Think Your House is an Asset? Robert Kiyosaki says It’s A Liability, Here’s Why He’s Right
You’ve grown up hearing that your biggest single investment is your house. This investment is an asset you’ve been told.
So you saved for a down-payment, got your pre-qualification letter, and went shopping for your house.
Boy it is fun to shop for a house. It is a chance to view so many varied styles of design. You can almost imagine yourself living in that spacious ranch style house.
You found a place you liked that fit within your borrowing limit, closed escrow, and moved in.
You did it! You have completed a foundational step in securing an investment, you bought a home.
Everyone told you were purchasing a solid asset. It’s what your folks told you. It’s what some of your friends who also done it have told you.
Undoubtedly, the loan officer handling your financing confirmed this claim.
After the initial thrill of buying the house wears off, you notice that this house costs a little more than just the mortgage and home owner’s insurance.
The cost of ownership and upkeep, whether it’s in time or money, is now yours. You wonder if having a good deal of your monthly income tied up in the house is keeping you from other wealth building objectives.
You have followed the conventional wisdom, but, is it true? We all have been taught and acted upon popular wisdom.
It’s not a bad thing, but sometimes it helps to question the sage belief of the moment to see how wise it really is.
Conventional Wisdom Under Scrutiny
Examining home ownership will reveal if a house is an asset.
To acquire the house you must provide a down payment, closing costs, appraisal costs, and a host of other “small” costs that add up when all is said and done.
This takes money out of your pocket.
The monthly mortgage takes money out of your pocket, as do any costs of maintenance.
This extraction from your pocket makes your house a liability to you. To whom might your house actually be an asset?
“Your house is the bank’s asset,” Kiyosaki asserts.
The cash is flowing from your pocket to the bank’s pocket every month for the next 30 years. They are actually the owner but the one paying the mortgage bears all the costs of maintenance and upkeep as if they were the owner.
What a sweet asset for the bank, they get cash in their pocket the next 30 years and the homeowner gets, …. appreciation? Score?!?!
Equity is Invisible, Cold Hard Cash Isn’t
It is true that as time marches on property and houses tend to go up in value.
It is not a certainty, anything can happen to bring down the value of property, but in general property does increase in value creating equity, the difference between what is owed on the property and its market value.
Equity might look good on a balance sheet but it’s more of an idea than a tangible asset.
Equity is not putting cash in your pocket as long as you are the owner. The house may be accruing value but the value is stored not liquid, and you are liable for the costs to maintain it.
The appreciation is only realized when the house is sold but then you are liable for any capital gain taxes.
With so many things thenhomeowner is liable to pay for, how is it an asset?
Will the Real Asset Please Raise Their Hand?
Simply put, “An asset cash flows money into your pocket. A liability takes money out of your pocket,” Kiyosaki notes.
As we’ve examined, home ownership takes an incredible amount of cash out of your pocket and puts it into someone else’s. That’s not how assets behave.
Assets produce income.
How could your house be an asset? If you move out and use it as a rental that puts money in your pocket, i.e. produces an income, then your house becomes an asset that will help you build wealth.
A new perspective is like a breath of fresh air
Now that it is understood that assets produce income you have the power to change the course of your financial future.
With this understanding you will be able to analyze anything of value to determine whether or not it is an asset. This is important because you will now make informed decisions about what assets in which to invest.
You will now invest your time (your most precious resource) into building real assets that bring you closer to your financial dreams.
From this point forward if it doesn’t turn a dime into your pocket you won’t consider it an asset. As you invest in real income-producing assets watch your portfolio grow.
