DISQUS

Mr. GoTo · 10 months ago

Someone needs to stick a big sock in Kiyosocki. His only apparent talent is selling books and seminar tickets. He is very good at that indeed.

Andrew · 10 months ago

I think the bigger terminology faux pas is calling your house an 'investment' and expecting it to always increase in value. Unless you are flipping houses it is not an investment; it is only an asset, and one that you have to pay to maintain.

It is true that home prices have traditionally risen over the years, but evidence suggests that until recently home prices have followed inflation, so you probably won't come out ahead in any sort of investment appraisal of your house, especially considering maintenance costs over the years.

The only thing that will increase the value of your home other than improvements is the scarcity of land in the area, which over the long term can be hard to determine.

This is not to say you shouldn't buy a house, just don't expect to earn a profit from it. Use it, live in it, make it your own, and be happy.

UH2L · 10 months ago

The huge distinction between normal assets and liabilities is that you need a place to live. So regardless of whether your house/condo is considered an asset or a liability, it removes the need for you to pay rent which would be a recurring expense without an end point. Unless you get an ARM, mortgage payments don't increase whereas rent payments do. But houses do require upkeep. My house may not go up in value, but since I don't live there right now, it also provides some rental income, thereby reducing its liability load on me. Luckily, I put 20% down on a 20 year loan. I actually have equity in the house even though I purchased it near the peak in the summer of 2005. Low interest rates definitely helped. Just buy a house because you want to live there and it doesn't matter so much whether you call it an asset or a liability.

CJ · 10 months ago

While a house is "technically" an asset, I'd still prefer thinking about it as a liability. This way, it encourages me to attack my mortgage rather than just accept the mortgage.

I think about it this way. If I lost my job tomorrow, would my house be an asset or a liability? My last house took almost 1 year to sell and I was priced about $10,000 lower than similar houses in my neighborhood. If I had no job, I couldn't last 1 year. (I currently have a 6 month emergency fund but most people don't have much more than 1 month) This overall would make my house a liability.

Now I could cut the selling price of my house significantly but most people don't consider bottom feeder market price and rather their true market value (which seems to change daily right now) when calculating their net worth. If your mortgage is around 80% of the value of your house, you are probably realistically at a break-even point in the case of an emergency. This is a borderline liability. If you have your mortgage at around 70% or less of the value of your house, you could consider it an asset but remember that you are going to lose a lot of value if you had to sell it tomorrow.

Jeremy · 10 months ago

I just came here to basically say what UH2L said. People often forget that you buy a house to satisfy one of your basic human needs of shelter. If you're buying a property strictly as an investment and aren't using it to put a roof over your head, then you're more or less looking at it from a strict asset/liability perspective. So that's where I agree with Flexo in that it's an asset because most people are going to be making a monthly payment for shelter whether it's for rent or to pay down a mortgage balance. So if you actually have something to show for your payments, it's likely an asset.

Of course, I think you could also argue that someone who bought more house than they actually need and find themselves in a bad financial situation because of it may have more of a liability than an asset, but that's a completely separate discussion.

Nate @ Money Young · 10 months ago

I distinguish between house and home.

Your home is not an asset, you're not likely to sell it any more than you are likely to sell your kids.

A house is an asset, because it can bring in income if you rent it out, or sell it for a profit.

house vs. home.

-Nate

Mario · 10 months ago

Interesting post, I do agree with Mr. Kiyosaki's definition of an asset vs. liability.

An asset puts money in your pocket

A liability takes money out of your pocket

I like what Nate @ Money Young said about house vs. home...great point

Also if your home was increasing in value your home is still not your asset really, its the banks asset because they are the ones receiving that income from the mortgage you pay every month.

Yana · 10 months ago

I think a house is an asset if you own it. And I do not mean owning a mortgage. If a home is not paid off, I don't see it as an asset. Owning debt is not an asset.

vilkri · 10 months ago

I agree with Nate. There is a distinction between a house and a home. We have forgotten about that distinction. A home is where you live with your family whether you own the house or not. For most families and for most of history in the US families lived in their homes for a long time. Most families also owned their own houses which were a source of wealth creation and accumulation to be tapped into in old age or to pass on to the next generation. But all that happened before we started looking at a home as a house or as a piggy bank from which we can withdraw the accumulated equity.

