Rich Dad says a home is a liability………

Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes

Many investors quote Rich Dad to support their contention that a HOME is not an investment.

Often this is done as an argument to invest capital in their commerical real estate deal instead of buying a home. Let me also say, I love buying rental real estate. I own everything from single family real estate to 200 unit plus apartment complexes. I am PRO rental real estate ownership.

This argument is simplistic at best and in my opinion often false because it ignores the cost of shelter.

If one doesn’t own a home they have to pay rent somewhere else, right?

Before looking at numbers. let’s frame the question by posing the following two questions:

1. If paying a mortgage payment is a liability, then what’s paying a rent payment? An asset?

2. As an investor, we are told it’s a great thing to have our tenants pay the mortgage. I agree.

But if an investor doesn’t buy a house, he is a tenant and laying that investor’s mortgage down.

There’s a logical inconsistency here. If it is good for YOU to have a tenant pay down YOUR mortgage, why is it good for YOU to pay down someone else’s mortgage? That makes no sense, does it?

Let’s look at some numbers:

Let’s compare rent v ownership numbers.

First, let’s recognize paying $3,000 in ownership costs AFTER TAX is equivalent plus minus to $2,000 a month rent. Often the after tax cost of ownership is equivalent to rent. And if you get a 30 year fixed rate mortgage, it is almost certain the cost of rent will go up much faster than the cost of ownership.

What about the down payment required to buy a house?

Let’s assume 10% down - one can actually buy a residence for 3% down.

Let’s say one buys a $300,000 house with 10% down.

That’s $30,000 investment.

Let’s say value of house goes up 5% per year.

After 5 years, the $300,000 house will be worth $375,000.
Equity increases from $30K to $105K in 5 years.

That’s a 50% annual increase in value.

Is that not a good return?

Run the numbers anyway you want.

At 3% annual value increase, rate of return is 30% annual return.

Buy a house first, get great long term debt and then start building your rental empire.

Don’t believe every real estate mantra you here, they often are not correct.

[email protected]650-575-6114

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Bjorn AhlbladPro Member

Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes

Never really got that notion either, my wife and I held rentals in San Mateo for 30 years and made a ton when we sold them. We also had a primary in Los Gatos for over 30 years and made a lot more money when we sold that. To me Real Estate that makes money is an asset whether you live in it or not.

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Steve Harlow
Investor · Irvine, CA · Member since 2014 · 46 posts · 30 votes
3y
My wife and I differ on this. I prefer to buy a house to live in that is distressed and fix it up or build my own house. Both ways I have built in equity. My wife is the opposite.
I see a house as an investment and treat it as such. The home I bought 27 years ago is now worth 12X's so its been a pretty good investment. If I rented it I would be paying 5K per month.
I tell people to buy if the numbers work and we are in the right part of the cycle. Its not going to be the best investment you make but not the worst either.
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
3y
With high inflation, non-homeowners have gotten absolutely pummeled financially.
5 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Ricardo R.:

❤@Dan H. it's simple.... Assets = $ into your pocket and Liabilities = $ out of your pocket within a reasonable time period - that is RD's view. You wrote: "Assets by definition is something of value." - Sure okay - Does your car have value? Does it have value to you? Does it have value as far as $..... Yes, yes and yes -- is it considered an 'asset' --- lol.... NO! Now if you want to approach it from an accountant's perspective, a lawyer's perspective, an insurance carrier's perspective or a lender's perspective... that is your prerogative (all of which will have different stances whether a car is an asset by the way) - HOWEVER, if you are approaching it from an investor's stance NO, it most certainly is not an asset... but hey it does have value per your definition.

Wrong. Your car is an asset. I invite you to look up the definition in a dictionary rather than use your own definition of the word.
I invite you to look up the definition in a dictionary. Assets are things of value. Most cars have value and therefore are assets.
You are falling for RK’s misuse of the word. He has his own definition for many words. He does sell a lot of books and I enjoyed reading a couple (there is a lot of redundancy in his various books). It does not mean his definition is correct any more than if I called the Sun the moon.
1 Reply
Craig Janet
Member since 2019 · 223 posts · 261 votes
3y
Quote from @Dan H.:

Quote from @Ricardo R.:

❤@Dan H. it's simple.... Assets = $ into your pocket and Liabilities = $ out of your pocket within a reasonable time period - that is RD's view. You wrote: "Assets by definition is something of value." - Sure okay - Does your car have value? Does it have value to you? Does it have value as far as $..... Yes, yes and yes -- is it considered an 'asset' --- lol.... NO! Now if you want to approach it from an accountant's perspective, a lawyer's perspective, an insurance carrier's perspective or a lender's perspective... that is your prerogative (all of which will have different stances whether a car is an asset by the way) - HOWEVER, if you are approaching it from an investor's stance NO, it most certainly is not an asset... but hey it does have value per your definition.

