Gurus like David Bach
Dana Dratch from Bankrate.com is approaching this subject in her article, Ballooning Equity Doesn’t Make You Rich. Dratch says the increase of net worth from an appreciating asset like a house only exists on paper. So a house is an asset, and is included on personal net worth statements, but not all dollars are created equal. It’s undeniable that $500,000 in the bank is better (or more useful) than $500,000 trapped in the value of a home. On a financial statement those figures are treated equally.
The article quotes a professor emeritus and author: The right mind-set is to look at your house not as an asset, but as a liability, until you’re finally going to sell it and drastically change your living style. Obvisouly a house, something you have, is an asset, but the argument is by treating it as a liability. This way as your house’s value increases over time, you’re not lured into changing your lifestyle.
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11:51 am (reply)
I view the concept of getting rich from real estate via rental properties and passive income (asset), not from building equity via your primary residence (liability – if still paying mortgage).
12:35 pm (reply)
If you actually read any of Kiyosaki’s stuff, you’ll see he does not state your residence is an asset. In fact, he makes it quite clear that your home is a liability. This is because it takes money out of your pocket (taxes, maintenance, etc.) instead of putting money into your pocket. Only income producing real estate such as a rental property is considered an asset by Kiyosaki.
1:14 pm (reply)
I read your blog on a regular basis and it’s quite good. This is more of an FYI than anything else, but regarding the “gurus” out there, have you seen this site:
http://www.johntreed.com/Reedgururating.html
Many of the so called gurus are nothing more than shiesters who make money from books and not doing whatever it is they say will make you a gazillionaire.
Hopefully everyone is at least aware of both sides of the stories. The page above does go into factual detail and not just hearsay type comments (e.g. “This guy is a crook”). John T. Reed presents actual facts on each of the people in question and gives them his own “rating.” Read up and decide for yourself.
1:16 pm (reply)
Thanks for the clarification, Shaun. I think the distinction between owning a home with or without a mortgage and owning a home that produces net income may be overlooked by the less astute. I’m not familiar enough with Kiyosaki’s writings but I do see how they are interpreted by individuals who follow him.
1:31 pm (reply)
I’m a huge believer in owning real estate (your home) as well as rental properties-if that’s what you want. But…until that house is generating some cash flow it can sure give people a sense of false security.
2:16 pm (reply)
I agree that your home should be considered a liability…as long as I am paying my mortgage every month, then it is a liability to my cash flow.
2:39 am (reply)
I side with Kiyosaki on this one. My home is a liability because it costs me money. A rental with a positive cash flow is an asset. I don’t even consider my equity in my net worth.
12:46 am (reply)
This line of thought (house being a liability) drives me absolutely batty every time I stumble across it. Your house is not a liability; your mortgage is a liability. An asset isn’t necessarily a money generating piece of property…
1:53 am (reply)
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10:23 pm (reply)