The future of Australian property prices

[UBIQUITOUS]

Assets put money in my pocket and liabilities take money out of my pocket it's as simple as that. If every month somthing is generating a negative cashflow it is a liability. If some day that liability is sold, only then is it an asset.

If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.

Money in - asset
money out - liability

NO

It doesn't matter whether it is producing income or not. An asset is an asset. A liability is a liability. They do not morph from one to the other.

Nothing personal - but many make the same mistake as you ie go through life using the wrong words to describe things and then finding it difficult to unlearn what they believed was right for their whole life.

If something can be valued in monetary terms, it is an asset.

 

[Beej]

Assets put money in my pocket and liabilities take money out of my pocket it's as simple as that. If every month somthing is generating a negative cashflow it is a liability. If some day that liability is sold, only then is it an asset.

If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.

Money in - asset
money out - liability

I would see your definition of an asset as more a definition of an "investment". It just depends on how you look at it really. I tend to think of anything that I can convert to cash as an asset, even if it is a depreciating asset. Obviously it is better to acquire appreciating and/or income producing assets than depreciating ones that cost you a lot to own and use! Plus it's not such a great idea to borrow money to acquire depreciating assets either!

Cheers,

Beej

 

[drsmith]

If I own a house and rent it out it becomes an asset because it is producing income and putting money into my pocket. But if I kick the tenant out and move in myself that same house now becomes a liability because it is not producing any income but it takes money each year out of my pocket.

When you live in that house you are not paying rent so it is still generating a return even though it is not generating income.

 

[CamKawa]

The Age never lets bad data get in the way of good news. Just keep spinning it boys!

Banks put squeeze on housing

 

[Soft Dough]

You have written that you agree with me and then go onto disagree with that I wrote!!! My definition is the accounting view.

Assets can be ascribed a value. These can be tangible (eg land) or intangible (eg goodwill).

Assets can be depreciated but can also be revalued upwards. The depreciation goes on a separate line on the balance sheet called 'Accumulated depreciation'. The other side is expensed in the Profit and Loss.

Liabilities are NOT depreciated. They are amortized (eg mortgage) and also expensed to the P&L

Just because an item is expensed or has related expenses, doesn't define whether the item is an asset or liability.

It is what it is, and is not subjective.

ps inflation has nothing to do with whether an item is an asset or a liability.

Firstly I can't see, from the quotation I used, where I disagreed, but anyway, it is irrelevant.

I know the realities of the accounting convention , I have spent a lot of money paying accountants to effectively do the taxation for my businesses.

The fact is that the only relevant thing that accountants do is cash flow projections and KPIs( which I have always done on my own anyway ). All the rest is just really for BAS / taxation..

Most have NFI about business, and often have no idea what value something is, can never ascertain the worth of processes and objects and misrepresent the real world.

I don't care if a liability can only be amortised, and assets depreciated. I don't care about the convention at all.

The convention is, and only is, of any use for taxation means.

I make no money from it, I make lots of money utilising assets and liabilities alike. I try to explain it to my accountants, but most accountants do not know how to make lots of money, so what do I care what they think.

 

[tech/a]

Firstly I can't see, from the quotation I used, where I disagreed, but anyway, it is irrelevant.

I know the realities of the accounting convention , I have spent a lot of money paying accountants to effectively do the taxation for my businesses.

The fact is that the only relevant thing that accountants do is cash flow projections and KPIs( which I have always done on my own anyway ). All the rest is just really for BAS / taxation..

Most have NFI about business, and often have no idea what value something is, can never ascertain the worth of processes and objects and misrepresent the real world.

I don't care if a liability can only be amortised, and assets depreciated. I don't care about the convention at all.

The convention is, and only is, of any use for taxation means.

I make no money from it, I make lots of money utilising assets and liabilities alike. I try to explain it to my accountants, but most accountants do not know how to make lots of money, so what do I care what they think.

Change accountants.

Your right in that most are aspiring to be as wealthy as some of their clients.
But find an accountant or better a firm of accountants that put into practice for their own wealth creation those things that their clients do and you'll never moan about their fees again.

 

[UBIQUITOUS]

Firstly I can't see, from the quotation I used, where I disagreed, but anyway, it is irrelevant.

I know the realities of the accounting convention , I have spent a lot of money paying accountants to effectively do the taxation for my businesses.

The fact is that the only relevant thing that accountants do is cash flow projections and KPIs( which I have always done on my own anyway ). All the rest is just really for BAS / taxation..

Most have NFI about business, and often have no idea what value something is, can never ascertain the worth of processes and objects and misrepresent the real world.

I don't care if a liability can only be amortised, and assets depreciated. I don't care about the convention at all.

The convention is, and only is, of any use for taxation means.

I make no money from it, I make lots of money utilising assets and liabilities alike. I try to explain it to my accountants, but most accountants do not know how to make lots of money, so what do I care what they think.

Respectfully, I disagree with half of what you say and strongly disagree with the rest.

It would appear that you do not really understand the diversity of different accounting roles due to the fact that you only use tax accountants.