Wrong. Your car is an asset. I invite you to look up the definition in a dictionary rather than use your own definition of the word.
I invite you to look up the definition in a dictionary. Assets are things of value. Most cars have value and therefore are assets.
You are falling for RK’s misuse of the word. He has his own definition for many words. He does sell a lot of books and I enjoyed reading a couple (there is a lot of redundancy in his various books). It does not mean his definition is correct any more than if I called the Sun the moon.

Agreed 100%. A car is absolutely an asset unless you're upside down. I think people are confusing asset with investment.
A primary home should not be considered an investment. Buy something in your budget and if it appreciates then that just a bonus.
1 Reply
Brian M. AdamsPro Member
Member since 2018 · 18 posts · 6 votes
3y
@Dan H.
I suppose it depends on whose definition of asset you use.
From Investopedia:
"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent."
Looking at that definition, it isn't far from what RK uses, since your primary home isn't typically going to "...generate cash flow, reduce expenses, or improve sales,..." unless you are house hacking.
0 Reply
Todd Jones
Member since 2023 · 243 posts · 199 votes
3y
Quote from @Jim K.:

It's clear that only @Michael Smythe here is actually talking about what's discussed in Rich Dad, Poor Dad. It's more than slightly funny that @David M. admits he's never read the book but he has a much clearer grasp of what Kiyosaki wants to say than most in this thread.

Kiyosaki is trying in the book to make it clear to people who have never invested that while the dictionary definition of an asset is something that is worth money that you own, and by that definition a house is an asset, a more useful understanding of the term "asset" is as "something that makes you money."

Your primary residence, by this very different and admittedly idiosyncratic definition, is not always an asset. People often choose to buy and live in homes that will keep them broke for decades. They buy homes that are too expensive, that have ridiculous HOA fees, that are in neighborhoods that demand certain extra expenditures above and beyond the basic costs of homeownshership.

For instance, there are some neighborhoods in Pittsburgh where the average homeowner wouldn't be caught dead carrying an Aldi bag. Where everyone is expected to park a late-model car in their driveway. Places with big lawns and landscaping features that demand professional maintenance. I remember as a child living in a neighborhood where the kids didn't hesitate to ask why we only had one automobile and not two, like everyone else.

What Kiyosaki is really trying to do is make people question the stock framing of the American dream, a nice house in a nice neighborhood that eats up a ton of your money, much more than some other primary residence would.

Reading Rich Dad, Poor Dad was one of the actions that convinced me to move out of my $190K townhouse condo in the North Hills of Pittsburgh, across the McKnight corridor from Ross Park Mall, the area's most upscale shopping area. The development had playgrounds, running trails, a clubhouse, tennis courts, and a pool. We never used any of that, of course. It also came with an HOA fee that is currently about $450/month.

I bought a duplex on the edge of a heroin ghetto for $45K cash, personally renovated the upstairs thoroughly and the downstairs minimally, moved a tenant in upstairs and moved in myself downstairs. The upstairs currently rents for $980/month, the neighborhood has improved to the type of place where flipped single-family two-bedroom go for $170K, no one gives a damn where I shop and what kind of car I park outside, and so, my house is most definitely an asset by Kiyosaki's definition, that is: it makes me money.

I still own and rent out the condo for $1400/month, so at least it's not losing me money anymore. Nevertheless, my wife still writes obscenities in Russian on the comment line of every check we send the condo management company for the monthly HOA payment.

That's what Kiyosaki is trying to explain. He makes a pig's ear of it, but as he is fond of saying, the jacket of his book says "best-selling author." It doesn't say "best-writing author."

This pretty much sums it up.
I’ve read the book and when I read “primary home = liability”, I understood he was trying to teach the inexperienced “don’t put a pointless 200k update in your home when you can invest it and make 400k”.
However, this is over simplistic.

A liability doesn’t make you money, it takes it. Same as owning a car. Or does it? The car is a tool that takes you to areas on demand where you make money i.e., job, networking event, business meeting, etc. So when Robert says it’s a liability, that doesn’t mean get rid of it. Heck, he said kids are a liability.

Getting a Ferrari can be an asset if it attracts high end clients that want to do business with you causing the car to pay for itself+more. If it doesn’t, then it’s a liability.

Same with your home. You need it to sleep / eat so you can make money. It’s not a 100% liability.