The Happy Rock · 10 months ago

Right on CJ! I think you illustrated my thoughts exactly!

Nate makes an interesting point too.

Great discussion all!

Customers Revenge · 10 months ago

That's a nice way to talk about it. Kiyosaki is right that a house is tied up money with lots of associated costs. Also right that it does strictly speaking have value. Good little post.

troy · 10 months ago

house is an asset. All of them despite their use. rent isn't an asset, it is income.

the mortgage is the liability,not the house

all houses require "upkeep"and maintenence including investment properties that RK classifies as assets, so that argument is bunk.

some assets appreciate, some depreciate, but they are still assets.

from a financial standpoint a liability is a debt. houses aren't debts. mortgages are.

Mike · 10 months ago

Kiyosaki pushes too hard on this one. But he's on to something here. His basic point seems to be that people buy a house thinking it's an "asset"... and then discover that this "asset" requires spending after spending after spending, which sounds more like a liability, actually. By contrast, let's say I buy 1000 shares of Coca-Cola. The market price may go up, or it may go down, but the shares are clearly an asset, because so long as the company keeps paying a dividend it's paying me money (which the house you're living in won't do); and as long as the stock doesn't become worthless, I can sell it for something, even if it's less than I paid for it (which is, of course, also true of the house you're living in).

There's also, of course, the strictly accounting definition: your house is an asset, whereas any mortgage, plus your property taxes, are liabilities. And fixing the roof isn't a liability, but simply an expenditure that goes with owning an asset.

And then there's the purely subjective definition: when property values are shooting ever upward, and you're treating your house like an ATM-- or selling it for an enormous capital gain-- it's clearly an asset; when termites attack, mold spreads, the roof dies, and the chimney cracks, all in the same month, it's clearly a liability.

vilkri · 10 months ago

As I was reading other comments to this post, I was thinking about another concept that we have to take into consideration which may make things even murkier. People have two basic options about paying for their living quarters - renting or paying off a mortgage. If Kiyosaki argues that paying off a mortgage is a liability, what argument does he make about paying rent? I think another important questions is about opportunity costs. What are the opportunity costs of NOT paying a mortgage?

B7 · 10 months ago

It's a liability. Anyone who thinks that their house is an asset can stop paying their mortgage and see what happens.

Kiyosaki redefines asset and liability in a way that teaches people to become rich. Those accounting and MBA people are reluctant to learn from a book that costs $10.

Flexo · 10 months ago

It’s a liability. Anyone who thinks that their house is an asset can stop paying their mortgage and see what happens.

What happens when you stop paying a mortgage has no bearing on whether a house is an asset or not. Just because Kiyosaki says something is true doesn't make it true in reality. You can think about a house however you like if that helps you, but if you want to communicate in the real world, it helps to understand and accept the financial definitions of "asset" and "liability."

B7 · 10 months ago

What do you mean by "the real world?"

Flexo · 10 months ago

That probably sounded a bit harsh. If you want to have a discussion with anyone who deals with finances -- say, your tax accountant, someone who needs to know about your assets and liabilities -- and you call a house a "liability," they'll laugh you out the door. In financial terms, a house is an asset and a mortgage is a liability. If you want to think about a house as a liability because it's a money drain, that's your prerogative, but the real financial definition of liability is not "money drain" (see the article above). Kioysaki used two words that sound financial to represent two other financial concepts usually called "cash-flow positive" and "cash-flow negative." Assets can be either. An asset that you spend money on isn't suddenly a financial liability.

Sure you can talk to other Kiyosaki fans and you may understand each other, but there aren't enough Kiyosaki fans to affect real usage of the words asset and liability. Using those words for any other purpose in a financial context creates unnecessary confusion among people with a financial understanding who don't care much for or are unfamiliar with Kiyosaki.

