When can an Asset be considered a Liability?

D

dtlyn

Registered User
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166
I broke this off from another thread was just curious.



so-crates said:
......... if you are going to argue (your wording) about assets and liabilities at least don't randomly lump in current and capital together!
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I don't understand what you mean by randomly lumping current and capital together?

It just looks to me on the surface of the above that the House is a Liability rather than an Asset.
 
Surely your dwelling only becomes an asset when its paid for.
Collins dictionary... 'Assets may be fixed, current, liquid, or intangible and are shown balanced against liabilities.'
 
A house bought during the last 2/3 years is certainly a liability now, especially if the onwer can't meet repayments due to redundancy. I reckon too that bank shares are a liabilty too at the moment.
 
in terms of houses, I would argue that the mortgage is the liability, the asset is the difference between the value of the house and the value of the mortgage, and if you are in negative equity, then you have zero assets.
 
Mpsox said:
if you are in negative equity, then you have zero assets.
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How's that? what it you have other assets other than the house e.g. 200k in a savings account and only 20k negative equity?

What if you have no intention of selling in near future (and the means to ensure it is not necessary), and have negative equity - is it still a liability?
 
My reference to zero assets referred to the house, not to anything else
 
Mpsox said:
in terms of houses, I would argue that the mortgage is the liability, the asset is the difference between the value of the house and the value of the mortgage, and if you are in negative equity, then you have zero assets.
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Surely this would be the net asset value? (Asset value - liability secured on it).

It is also possible to have a negative asset value - if you are negative equity, the asset is worth less than the liabilities against it, so you have a negative net asset value - negative equity. You then carry this against other assets (savings, car) to reach your total asset value.

No?
 
extopia said:
House value = asset
Mortgage balance = liability

It's that simple.
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My original point initially lambasted by so-crates was that it's not as does not seem as simple as that when you have fixed outgoings related to to the purchase of the house explicitly.

e.g. upkeep maintainence rennovation mortgage protection house insurance management fees

If you take the wikipedia definition

an asset is defined as a probable future economic benefit obtained or controlled by a particular entity as a result of a past transaction or event.
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Or as I was reading somewhere else, something that is likely to put money in your pocket.

In this case, the house is depreciating in monetary value, interest payments are rising, upkeep is rising, how was owning a home an asset?
 
dtlyn said:
In this case, the house is depreciating in monetary value, interest payments are rising, upkeep is rising, how was owning a home an asset?
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You're taking a short term view. Property has been show to appreciate in value over time. The recent bubble has reinforced unrealistic short term expectations, and while a negative equity postion puts an asset underwater in the short term, the chances are it will bounce back over the long term.

Be patient. It's a bit early to start worrying about property becoming a "wasting chattel" (like a car, for instance).
 

The exact answer I was looking for. Thanks.
 
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