So essentially, the vast majority of first-time homebuyers have debt and very little equity in their home. When a person buys a home, they are not buying an asset, they're incurring debt.
You just made me remember reading, Cash flow quadrant by Robert Kiyosaki and he had said the same thing
Our homes can only be assets if and only if they are generating money
if I remember correctly, I think Robert said, when he bought one of his home or land, the debt incurred by the purchase was paid off by a part of the plot and not his pocket
For me, when I watch my landlord receive the rent we pay yearly and still use it to repair the places we live, I have already zeroed my mind about ever thinking that a house is an asset because it is not
This place constantly takes money out of his pocket instead of putting it in. He may not see it, but I see it as a liability as it is always needing one repairs or the other
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I haven't read that book. I should check it out.
“Our homes can only be assets if and only if they are generating money.”
I like this. Having a positive return on any asset; more equity than debt; and the income must exceed expenses and debt service payments; is essential to growing one’s net worth.
Debt is a funny thing. I like to call it magic money. It's magic in the sense that people do not recognize it as a liability (or lack of ownership), only as a payment.
And to use a physics analogy, cash is matter, when debt is antimatter. Both cancel each other out. But people give more value to cash because they’ve earned it, as opposed to debt which they didn't. When something is easy to get, like debt, people subconsciously place less value in it. It's not unheard of that people have $50,000 (outside of their emergency fund) in their savings account, and $20,000 in debt, and they continue to hold the debt and keep the cash.