Now, to the OP. Let’s do the numbers.
If you buy a home for over 200k at 7%, you will pay $479,018 excluding taxes and insurance at the end of 30 years. Better yet, $323,578 after 15 years. If the home appreciates to less than this after 15/30 yrs (some areas do) and the annually tax benefits don’t help, it was a liability and you would have saved by renting. But if you sell at the end of 15/30 yrs and it sold way more than the end of loan cost, it was an investment like gold. An asset.
This was where I disagreed with Robert Kiyosaki. A personal home can be an asset. Again, I know why he said it and there are several other variables.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Brian M. Adams:

@Dan H.
I suppose it depends on whose definition of asset you use.
From Investopedia:
"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent."
Looking at that definition, it isn't far from what RK uses, since your primary home isn't typically going to "...generate cash flow, reduce expenses, or improve sales,..." unless you are house hacking.

Except RK states your home is not an asset. It usually is an asset (has value).
He does similar with trying to equate investing with cash flow. Investing does not ever need to achieve return. If it is expected to achieve return, it is an investment. In my market homes have outperformed inflation for every 10 year interval going back over 60 years. I think it reasonable that you buy a house and expect to own it 10 years that you expect return and have made an investment that also happens to provide housing (not to imply it is investment first, but to imply it can be, and in my market usually is, both).
Words have meaning and to define them differently to create controversy helps sell books. If RK only stated the obvious, he would sell a lot less books, have less media appearances, have less paid speaking opportunities, and would not be able to sell his real estate courses (I believe he sold off that part of his business). This is where RK has made his money. Sure he made money with Velcro wallets, but it crashed and he lost most of that money. He made and lost money in RE. But his books and opportunities derived from the books have been his primary source of wealth.
0 Reply
D’Andre Ortiz
Real Estate Agent · Columbus, OH · Member since 2020 · 44 posts · 36 votes
3y
Hell of a way to put it. I will definitely be sharing this anyone next time someone says a home is a liabilty.
0 Reply
Brian M. AdamsPro Member
Member since 2018 · 18 posts · 6 votes
3y
Quote from @Dan H.:

Quote from @Brian M. Adams:

@Dan H.
I suppose it depends on whose definition of asset you use.
From Investopedia:
"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent."
Looking at that definition, it isn't far from what RK uses, since your primary home isn't typically going to "...generate cash flow, reduce expenses, or improve sales,..." unless you are house hacking.

Except RK states your home is not an asset. It usually is an asset (has value).
He does similar with trying to equate investing with cash flow. Investing does not ever need to achieve return. If it is expected to achieve return, it is an investment. In my market homes have outperformed inflation for every 10 year interval going back over 60 years. I think it reasonable that you buy a house and expect to own it 10 years that you expect return and have made an investment that also happens to provide housing (not to imply it is investment first, but to imply it can be, and in my market usually is, both).
Words have meaning and to define them differently to create controversy helps sell books. If RK only stated the obvious, he would sell a lot less books, have less media appearances, have less paid speaking opportunities, and would not be able to sell his real estate courses (I believe he sold off that part of his business). This is where RK has made his money. Sure he made money with Velcro wallets, but it crashed and he lost most of that money. He made and lost money in RE. But his books and opportunities derived from the books have been his primary source of wealth.
Let me ask you this. In that same 10 year span, would you have gained or lost if you sold the property? You would have lost, no matter how you look at it. Let's assume a $200k mortgage at 6% for 30 years. In that 10 years, you would have paid over $111K in interest alone while only paying $32,628.55 down on the principle. Even if you sell it for $300K, you would still be upside down by over $10K.

Yes, if you were to create a personal balance sheet, the value of the property would go in the asset list, but all of the costs associated with it, such as mortgage, taxes, repairs, etc., would also go in the liabilities. Unless those costs are less than the value of the property, it should absolutely be considered a liability. The same applies to a car, boat, or anything else.
1 Reply
John Clark
Member since 2018 · 1k+ posts · 1k+ votes
3y
Too long, didn’t read.

The take away you all should have: all bromides are worthless.

As for boats, I remember the old saying: the two happiest days of your life are when you buy a boat, and when you sell it.
1 Reply
Ricardo R.Pro Member
Property Manager · Michigan Ctr, MI · Member since 2016 · 661 posts · 581 votes
3y
Quote from @Dan H.:

Quote from @Ricardo R.:

❤@Dan H. it's simple.... Assets = $ into your pocket and Liabilities = $ out of your pocket within a reasonable time period - that is RD's view. You wrote: "Assets by definition is something of value." - Sure okay - Does your car have value? Does it have value to you? Does it have value as far as $..... Yes, yes and yes -- is it considered an 'asset' --- lol.... NO! Now if you want to approach it from an accountant's perspective, a lawyer's perspective, an insurance carrier's perspective or a lender's perspective... that is your prerogative (all of which will have different stances whether a car is an asset by the way) - HOWEVER, if you are approaching it from an investor's stance NO, it most certainly is not an asset... but hey it does have value per your definition.

