Bike finance

[marko35s]

I will admit that it has been over a decade since my accounting studies but how is a bike a liability? The loan on a bike would be a liability right? Could see a bike as an expense rather than an asset as you could maybe justify no future economic benefit?

 

Also surely a primary residence could be seen as an asset based on the assumption that you will receive future economic benefit? (When the asset is realised, again assuming a potential bond would be the liability linked to the asset) I wasn't aware that direct income had to be able to be linked to something for it to be deemed an asset but my reference could be outdated.

 

Anyway something else to consider is if you run into issues with the repayments you could be in trouble. Bikes tend to depreciate very quickly and you could very easily find yourself in trouble if you can't make the loan repayments as the value of the bike could be less than the outstanding loan.

To my mind (not official accounting but the way I feel) anything is a liability if 

A. You still owe money on it, or

B. It cannot easily and immediately be made liquid (goes back to owing money on it again I suppose)

 

If a couple bond a house and the primary earner is no longer around leaving the secondary earner unable to afford the payments is that now an asset or a liability?

To me it is only a pure asset when it is paid for.

[Captain Fastbastard Mayhem]

To my mind (not official accounting but the way I feel) anything is a liability if 

A. You still owe money on it, or

B. It cannot easily and immediately be made liquid (goes back to owing money on it again I suppose)

 

If a couple bond a house and the primary earner is no longer around leaving the secondary earner unable to afford the payments is that now an asset or a liability?

To me it is only a pure asset when it is paid for.

And being leveraged to derive an income. 

[marko35s]

And being leveraged to derive an income. 

Yeah, my wording leaves a little to be desired maybe closer to *Can only become*

[FlyingScot]

Truly speaking, and looking at it from an accounting perspective, this isn't actually correct. Yes, it's a physical item that appreciates in value, but it costs you cash every month, and in order to realise the "asset" you need to sell it. And then you aren't actually realising it, as you're going to need to buy another one. 

 

The only time a house should be described as an asset, is when it's either earning you cash over and above your mortgage payments and other bills (rates insurance etc) or you're using it as a base of business operations (it's being used to generate an income) or your mortgage payments and all associated bills (rates, insurance etc) are less than what you'd have to pay for it if you were renting it. 

 

It's a myth that your primary house is an asset. In 9 out of 10 instances, it's not - it's an expense.

 

I know that this is against the norm, but in order to build true financial independence you need to realise that your primary home is not an asset, unless it was purchased very carefully, and you paid far below purchase price for it. 

 

From an accounting perspective a house is most definitely an asset. 

 

*Edit* ...even your primary residence.

[marko35s]

From an accounting perspective a house is most definitely an asset. 

 

*Edit* ...even your primary residence.

The guys are discussing it from a non accounting view and even in accounting the damn thing tends to come along with a rather large liability tacked on to it.

[Captain Fastbastard Mayhem]

From an accounting perspective a house is most definitely an asset. 

 

*Edit* ...even your primary residence.

1. In financial accounting, an asset is an economic resource. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.

The point is as above. A primary residence is not an economic resource. It cannot provide you with income unless you leverage the value of the home to invest in alternative solutions. In addition, it can only hold positive economic value if that value is readily accessible. A primary home is not such an item - either way you cut the cake, a primary home is an expense. It may hold value, but in terms of financial planning, and on everywhere BUT a balance sheet, it is not an asset unless it is producing income or allowing income to be produced. 

[Captain Fastbastard Mayhem]

I realise that, from a standard viewpoint (and the viewpoint that is taught at pretty much every accounting institution and practice) and what we've been told to consider as a fact, that a home is an asset. 

 

This is not actually true. Yes, it has intrinsic value. But at all points, you will still need a home to live in. You will still be spending money on it, and not deriving an income from it. The ONLY way to realise the asset is to sell it - and at that point you need to find another one to live in, at which point the value becomes tied up in bricks and mortar again.

 

If you're using the value of the home to get more good debt and using that good debt to generate further income (either through investment or further profit generating investment properties) then your house can be viewed as an asset from a financial planning perspective as it is making you money. 

[FlyingScot]

 

1. In financial accounting, an asset is an economic resource. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.

The point is as above. A primary residence is not an economic resource. It cannot provide you with income unless you leverage the value of the home to invest in alternative solutions. In addition, it can only hold positive economic value if that value is readily accessible. A primary home is not such an item - either way you cut the cake, a primary home is an expense. It may hold value, but in terms of financial planning, and on everywhere BUT a balance sheet, it is not an asset unless it is producing income or allowing income to be produced. 

 

 

I think the phrase you are after is an 'income generating asset'. A property rented out falls into this category.

 

I saw your post on the 3rd page where you clarified from a financial planning perspective - but my thinking in life is that you generally buy a house, to sell, to upgrade, to sell, to upgrade and so on. When you do eventually retire and downscale, guess what, you have surplus cash for your retirement from your non-financial-planning asset.

 

This is just how retirement planners push for every spare cent 

 

(*This post is thinly laced in sarcasm*)

[FlyingScot]

I realise that, from a standard viewpoint (and the viewpoint that is taught at pretty much every accounting institution and practice) and what we've been told to consider as a fact, that a home is an asset. 

 

This is not actually true. Yes, it has intrinsic value. But at all points, you will still need a home to live in. You will still be spending money on it, and not deriving an income from it. The ONLY way to realise the asset is to sell it - and at that point you need to find another one to live in, at which point the value becomes tied up in bricks and mortar again.