Just because you use tax accountants in your business doesn't mean that all accountants are tax accountants. There are Tax accountants(public), Tax accountants (private) Project accountants, Systems accountants, Forensic accountants, Management accountants, Commercial accountants, ......and so on.

Your view on accountants is akin to the following view on doctors "I been to visit a few GPs over the years and they all have no idea about how to perform neurosurgery! All doctors are therefore stupid!"

It doesn't matter whether you care about convention at all or not. An asset is an asset. A liability is a liability.

Seeing that you are a businessman, here are some business definitions. Take your pick:

http://www.businessdictionary.com/definition/asset.html

http://www.businessdictionary.com/definition/liability.html

 

[UBIQUITOUS]

Change accountants.

Your right in that most are aspiring to be as wealthy as some of their clients.
But find an accountant or better a firm of accountants that put into practice for their own wealth creation those things that their clients do and you'll never moan about their fees again.

I agree. Some are just glorified bookkeepers masquerading as accountants. I use a public accountant just because I cannot be bothered with the admin. One shouldn't expect too much from them outside of preparing your tax return and, if good enough, some effective tax planning. It's well worth paying for a decent accountant once a year.

 

[kincella]

ouch.....why am I surprised by the total lack of understanding on this thread....(apart from the few exceptions who do understand accounting terms and concepts)

unbelievable.....the misconceptions about what an asset is.....
and to make things worse, you are here debating probably the biggest asset most people hold....their house or home....

 

[satanoperca]

The future of Australian property prices

Can we please keep the discussion to the title of the thread, not what is an asset or liability is, good/bad accountants, how busy Chapel Street is, expensive restaurants etc etc unless it is related to the above title before this thread is closed again.

Cheers

 

[wayneL]

ouch.....why am I surprised by the total lack of understanding on this thread....(apart from the few exceptions who do understand accounting terms and concepts)

unbelievable.....the misconceptions about what an asset is.....
and to make things worse, you are here debating probably the biggest asset most people hold....their house or home....

It's Kiyosaki's fault.

 

[Tysonboss1]

NO

It doesn't matter whether it is producing income or not. An asset is an asset. A liability is a liability. They do not morph from one to the other.

Nothing personal - but many make the same mistake as you ie go through life using the wrong words to describe things and then finding it difficult to unlearn what they believed was right for their whole life.

If something can be valued in monetary terms, it is an asset.

I am not talking about strict accountanting terms. I am talking about how one should look at their own belongings and what the are putting their money into.

Many of the things that people call assets have no long term value, and constantly strip the person of cash flow.

Here is a video that explains what I mean.

http://www.youtube.com/watch?v=byRSKEw0oa8

 

[Tysonboss1]

When you live in that house you are not paying rent so it is still generating a return even though it is not generating income.

Yes so it is a smaller liability than a lease would be, So it is a great idea to own your own home but you are still paying rates, insurance, upkeep etc. So it is a liability all the same.

 

[Soft Dough]

Just because you use tax accountants in your business doesn't mean that all accountants are tax accountants. There are Tax accountants(public), Tax accountants (private) Project accountants, Systems accountants, Forensic accountants, Management accountants, Commercial accountants, ......and so on.

Your view on accountants is akin to the following view on doctors "I been to visit a few GPs over the years and they all have no idea about how to perform neurosurgery! All doctors are therefore stupid!"

It doesn't matter whether you care about convention at all or not. An asset is an asset. A liability is a liability.

No an asset to an accountant is different to an asset as defined by an intelligent businessman. A Liability to an accountant is different to a liability as defined by an intelligent businessman. Just because it is a definition that the accountants use, to allocate in their applicable spreadsheet, does not dictate its practical use.

Just as an anaesthetist may use an anaesthetic to relieve pain and a cardiologist may use it to relieve arrythmias. It is still an anaesthetic, but also an anti-arrythmic.

And no, to use your analogy. My experience with accountants is like this:

Going to a GP and wanting my left fingernail removed, but removing my right toenail because the picture in Murtagh's of onychomycosis shows it on the right toenail.

 

[drsmith]

Yes so it is a smaller liability than a lease would be, So it is a great idea to own your own home but you are still paying rates, insurance, upkeep etc. So it is a liability all the same.

You pay rates, insurance, upkeep etc on any property regardless of whether it is owner occupier or investment (rented).

Think of it like this.

Balance sheet:
Property is an asset. Loans attached to a property are a liability.

Income statement:
Rent is income. For an owner occupier this is represented by the rent saved in not having to rent a similar property. Loan interest, rates, insurance, upkeep etc are expenses.

 

[UBIQUITOUS]

I am not talking about strict accountanting terms. I am talking about how one should look at their own belongings and what the are putting their money into.

Many of the things that people call assets have no long term value, and constantly strip the person of cash flow.

Here is a video that explains what I mean.

http://www.youtube.com/watch?v=byRSKEw0oa8

I understand what you mean, but that logic as explained in the video is seriously flawed. A home has a monetary value and is therefore an asset. It can't be both just because there are expenses attached. Assets and Liabilities are balance sheet items. The balance sheet definition that all self respecting businesses use is: Assets = liabilities + equity . Assets are differentiated from liabilities.