Wrong. Your car is an asset. I invite you to look up the definition in a dictionary rather than use your own definition of the word.
I invite you to look up the definition in a dictionary. Assets are things of value. Most cars have value and therefore are assets.
You are falling for RK’s misuse of the word. He has his own definition for many words. He does sell a lot of books and I enjoyed reading a couple (there is a lot of redundancy in his various books). It does not mean his definition is correct any more than if I called the Sun the moon.

Most seasoned investors here have told you it’s not, others have laid it out for you why it’s not, countless notable investors agree it’s not… heck if you think a car is an investment asset go buy cars, buy and hold a new one and then let us know how it works out for you… you seem to have a chip on your shoulder when someone tells you that your primary is a not a cash flowing asset… Idk what to tell you… can’t make this stuff up.. you win.

[email protected]810-844-1104
1 Reply
Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
3y
Quote from @Mike Dymski:

With high inflation, non-homeowners have gotten absolutely pummeled financially.

I'm trying to follow your reasoning. Normally I understand and agree with you, but in this case I'm puzzled. Homeowners don't recognize their gain until they sell. Their "equity" is a number on a spreadsheet and most people don't include selling costs when they discuss equity, so in reality their equity is quite a bit lower.

I'd add that "With high inflation, ~~non-~~ homeowners have gotten absolutely pummeled financially as well.

Inflation is theft by deceit. The government over spends, a trillion here, a trillion there and soon we're talking about real money. Then they inflate to reduce the liability which spreads the cost to all consumers.

So, because of inflation and interest rates, someone who buys a house, pays way more than they should. Real wages haven't kept up. Men today are earning about what men in 1972 were earning, but prices today are much higher.

1 Reply
Ben Lin
Member since 2021 · 53 posts · 34 votes
3y
RK suggested you buy your primary with cash like his rich dad. I would rather rent and build wealth until I can buy a primary with cash. Renting also makes you hungrier to build wealth. When I was young I didn’t care where I was living I just wanted to build wealth as fast as I could. Owning a primary with a high mortgage will definitely slow down your financial goals.
I would argue renting can be cash flow. Just calculate how much is your holding cost of your primary, buy a rental that produces the same amount, and lastly rent something cheaper than your rental income 😁.

0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Brian M. Adams:

Quote from @Dan H.:

Quote from @Brian M. Adams:

@Dan H.
I suppose it depends on whose definition of asset you use.
From Investopedia:
"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent."
Looking at that definition, it isn't far from what RK uses, since your primary home isn't typically going to "...generate cash flow, reduce expenses, or improve sales,..." unless you are house hacking.

Except RK states your home is not an asset. It usually is an asset (has value).
He does similar with trying to equate investing with cash flow. Investing does not ever need to achieve return. If it is expected to achieve return, it is an investment. In my market homes have outperformed inflation for every 10 year interval going back over 60 years. I think it reasonable that you buy a house and expect to own it 10 years that you expect return and have made an investment that also happens to provide housing (not to imply it is investment first, but to imply it can be, and in my market usually is, both).
Words have meaning and to define them differently to create controversy helps sell books. If RK only stated the obvious, he would sell a lot less books, have less media appearances, have less paid speaking opportunities, and would not be able to sell his real estate courses (I believe he sold off that part of his business). This is where RK has made his money. Sure he made money with Velcro wallets, but it crashed and he lost most of that money. He made and lost money in RE. But his books and opportunities derived from the books have been his primary source of wealth.
Let me ask you this. In that same 10 year span, would you have gained or lost if you sold the property? You would have lost, no matter how you look at it. Let's assume a $200k mortgage at 6% for 30 years. In that 10 years, you would have paid over $111K in interest alone while only paying $32,628.55 down on the principle. Even if you sell it for $300K, you would still be upside down by over $10K.

Yes, if you were to create a personal balance sheet, the value of the property would go in the asset list, but all of the costs associated with it, such as mortgage, taxes, repairs, etc., would also go in the liabilities. Unless those costs are less than the value of the property, it should absolutely be considered a liability. The same applies to a car, boat, or anything else.

>the value of the property would go in the asset list, but all of the costs associated with it, such as mortgage, taxes, repairs, etc., would also go in the liabilities.

that is exactly my point. RK use has asset and liability being mutually exclusive because he uses RK definitions and not the common definition. As you point out, something can be both.

