One of the most recent concepts that I have to considered is deciding whether whether to classify something as an asset or a liability. For example, what is a house, an asset or liability? I think that is a good question to ask and clarify.
My understanding is that according to Robert Kiyosaki, author of Rich Dad Poor Dad, an asset is anything that makes money or produces revenue and a liability is anything that costs money. So what is a house? Based on the definition above, a house can be either an asset or a liability. If you rent the house or use it for business purposes therefore it generates revenue, then the house is an asset. However, if the house is a residence and lived in and has a mortgage payment, then it is an expense and therefore a liability.
It might be a difficult concept to grasp, because we are often told that a house is an asset. And in a sense it is, because it is worth money when it is sold. When a mortgage is issued on the house, the property is then owned by the mortgage company and the occupant is paying rent or what is often referred to as a note. Therefore the house is an asset to the mortgage company, because it is generating revenue; and a liability to the occupant, because it is an expense and the occupants are making a payment.
What about if there is no mortgage on the house? Same rules apply, if the house generates revenue it is an asset, if not it is a liability. Again, for the occupant the house is a liability because of the expenses associated with living in the house. If the occupant is a renter, then the renter makes a payment to the owner. For the owner the house is an asset, it generates revenue; and for the renter the house is a liability, it is an expense. If the owner lives in the house, then the house is a liability because it does not generate revenue. This is because the house only creates expenses for the owner in the form of insurance, taxes, and maintenance costs.
Using the definition above it is simple to determine if something is an asset or a liability. If the investment generates revenue, it is an asset; if not, it is a liability.