As discussed last week, Assets produce income. Everything else is a liability. What about your house? Does it produce income daily? No, and therefore it cannot be listed as an asset for the purpose of this discussion.
One might argue "Yes, but the bank says it is an asset."
Yes, but the bank also list the debt you owe them on your house on their balance sheet as an asset. Guess what, when there is a properly performing loan, their placement of your loan on their books as an asset is more correct that your placement of your house on your balance sheet as an asset.
Assets produce income. Interest on your loan cost you money 24/7. You must work to enjoy living in your "asset" while the bank must do nothing to enjoy the income that you pay them from your work for living in your house. Yes, the bank is using borrowed money to loan you money and the deposits they use to fund the loan is considered their liability. The spread, the difference between what they pay on interest and what they charge you in interest is their spread/income.
While a person has to live somewhere, the more expensive the house, the higher the payments, the higher the interest cost, the more you've got to work or at least make in order to pay for your "asset."
Lesson number one: The knowledge it takes to pull a loan out of the trashcan and close it is considered an asset.Want to know more about the credit industry, send me an e-mail:
