Is a house an asset or liability? Stuart Zadel answers this question in an interesting perspective.
We’re going to talk about the new way to make money in property which implies if there’s a new way, there’s a what? Right, so let’s talk about the old way first so it is clear what we’re talking about here. Even if we say the old way, it’s still the current way but I don’t believe it’s working. It hasn’t been for a while.
OUR HOME EDUCATION
Most of us learn most about life through who? Your parents. What did your parents teach you? Go to school, come out and get a good what? Work how? Buy a what? And Pay it? How’s that working out for you?
See, experience is good but it’s also worthless when the environment changes. The property market worldwide completely changed in 2008 with the realization of what we’ve been doing financially with the GFC, the derivatives that they’ve created, and a whole other stuff going on.
Now what I’m going to talk to you now is my point of view. I think and I believe this might offend some of you – good. I like to challenge our beliefs but taken into spirits intended, just evaluate it. Tonight when you sleep, you might think maybe he’s got something there. Maybe not, this is just my experience.
Now of course we delay that by four or five years, and we go where? The problem with that is you come out with a what? 30, 40, 50, 60, $70,000 debt on your head or if they had their way it’s going to be a hundred grand, or a hundred grand a year maybe by the time they get done.
Isn’t it funny that the ones that got through on the free education. I didn’t know, as I’m saying I’m not political. I didn’t know anything about Dolf Whitlam until he passed away last week and I watched a documentary on him. He was an incredible man. He’s a guy with some ideas with some change and he’s the one that made all the territory education free which is quite interesting.
ON MORTGAGE LOANS
Alright so we’ll talk about the old way. So they want you to go out and buy a what? Alright great, let’s examine this. Can most people go out and just buy a house in cash, boom? No? What do they need? A loan, what’s another word for loan? Mortus and gage. Mortus means death. Does anyone know what a mortician does? Does anyone know what a mortuary is? Gage is a pledge. A mortgage is a pledge until death. That is literally what it means.
It’s gone through a French derivative and all that sort of stuff but that’s what it literally means. How many like the idea of having a loan until death? How many of you like that idea of working your whole life to pay for the house you live in? No one’s hands up. We’re probably never used to make it because sanity conditions were so poor in the 1800 and all that sort of stuff that you would usually die of a contagious disease. Because of that, we used to live short.
Now should you live short? No, you should live long and that’s a different conversation. Minimum 140 years – minimum. Every other mammal on the planet lives seven times their age of maturity. If you mature at say 20, times seven – 140 minimum is what you should live even if you want to buy into the concept of death which I don’t.
IS A HOUSE AN ASSET OR A LIABILITY?
But anyway, that was the thing, now here’s my thing, is the house an asset or a liability? The family home? Who says asset? Liability? Who says they’re not sure? Well they’re all correct but in depends from what angle. So here’s the thing, I prefer Kiyosaki’s definition from Rich Dad, Poor Dad of an asset. An asset is something that puts money in my bank account, not takes it out. Now if that’s the case, let me ask you again, is the house an asset or a liability
It’s the first 30 years, it’s a liability. Not only do you not get any tax benefits for it, you have to pay in after tax dollars. It is the single worst financial decision I believe you can make. Financial.
Now don’t get me wrong, if you want to have a family, if you want them to live and have stability and all that sort of stuff, that’s a different story. If you want to live in a certain suburb because you want your kids to go to a certain school, then you’re doing it for their future, that’s a different story. But again, the rule still applies, I think it’s the single worst financial decision you could make.
Now if you’re an absolutely hopeless human being, can’t save a dollar that you own, we can argue it’s probably the full savings program you’ll ever going to stick to. But if you’re in that case, you’ll probably never get a loan anyway.
From a financial point of view, we need to look at this. It does have one redeeming feature. That is, when you sell it, if it’s gone up in value, what happens to the gain? It is tax free. It is one of the last three remaining tax paid in this country. I recommend you maximize it to the hill.