>In that 10 years, you would have paid over $111K in interest alone while only paying $32,628.55 down on the principle. Even if you sell it for $300K, you would still be upside down by over $10K
Every one of my properties in my market appreciated more than $100k over 10 years. I have properties that have a value that has increased over $8k/month for the hold. Granted I never purchased in 2006 to sell in 2016, but I have purchased many properties in my market and my worse has gained more than your example and my best is on pace to gain ~1m in 10 years and I have another that has gained just over $2m in 22 years
Even if I used your numbers, I suspect few would not realize the value of staying in a property that varied in value from $200k to $300k for 10 years for a cost of only $10k (or an average of $1k cost per year).
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Ricardo R.:

Quote from @Dan H.:

Quote from @Ricardo R.:

❤@Dan H. it's simple.... Assets = $ into your pocket and Liabilities = $ out of your pocket within a reasonable time period - that is RD's view. You wrote: "Assets by definition is something of value." - Sure okay - Does your car have value? Does it have value to you? Does it have value as far as $..... Yes, yes and yes -- is it considered an 'asset' --- lol.... NO! Now if you want to approach it from an accountant's perspective, a lawyer's perspective, an insurance carrier's perspective or a lender's perspective... that is your prerogative (all of which will have different stances whether a car is an asset by the way) - HOWEVER, if you are approaching it from an investor's stance NO, it most certainly is not an asset... but hey it does have value per your definition.

Wrong. Your car is an asset. I invite you to look up the definition in a dictionary rather than use your own definition of the word.
I invite you to look up the definition in a dictionary. Assets are things of value. Most cars have value and therefore are assets.
You are falling for RK’s misuse of the word. He has his own definition for many words. He does sell a lot of books and I enjoyed reading a couple (there is a lot of redundancy in his various books). It does not mean his definition is correct any more than if I called the Sun the moon.

Most seasoned investors here have told you it’s not, others have laid it out for you why it’s not, countless notable investors agree it’s not… heck if you think a car is an investment asset go buy cars, buy and hold a new one and then let us know how it works out for you… you seem to have a chip on your shoulder when someone tells you that your primary is a not a cash flowing asset… Idk what to tell you… can’t make this stuff up.. you win.

>you seem to have a chip on your shoulder when someone tells you that your primary is a not a cash flowing asset… Idk what to tell you… can’t make this stuff up.. you win.

You are twisting what I said. I said the primary home is an asset. Look up the definition of asset and you will realize that your primary house is an asset by definition (has value). You twisted/changed it to cash flowing asset. Someone that twists statements to make their point do so because they have to to try to make their point. I can see how you can make this up. It’s not hard, just twist/change the words to make your argument.

Who do you think has a chip on shoulder? I think it is the person who twists/changes the words to make their argument.
Also a car by definition is an asset (using the most common definition) as it has value even if the value is likely to decline.
0 Reply
Arn CenedellaPro Member
OP
Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
3y
Quote from @Brian M. Adams:

Quote from @Dan H.:

Quote from @Brian M. Adams:

@Dan H.
I suppose it depends on whose definition of asset you use.
From Investopedia:
"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent."
Looking at that definition, it isn't far from what RK uses, since your primary home isn't typically going to "...generate cash flow, reduce expenses, or improve sales,..." unless you are house hacking.

Except RK states your home is not an asset. It usually is an asset (has value).
He does similar with trying to equate investing with cash flow. Investing does not ever need to achieve return. If it is expected to achieve return, it is an investment. In my market homes have outperformed inflation for every 10 year interval going back over 60 years. I think it reasonable that you buy a house and expect to own it 10 years that you expect return and have made an investment that also happens to provide housing (not to imply it is investment first, but to imply it can be, and in my market usually is, both).
Words have meaning and to define them differently to create controversy helps sell books. If RK only stated the obvious, he would sell a lot less books, have less media appearances, have less paid speaking opportunities, and would not be able to sell his real estate courses (I believe he sold off that part of his business). This is where RK has made his money. Sure he made money with Velcro wallets, but it crashed and he lost most of that money. He made and lost money in RE. But his books and opportunities derived from the books have been his primary source of wealth.
Let me ask you this. In that same 10 year span, would you have gained or lost if you sold the property? You would have lost, no matter how you look at it. Let's assume a $200k mortgage at 6% for 30 years. In that 10 years, you would have paid over $111K in interest alone while only paying $32,628.55 down on the principle. Even if you sell it for $300K, you would still be upside down by over $10K.

Yes, if you were to create a personal balance sheet, the value of the property would go in the asset list, but all of the costs associated with it, such as mortgage, taxes, repairs, etc., would also go in the liabilities. Unless those costs are less than the value of the property, it should absolutely be considered a liability. The same applies to a car, boat, or anything else.

