Property Pricing in your area - gone up or down?

[dfrecore]

Because we cannot predict the future we have to work with the facts. Your home every month generates a cost and not cash flow. We cannot rely that it will one day go up in value. When you do your monthly budget your mortgage goes under the liability column. Now the argument is a mortgage is fixed vs rent that goes up it is true. But this simply guarantees you a fixed (cheaper) liability over time. It is still an expense an therefore still a liability. Your liability will go down over time, but it's still a liability.

Lets ta look at when you sell your house. You made a $100,000 profit, well so did all of the other homes around you. Your net benefit becomes zero unless you downgrade or move to another market. Until that home generates cash flow it get categorized in your monthly budget under the liability column. Your home, car, boat unless any are rented out are liabilities.

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You are confusing cash flow with assets. These are not the same thing, and can't be compared with one another. Cash flow comes FROM assets. My 401(k) does not generate cash flow for me (and won't until I'm older than 59 1/2), but it is still an asset. Cash flow is a completely separate issue from whether something is an asset or liability.

It's simple if you look at it from an accounting perspective: your mortgage loan is a liability; your home is an asset. The market value of your home minus the amount of your loan is your owners' equity (you'll notice cash flow is not part of the picture).

Here are the actual definitions of assets & liabilities:

"Accounting standards define an asset as something you own that can provide future economic benefits. Cash, inventory, accounts receivable, land, buildings, equipment -- these are all assets. Liabilities are your obligations -- either money that must be paid or services that must be performed."

In Accounting & Finance, your assets and liabilities are recorded on the balance sheet. Your cash flow is recorded on the Income Statement.

You also haven't accounted for the fact that there's no guarantee that all 4 homes were rented every single minute of each month, that the renters actually paid each month, that there were no issues (leaky roof, water heater goes out, garbage disposal breaks, or renter ruins the carpet - all things that have happened to me with rental homes in the past). With 4 homes, that means that there are 4x the risk that a problem happens. If you own 1 house, your risk is reduced.

Another fact to consider: my home has gone up more than 15% a year for the past 4 years. Now, I know it won't continue to go up that much each year going forward, but I am up a lot. If I took that same money and bought 4 $100k houses and they went up 3% a year for the same 4 years, I would have made a huge mistake. Even adding back in the difference I would have made for $1500/mo in net income, I would have lost a lot of money. If I were to sell my house now, I will have made about $330k. With the rentals, I would have made $50k in equity plus $72k in rental income difference, for a total of $122k. Obviously, I am not saying that this will happen all of the time, but it's the truth for me now.

Again, even without my facts (that are just my personal situation), your definitions are not correct. Don't conflate cash flow with assets. They are apples and oranges.