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. This month I was very excited, because this month the presenter was one of my mentors and educators and the catalyst which brought me out of the phase that many investors get into known as “analysis paralysis”. The presenter was none other than Don Campbell himself!
For those of you who don’t know Don Campbell, he is one of Canada’s most experienced real estate investors. He wasn’t born into riches, didn’t have a silver spoon, he started when he was working at a customer service desk at Sears and worked his way to where he is today, one accomplishment at a time. It wasn’t an easy ride, there’s no such thing as easy money, but he worked through the challenges as he faced them and any real estate investor can save themselves thousands or even millions in mistakes learning from his experience. He is a realist at heart, and isn’t afraid to share both the successes and challenges he’s been through.
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.