The recent cnbc interview really worried me about the way people define asset and liability. What is an Asset and what is a liability?
After watching the interview and read the article, I really don’t get it. Why buying a house to live in consider “an investment”? An Investment,Â or asset is defined when it put money in your pocket.Â Does your primary property put money in your pocket every month like a rental property? If the answer is no, then it is a liability – Period. However, You can turn it into an investment, or asset by leasing out part of your house or the whole house and collect income from it.
If you are thinking your primary resident is an investment because its value “must” go up every year. I am urging you to think again! This is why we have the credit crisis and the real estate bubble with underwater mortgage in 2008.
In my opinion, investing for solely capital gain is risky if you are not sophisticated. It is not much different from a person betting blindlyÂ on a horse or a stock. This is why all of our investment are base on cash flow and stress test analysis, like this boring dealÂ for example. It doesn’t matter if the value of the house tank to $30,000 or go up to $150000. As long as i can get $1150 for the rent. I’m in good shape. Event if i have to rent out the property for 700$, I will still break even.
What is your opinion? do you agree with the “billionaire” that was on TV stated that your house is an asset? or you think he is trying to fool people?