Yana · 10 months ago

I don't know what Kiyosaki's argument would be for paying rent, but I can tell you that paying rent can cut your housing costs in half - how much depends on the person and property. While you pay rent, you save money, and you do not spend on repairs, home improvements, and in some cases, water and garbage service. When you pay rent, besides that the straight out costs are much smaller, you are not paying multiple times the purchase price of the home, as you do with a typical mortgage. My friend, as one example, as been paying on her house for over 20 years. The purchase price was $78,000. Today, they still owe $50,000. That is going to be one expensive home, as she has been doing many home improvements lately besides paying an arm and a leg without them.

If one lives long enough and starts young enough, one has the REAL opportunity of actually owning a home through saving for it, buying it outright and paying zero interest. It's a big bonus that the one who does this does not have to have faith in the ability to come up with funds to pay for the past. I personally have never believed in job security. I'm short on faith.

With a mortgage, you have the opportunity to say you own a home, when what you really "own" is a debt, and you pledge to be a slave to that debt for the typical 30 years.

An excellent alternative for those who really believe that paying rent is throwing money down the toilet is to build your own home.

downtell · 10 months ago

Great posts awesome info. I have read Mr. Kiyosaki's books and find that the messege is being lost in the semantics here. Asset; liability; investment what ever you call it. The average family (and I do mean average), buys a house and mortgages it for 30 years. Say a mortgage payment of $1250 (my house), you end paying after 30 years $450,000. Paying this for 15 years is $210,000. Regardless of how much of this is tax's/insurance or towards the premium, this is still money being payed to the house. The messege is unless your "business" is realestate or you plan to sell the house before you reach the equilibrium of amount sold to amount payed, you will lose money on the house. It is acknowledged that we all need a place to sleep, keep our stuff, share memories etc... but his overall goal in the book is for you to get to financial freedom and not become complacement with false ideas that a house will bring you, a typical buyer, financial gain. Look if a lot more people viewed it this way, we as tax paying citizens would not be paying for other people's houses as is the case with modern events.

JD · 10 months ago

I think Kiyosaki is nothing but a sleazy charlatan but I do agree with the idea that a house is a liability in a sense. I personally don't view it as an asset either. If someone has most or all of his "net worth" tied up in his house I consider them poor. Whatever worth you have tied up in your house is tied up, you can't get to it but each and every month you are paying a mortgage, property taxes, and maintenance. I consider net worth whatever is liquid, in a sense I'd be willing to consider a house as part of someone's net worth if they were realistic about a liquidation value - i.e. if you had to sell right now what would you be left with after all fees, commissions, and mortgage was paid off. I'd say probably 100% of the net worth statements I have seen are never realistic about this value. Just like the banks found it easy to inflate illiquid asset values because they could argue they were worth that much, people do the same with their homes. They also fail to remember that all the fees and commissions come out of your equity. But in any case a more realistic net worth calculation would not include your home. The only difference is the person who doesn't own a home has a higher future housing liability. Then again I can't think of one person I know who paid less for mortgage payments then they paid for monthly rent. The difference is most people buy homes that are much larger than the places they live in when they rent. But do they really need the space? Who knows. In any case, they are becoming poorer and poorer because they are now stuck paying for a house and all that comes with it.

AJC @ 7million7years · 10 months ago

Robert Kiyosaki may be technically wrong, but he is absolutely correct ... in fact, RK - and, this specific piece of advice - was one of the key catalysts to launching me on my own journey of financial self-discovery that took me from $30k in debt to $7 million in the bank in just 7 years. Truly.

Millionaire Acts · 9 months ago

This is one of the hottest issues brought by Kiyosaki in his teachings. Ultimately, based on my readers' comments, I agree that a house is definitely an asset whether it's getting out cash from your pocket.

One of the best arguments that my readers give is that cashflow does not alter an asset to a liability or vice versa. It just says how good the investment is. An investment that flows cashflow into our pockets makes it as a good investment. Conversely, an investment that fflows cash out from our pockets makes it a bad investment.

TW · 9 months ago

I just read kiyosaki's book. I think like anything else you take it with a grain of salt. I am young, so I may not know much, but I am about to buy a house. I think it is going to be a good move financially - I am buying in an area where the market is at a huge low point, and I will be paying MUCH less on a mortgage and taxes etc. then if I were to rent. And when I sell in 5 years, I should at least be able to get back what I paid - since it is currently dirt cheap.