home ownership does not put
you at a disadvantage and therefore it is an asset.
This debate is no different than the hearing in Washington tomorrow in regards to the “mark to market” accounting rules. It is subjective as to how you want to value assets and/or liabilities.
This is also no different than the attitude of any great competitor that is serious about meeting their goals. When Tiger Woods is on the final holes of a tournament and he and his competitor are tied, he assumes that his competitor is going to play great golf and sink all the big puts! Mariano Rivera the great closer from the NY Yankees assumes every night that he is going to have to hold a one run lead in the ninth inning.
This attitude makes people that are serious about meeting their goals much more engaged and therefore much more likely of achieving them.
If you are serious about building wealth and meeting your financial goals, you will not count your home is an asset, regardless of any accounting argument. When you don’t rely on your home as an asset, it motivates you to make certain that you are saving and staying completely engaged with your finances and investment portfolio.
Make certain that you follow this “mark to market” story tomorrow and watch the effect it has in the markets. If the “mark to market” rules of accounting are changed, and we go to a more liberal accounting standard this will have a positive effect on stocks and negative effect on the US Dollar.
Why? Simply put the easing of mark to market will help the banks capital structure and therefore make them worth more money. This will create a stock market rally and motivate people to leave the US Dollar because they no longer feel that they need a safe haven.
Mark to market is simply a means by which you can calculate the value of something based on the current market value and not the “book value” that can be much more subjective. The “market value” is objective to all at any given time.
The market value for all these bad mortgages is next to nothing right now because nobody wants them. There is no “market” for them and they are being valued based on the “market”. This is an issue that is at the heart of the financial crisis.
Accounting firms have been forced to value assets for companies using “mark to market” since the accounting scandals of 2001-02. This has caused a certain degree of controversy, because it has forced banks to mark themselves down on their own balance sheets and therefore require more capital.
Banks are always forced to have a certain degree of capital in reserves, which is based on assets. These markdowns reduce the value of bank regulatory capital, requiring additional capital which has been one of the major causes for the current credit crunch! For further reading on this topic please refer to this link:
Financial education is more important than ever and nobody will ever care more about your finances than you!
Sincerely,
Bob O’Brien
Is Your Home an Asset - To learn more about this author, visit Bob O'Brien's Website.
Like this article? Share it with your friends
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Staging DivaDebra Gould, aka The Staging Diva®, is President of Six Elements Inc., an internationally recognized home staging company. Inspired by many requests from aspiring home stagers wanting to start similar businesses, Gould created the Staging Diva Home Staging Business Training Program. Gould has trained over 1000 Staging Diva Graduates worldwide to start staging businesses. Buying decorating and selling six of her own homes in four years lead to an interest in real estate staging which she turned into a career with the launch of sixelements.com in 2002. Since then she has staged hundreds of homes in addition to teaching home staging training. Gould is the author of several home staging resources including a series of popular ebooks made up of a Design Guide, Color Guide and Portfolio Guide. For more information about Debra Gould visit stagingdiva.com. - Visit Staging Diva's Website |
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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