 

If you're using the value of the home to get more good debt and using that good debt to generate further income (either through investment or further profit generating investment properties) then your house can be viewed as an asset from a financial planning perspective as it is making you money. 

 

By the way - please don't misinterpret anything I am saying.

 

Your advice is solid and retirement planning/funding is definitely something to take seriously - something which far too few South Africans get right!

[marko35s]

I think the phrase you are after is an 'income generating asset'. A property rented out falls into this category.

 

I saw your post on the 3rd page where you clarified from a financial planning perspective - but my thinking in life is that you generally buy a house, to sell, to upgrade, to sell, to upgrade and so on. When you do eventually retire and downscale, guess what, you have surplus cash for your retirement from your non-financial-planning asset.

 

This is just how retirement planners push for every spare cent 

 

(*This post is thinly laced in sarcasm*)

Nobody is saying it cannot be an asset anywhere here, they are saying it isn't an asset until you reach the point where you can realize an income from it.

And any decent planner will include all sources of income, including property in any plan he looks at.

[Captain Fastbastard Mayhem]

I think the phrase you are after is an 'income generating asset'. A property rented out falls into this category.

 

I saw your post on the 3rd page where you clarified from a financial planning perspective - but my thinking in life is that you generally buy a house, to sell, to upgrade, to sell, to upgrade and so on. When you do eventually retire and downscale, guess what, you have surplus cash for your retirement from your non-financial-planning asset.

 

This is just how retirement planners push for every spare cent 

 

(*This post is thinly laced in sarcasm*)

yeah, and yet if you had just bought once, and not upgraded, then invested all the spare cash you would have spent on the bigger better shinier house, you'd have a far better retirement. 

 

Plus - have you seen the cost of retirement villages lately!? Bloody hell, they're expensive. 

 

Point is - a primary home will almost always be an expense. 99/100 will go through their lives thinking that their home is an asset, when in fact all it is is a house. When they reach retirement, 90% will want to keep their standard of living, and in all likelihood if they've been constantly selling and upgrading, they've still got a mortgage on their "asset" - which puts them in a bit of a pickle if they've viewed their home as an asset. 

[FlyingScot]

yeah, and yet if you had just bought once, and not upgraded, then invested all the spare cash you would have spent on the bigger better shinier house, you'd have a far better retirement. 

 

Plus - have you seen the cost of retirement villages lately!? Bloody hell, they're expensive. 

 

Point is - a primary home will almost always be an expense. 99/100 will go through their lives thinking that their home is an asset, when in fact all it is is a house. When they reach retirement, 90% will want to keep their standard of living, and in all likelihood if they've been constantly selling and upgrading, they've still got a mortgage on their "asset" - which puts them in a bit of a pickle if they've viewed their home as an asset. 

 

Couldn't agree more. 

 

Another point which people should be aware of...when you are looking to move, try not sell your first property (if at all possible), this way you could hold onto a property which can hopefully clean itself and in time provide a steady source of income.

[Captain Fastbastard Mayhem]

By the way - please don't misinterpret anything I am saying.

 

Your advice is solid and retirement planning/funding is definitely something to take seriously - something which far too few South Africans get right!

100%. The thing is that far too many people think of their home as an asset ie: something they can sell to generate income post retirement. That's quite simply not the case unless you radically down-scale after retirement, or inherit a house or something (in which case you should actually rent it out and get it to generate an income) or use the unencumbered value of the home to invest with. 

 

I realise that a home is an asset when looking at it from a pure estate planning perspective, but while you're alive, only in 1% of cases I've come across... And it takes a radical change in mindset to actually see that.

[marko35s]

yeah, and yet if you had just bought once, and not upgraded, then invested all the spare cash you would have spent on the bigger better shinier house, you'd have a far better retirement. 

 

Plus - have you seen the cost of retirement villages lately!? Bloody hell, they're expensive. 

 

Point is - a primary home will almost always be an expense. 99/100 will go through their lives thinking that their home is an asset, when in fact all it is is a house. When they reach retirement, 90% will want to keep their standard of living, and in all likelihood if they've been constantly selling and upgrading, they've still got a mortgage on their "asset" - which puts them in a bit of a pickle if they've viewed their home as an asset. 

The other point that quite often gets left out of the discussion about properties and their position in planning/retirement etc is the emotional attachment that people often have to their *home*.

I have seen people sink without trace, from a financial perspective, because when the time came to sell the 5 bed home and cut back a little at retirement they just couldn't or wouldn't do it.

[Captain Fastbastard Mayhem]

Couldn't agree more. 

 

Another point which people should be aware of...when you are looking to move, try not sell your first property (if at all possible), this way you could hold onto a property which can hopefully clean itself and in time provide a steady source of income.

yeah, absolutely. 

 

That's what we'd be able to do now. If we were to rent out our place we'd come out with a small profit (now) after expenses and such. Every year profit would increase drastically, as costs more or less stay the same while rental increases. BUT - we'd have to either buy again (at a much increased cost to us) or rent. 

 

While it may look good on the face of it, the prospect of having to rent / mortgage at a far higher monthly cost than we're currently paying means that it isn't a good choice at this point in time, given our income. In 3 to 5 years time? Who knows....

[Captain Fastbastard Mayhem]

Bloody hell, this is a time sucker..