I can see why he came out with his view - controversy sells.

By his logic, our stomachs are liabilities because we have to fill them with bought food. I would say that my stomach is an asset because it keeps me alive.

 

[Tysonboss1]

You pay rates, insurance, upkeep etc on any property regardless of whether it is owner occupier or investment (rented).

Think of it like this.

Balance sheet:
Property is an asset. Loans attached to a property are a liability.

Income statement:
Rent is income. For an owner occupier this is represented by the rent saved in not having to rent a similar property. Loan interest, rates, insurance, upkeep etc are expenses.

Say a person owns a $2M dream home with no debt and it is their sole "asset". They are 65 and have spent their life contiunally trading up and putting money into their biggest "investment" the family home.

If you looked at their balance sheet you would think they are financally free because they have $2M worth of property debt free. However they can't stop working because once they stop working they will have no income to feed themselves and pay the rates and maintance on this dream home.

So I don't consider this $2m dream home an asset, Offcourse they can spend the next 20 years contiunally down sizing or taking out equity loans to fund their life style. But I can't see this as an ideal situation.

But a person that also had $2m worth of property in the form of 5 $400K houses and lived in one would be in a much better positon.

I would count their 5 houses as 1 x life style liabilty and 4 x income producing assets.

 

[Julia]

Say a person owns a $2M dream home with no debt and it is their sole "asset". They are 65 and have spent their life contiunally trading up and putting money into their biggest "investment" the family home.

If you looked at their balance sheet you would think they are financally free because they have $2M worth of property debt free. However they can't stop working because once they stop working they will have no income to feed themselves and pay the rates and maintance on this dream home.

So I don't consider this $2m dream home an asset, Offcourse they can spend the next 20 years contiunally down sizing or taking out equity loans to fund their life style. But I can't see this as an ideal situation.

But a person that also had $2m worth of property in the form of 5 $400K houses and lived in one would be in a much better positon.

I would count their 5 houses as 1 x life style liabilty and 4 x income producing assets.

I understand what you're saying, but isn't it a matter of personal choice?

Your aging couple may much prefer to live in the $2M home they dearly love, using reverse mortgages to fund their existence as required, than to live in a place they don't enjoy nearly as much, and having all the hassle of tenants and managing IP's.

I've only read the last few posts in this thread and feel that, particularly in this example, the non-tangible benefits of particular types of home ownership versus IP's are not being taken into account.

Surely we want to make money with the ultimate purpose of providing ourselves with enjoyment in life, not simply for the sake of making that money.

 

[drsmith]

Say a person owns a $2M dream home with no debt and it is their sole "asset". They are 65 and have spent their life contiunally trading up and putting money into their biggest "investment" the family home.

If you looked at their balance sheet you would think they are financally free because they have $2M worth of property debt free. However they can't stop working because once they stop working they will have no income to feed themselves and pay the rates and maintance on this dream home.

So I don't consider this $2m dream home an asset, Offcourse they can spend the next 20 years contiunally down sizing or taking out equity loans to fund their life style. But I can't see this as an ideal situation.

But a person that also had $2m worth of property in the form of 5 $400K houses and lived in one would be in a much better positon.

I would count their 5 houses as 1 x life style liabilty and 4 x income producing assets.

What then of the asset status of the 4x income producing properties if they largely financed by debt and costs (including interest)equals or exceeds income (rent) under your definition ?
The lifestyle status is then the same (or worse) than the income poor person with the $2m home.

You are trying to define the asset status of property based on factors external to the property itself which is wrong. Its status as an asset is defined only by it's economic worth to others. The economic value of an owner occupier home lies in the fact that the owner does not have to pay someone else rent for a roof over their head.

 

[Tysonboss1]

What then of the asset status of the 4x income producing properties if they largely financed by debt and costs (including interest)equals or exceeds income (rent) under your definition ?
The lifestyle status is then the same (or worse) than the income poor person with the $2m home.

You are trying to define the asset status of property based on factors external to the property itself which is wrong. Its status as an asset is defined only by it's economic worth to others. The economic value of an owner occupier home lies in the fact that the owner does not have to pay someone else rent for a roof over their head.

If it is negativly geared it's a liability,

Yes an owner occupied home does have value to the occupier, Because it covers the basic human need of shelter at a lower longterm cost than a leased shelter would.

And I know that if I drew up a personal balance sheet then most accountants would let me list my home on the asset side (along with my scuba gear, watches, rings,cars etc.etc).

How ever if you want to analise your true position in terms of wealth or how close to financel independance you are you should not list the items you hold for personal consumption.

Offcourse the owner occupied house if held debt free adds alot to your financel inderpendance because it covers your basic need for shelter for probaly $5000 / year instead of $30,000 / year.

The differance with me is I would include my home on the liability side as a $5000 expense rather than a $400,000 asset If I were trying to get a true idea of my personal finamcel independance. ( I know it's not what they teach at accounting school, but it gives a better picture of whats actually happening)

If one day you did set up some sort of annuity from your home in the form of a reverse mortgage. then by all means add the income from this to the asset side. But not until it is happening.