Last night, my business partner Reid and I attended the Ontario Real Estate Investors Organization (OREIO) monthly event at the Travelodge Hotel on Carling in Ottawa. While we’ve been to events in the past, we hadn’t been to one recently. This evening’s presentation took on a slightly different format, leveraging a panel of experts in different fields and it made for both a very interesting and informative evening.
Most people think their house is an asset. I disagree. One of the reasons that most people are struggling these days is because they’re identifying their liabilities as assets. They’ve been programmed by traditional financial and investment companies to think they’re richer than they are and to over-invest in their own personal liabilities (most would call them “personal assets”).
Why is that? Why would the banks and the government do this? It’s simple, in order for them to make money they need to charge you interest, the more liabilities that you have, the higher their income!
So what’s my definition of an asset versus a liability then? It’s quite simple actually… an asset puts money into your pocket and a liability takes money out of it. Even if your house is paid off, it still remains a liability – you still have insurance, property taxes, maintenance, etc. Based on my definition, even when investing in real estate, an asset can quickly become a liability when the property becomes vacant or is not collecting rent.