More on balance sheets (2): Collateral and revaluation - Fine Homebuilding
previous
  • Electrical Articles & Videos
    Electrical Articles & Videos
  • Shorten a Prehung Door
    Shorten a Prehung Door
  • Magazine Departments
    Magazine Departments
  • Master Carpenter Videos
    Master Carpenter Videos
  • Play the Inspector Game!
    Play the Inspector Game!
  • How to Install Housewrap Solo
    How to Install Housewrap Solo
  • Deck Design & Construction
    Deck Design & Construction
  • 7 Trim Carpentry Secrets
    7 Trim Carpentry Secrets
  • Video: Build a curved step
    Video: Build a curved step
  • Energy-Smart Details
    Energy-Smart Details
  • Clever daily tip in your inbox
    Clever daily tip in your inbox
  • 9 Concrete Countertops Ideas
    9 Concrete Countertops Ideas
  • All about Roofing
    All about Roofing
  • Read FHB on Your iPad
    Read FHB on Your iPad
  • 7 Small Bathroom Layouts
    7 Small Bathroom Layouts
  • 12 Remodeling Secrets
    12 Remodeling Secrets
  • Remodeling in Action
    Remodeling in Action
  • The Passive House Build
    The Passive House Build
  • 7 Smart Kitchen Solutions
    7 Smart Kitchen Solutions
  • Buyer's Guide to Insulation
    Buyer's Guide to Insulation
  • Basement Remodeling Tips
    Basement Remodeling Tips
  • The Hobbit House and More
    The Hobbit House and More
  • Tips & Techniques for Painting
    Tips & Techniques for Painting
next

Building Business

Building Business


More on balance sheets (2): Collateral and revaluation

comments (0) November 3rd, 2011 in Blogs

More on balance sheets from Sal Khan.

Here, Sal expands on the balance sheet from the previous episode where he bought a $1 million house with $250k cash and a $750k loan from a bank.



Assets = Liabilities + Equity

$1M = $750k + $250k

 

He expands a bit on the balance sheet with a quick overview of how loans work, introducing the terms 'collateral,' 'revaluation,' and 'marking to market' into the conversation.

Collateral is what we tell the bank they can keep if we do not pay our debt to them.

Revaluation, or marking to market, is assigning a new value to an asset  (marking) if the real world (the market) dictates it.

Every so often, in order to be honest with ourselves, we need to revalue our assets, and rebalance our balance sheet.

  • If the value goes down, then equity must go down because liabilities must stay the same.
  • If the value goes up, then equity goes up because the liabilities must stay the same.

Liabilities have nothing to do with market value except in securing the loan and convincing the bank that the house is sufficient collateral.

 

More DIY MBA articles

 


This video comes from www.khanacademy.org


 

 

Become a Fine Homebuilding Member

to view this article and over a thousand more

Learn More


posted in: Blogs, business, diy mba

Comments (0)

Log in or create a free account to post a comment.