@Brian M. Adams Not sure how many times I have to repeat myself but an analysis that ignores the need and cost for shelter is faulty at its inception.
Let me try again:
Unless you wish to be homeless or live out of your car - or live with your parents or a friend for free - one has to pay for shelter. This will either be in the form of a mortgage etc or rent.
Let’s use your example of $111,000 of interest over 10 years.
Let’s break that down monthly:
That’s $925 a month.
If you paid $1,000 a month rent ASSUMING IT DID NOT INCREASE OVER THOSE 10 years, you would have paid $120,000 in rent.
What would that get you? Answer - nothing but shelter.
$111,000 in interest provides tax deductions and the chance for an increase in equity.
I would rather own and pay $111,000 in interest over 10 years than $120,000 in rent for 10 years.
[email protected]650-575-6114
4 Reply
Brian M. AdamsPro Member
Member since 2018 · 18 posts · 6 votes
3y
Quote from @Dan H.:

Quote from @Brian M. Adams:

Quote from @Dan H.:

Quote from @Brian M. Adams:

@Dan H.
I suppose it depends on whose definition of asset you use.
From Investopedia:
"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent."
Looking at that definition, it isn't far from what RK uses, since your primary home isn't typically going to "...generate cash flow, reduce expenses, or improve sales,..." unless you are house hacking.

Except RK states your home is not an asset. It usually is an asset (has value).
He does similar with trying to equate investing with cash flow. Investing does not ever need to achieve return. If it is expected to achieve return, it is an investment. In my market homes have outperformed inflation for every 10 year interval going back over 60 years. I think it reasonable that you buy a house and expect to own it 10 years that you expect return and have made an investment that also happens to provide housing (not to imply it is investment first, but to imply it can be, and in my market usually is, both).
Words have meaning and to define them differently to create controversy helps sell books. If RK only stated the obvious, he would sell a lot less books, have less media appearances, have less paid speaking opportunities, and would not be able to sell his real estate courses (I believe he sold off that part of his business). This is where RK has made his money. Sure he made money with Velcro wallets, but it crashed and he lost most of that money. He made and lost money in RE. But his books and opportunities derived from the books have been his primary source of wealth.
Let me ask you this. In that same 10 year span, would you have gained or lost if you sold the property? You would have lost, no matter how you look at it. Let's assume a $200k mortgage at 6% for 30 years. In that 10 years, you would have paid over $111K in interest alone while only paying $32,628.55 down on the principle. Even if you sell it for $300K, you would still be upside down by over $10K.

Yes, if you were to create a personal balance sheet, the value of the property would go in the asset list, but all of the costs associated with it, such as mortgage, taxes, repairs, etc., would also go in the liabilities. Unless those costs are less than the value of the property, it should absolutely be considered a liability. The same applies to a car, boat, or anything else.

>the value of the property would go in the asset list, but all of the costs associated with it, such as mortgage, taxes, repairs, etc., would also go in the liabilities.

that is exactly my point. RK use has asset and liability being mutually exclusive because he uses RK definitions and not the common definition. As you point out, something can be both.

>In that 10 years, you would have paid over $111K in interest alone while only paying $32,628.55 down on the principle. Even if you sell it for $300K, you would still be upside down by over $10K
Every one of my properties in my market appreciated more than $100k over 10 years. I have properties that have a value that has increased over $8k/month for the hold. Granted I never purchased in 2006 to sell in 2016, but I have purchased many properties in my market and my worse has gained more than your example and my best is on pace to gain ~1m in 10 years and I have another that has gained just over $2m in 22 years
Even if I used your numbers, I suspect few would not realize the value of staying in a property that varied in value from $200k to $300k for 10 years for a cost of only $10k (or an average of $1k cost per year).
So you're telling us that properties where you are have all grown by over $600k over the past 60 years? Not sure where your market is (I suspect somewhere very high end with a high cost of living since you are in CA), but that is not the norm in most places. Here in VA the median home value for owner occupied properties is less than $300k.
0 Reply
Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
3y
Quote from @Account Closed:

Quote from @Mike Dymski:

With high inflation, non-homeowners have gotten absolutely pummeled financially.

So, because of inflation and interest rates, someone who buys a house, pays way more than they should. Real wages haven't kept up. Men today are earning about what men in 1972 were earning, but prices today are much higher.

The non-homeowner pays way more than they should (when they have to buy, if they can). The homeowner was protected and got to experience the appreciation...and to experience the same liability reduction as the government. I agree that we are all paying a dear price for massive/excessive government actions.

2 Reply
Brian M. AdamsPro Member
Member since 2018 · 18 posts · 6 votes
3y
Quote from @Arn Cenedella:

Quote from @Brian M. Adams:

Quote from @Dan H.:

Quote from @Brian M. Adams:

@Dan H.
I suppose it depends on whose definition of asset you use.
From Investopedia:
"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit.

Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible. They are bought or created to increase a firm's value or benefit the firm's operations.

An asset can be thought of as something that, in the future, can generate cash flow, reduce expenses, or improve sales, regardless of whether it's manufacturing equipment or a patent."
Looking at that definition, it isn't far from what RK uses, since your primary home isn't typically going to "...generate cash flow, reduce expenses, or improve sales,..." unless you are house hacking.

Except RK states your home is not an asset. It usually is an asset (has value).
He does similar with trying to equate investing with cash flow. Investing does not ever need to achieve return. If it is expected to achieve return, it is an investment. In my market homes have outperformed inflation for every 10 year interval going back over 60 years. I think it reasonable that you buy a house and expect to own it 10 years that you expect return and have made an investment that also happens to provide housing (not to imply it is investment first, but to imply it can be, and in my market usually is, both).
Words have meaning and to define them differently to create controversy helps sell books. If RK only stated the obvious, he would sell a lot less books, have less media appearances, have less paid speaking opportunities, and would not be able to sell his real estate courses (I believe he sold off that part of his business). This is where RK has made his money. Sure he made money with Velcro wallets, but it crashed and he lost most of that money. He made and lost money in RE. But his books and opportunities derived from the books have been his primary source of wealth.
Let me ask you this. In that same 10 year span, would you have gained or lost if you sold the property? You would have lost, no matter how you look at it. Let's assume a $200k mortgage at 6% for 30 years. In that 10 years, you would have paid over $111K in interest alone while only paying $32,628.55 down on the principle. Even if you sell it for $300K, you would still be upside down by over $10K.

Yes, if you were to create a personal balance sheet, the value of the property would go in the asset list, but all of the costs associated with it, such as mortgage, taxes, repairs, etc., would also go in the liabilities. Unless those costs are less than the value of the property, it should absolutely be considered a liability. The same applies to a car, boat, or anything else.

@Brian M. Adams Not sure how many times I have to repeat myself but an analysis that ignores the need and cost for shelter is faulty at its inception.
Let me try again:
Unless you wish to be homeless or live out of your car - or live with your parents or a friend for free - one has to pay for shelter. This will either be in the form of a mortgage etc or rent.
Let’s use your example of $111,000 of interest over 10 years.
Let’s break that down monthly:
That’s $925 a month.
If you paid $1,000 a month rent ASSUMING IT DID NOT INCREASE OVER THOSE 10 years, you would have paid $120,000 in rent.
What would that get you? Answer - nothing but shelter.
$111,000 in interest provides tax deductions and the chance for an increase in equity.
I would rather own and pay $111,000 in interest over 10 years than $120,000 in rent for 10 years.
The only problem is your math is off. You wouldn't have paid just $111K, you would have paid $1190.10 for 120 months for a total of $142, 812, plus all utilities and repairs over that same time frame. When renting, repairs and often utilities are included in the amount paid each month.

How did you come to the assumption that the need and cost for shelter was being ignored?

Nothing wrong with owning. I prefer it as well. However, it really isn't the great asset the has been preached for years, and certainly one's primary residence isn't the key to wealth.
0 Reply
Crystal SmithPro Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
3y
Quote from @Arn Cenedella:

Many investors quote Rich Dad to support their contention that a HOME is not an investment.
Often this is done as an argument to invest capital in their commerical real estate deal instead of buying a home. Let me also say, I love buying rental real estate. I own everything from single family real estate to 200 unit plus apartment complexes. I am PRO rental real estate ownership.
This argument is simplistic at best and in my opinion often false because it ignores the cost of shelter.

If one doesn’t own a home they have to pay rent somewhere else, right?
Before looking at numbers. let’s frame the question by posing the following two questions:
1. If paying a mortgage payment is a liability, then what’s paying a rent payment? An asset?
2. As an investor, we are told it’s a great thing to have our tenants pay the mortgage. I agree.
But if an investor doesn’t buy a house, he is a tenant and laying that investor’s mortgage down.
There’s a logical inconsistency here. If it is good for YOU to have a tenant pay down YOUR mortgage, why is it good for YOU to pay down someone else’s mortgage? That makes no sense, does it?
Let’s look at some numbers:
Let’s compare rent v ownership numbers.
First, let’s recognize paying $3,000 in ownership costs AFTER TAX is equivalent plus minus to $2,000 a month rent. Often the after tax cost of ownership is equivalent to rent. And if you get a 30 year fixed rate mortgage, it is almost certain the cost of rent will go up much faster than the cost of ownership.
What about the down payment required to buy a house?
Let’s assume 10% down - one can actually buy a residence for 3% down.
Let’s say one buys a $300,000 house with 10% down.
That’s $30,000 investment.
Let’s say value of house goes up 5% per year.
After 5 years, the $300,000 house will be worth $375,000.
Equity increases from $30K to $105K in 5 years.
That’s a 50% annual increase in value.
Is that not a good return?
Run the numbers anyway you want.
At 3% annual value increase, rate of return is 30% annual return.
Buy a house first, get great long term debt and then start building your rental empire.
Don’t believe every real estate mantra you here, they often are not correct.

We read Rich Dad a long time ago & I don't recall the statement that a home is "not an investment". What I recall he said is "Your personal home is a liability" which means until that home throws off cash on a monthly basis like other income-producing assets, it's a liability. Yes, the home you live in is an asset & will go up in value over a period of time, but his message was and is to focus on purchasing assets that throw off cash.
312-681-7487
1 Reply
Corey ConklinPro Member
Investor · Member since 2021 · 129 posts · 209 votes
3y
It’s simple to understand that a personal house is a liability. It takes money from your pocket. But just as you mention, so does rent. They are both liabilities. Now it’s up to the individual to come up with the best option for their situation. Sometimes ownership makes sense, sometimes it makes sense to rent. There are a lot of factors to consider.

Here’s how I look at it. If I buy a house, I am responsible to fix anything that goes wrong. If the roof leaks, AC quits working, sewer line needs replaced, etc. I’m financially on the hook to pay for the repairs. Not only that but I am on the hook to find the contractors to come out and get the work done, which in today’s world is a massive headache itself. When you rent, you don’t have to pay for these expenses and you don’t have to line up the contractors.

The upside to buying is you are paying off a mortgage and hopefully gaining appreciation while you live in the house. That alone makes a lot of sense.

I know many people that have very busy lives and don’t want to spend time or money maintaining a house. If that’s the case renting is the way to go.

Time spent at your personal residence is probably the most important factor in my opinion. Will you be at the house for the next 25 years? Or do you move every 2-3 years? If you are going to be there for a few decades, it’s any easy decision, buy the house. If you will be moving around a lot, rent.

Robert’s book is a great, but everyone needs to take his advice and apply it to your own unique situation. I’ve always found it ironic that he bashes on the education system (rightfully so) yet gives advice to people in a 1 size fits all manner, just like the education system.
2 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
3y
I don't know the proper way to categorize owning a primary but it is not a great vehicle in most cases. Tons of interest paid in the front end of an amortization schedule and you have to catch appreciation in a cycle to try to make it worth it. There are better investment vehicles imo.
1 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Steve Harlow:

My wife and I differ on this. I prefer to buy a house to live in that is distressed and fix it up or build my own house. Both ways I have built in equity. My wife is the opposite.
I see a house as an investment and treat it as such. The home I bought 27 years ago is now worth 12X's so its been a pretty good investment. If I rented it I would be paying 5K per month.
I tell people to buy if the numbers work and we are in the right part of the cycle. Its not going to be the best investment you make but not the worst either.

Anything that's appreciating to upside is investments LOL

THe Rich Dad doesnt understand this.
0 Reply
Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y

Just another celebrity that want to be heard.
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
@Arn Cenedella it's not as simple as labeling a particular asset as an asset or liability, the asset itself does not dictate but the underlying INTENT is really the determining factor.
For example: Say a person buys a RV, which in most standards is simple a liability, considered consumer spending especially given they do not appreciate over time they depreciate. So purchased solely for self-use it is a liability. Now let's modify INTENT and say one purchases to than list this RV for rent, and now it becomes an ASSET, all factors remaining the same with only a change of INTENT. Now let's go a step further and say a person purchases for self-us BUT only for 10 weekends of the year, and lists it for rent on other available dates. It is now BOTH an asset and a liability.
Captain Obvious would chime-in on House-hacking which again, duh, making a liability an asset but a touch of both right. Let's talk about the person whom buys a home as a primary residence, which should be a liability BUT they do this to utilize leverage, with INTENT from start to live in it 1 year, maybe do some upgrades, and than each year buy a new primary residence, move and lease out the property they are exiting. That IS an asset and it is an investment, simply with phases to monetization for that investment, because of the INTENT.
Before the "Cash-Flow-Mafia" chime in arguing this I will remind something does NOT need to be profitable to be an investment, an investment CAN and many times DOES loose $, hence the mountain of disclosures for such. Again, INTENT is to make $ but doesn't always work out, investing holds inherent risks..... Not mine of course, lol, I only know how to make-$ but that's a different topic, lol. (joking people, not a literal guarantee of returns).
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