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Your House: Asset or Liability?

This article was written by in Real Estate and Home. 10 comments.


Gurus like David Bach and Robert Kiyosaki profess the best way to get rich is real estate (while their net worth continues to increase through the sale of books and seminars). But what good is increased equity in the house if the only way you can use that money is to sell the house (downsize) or tap into its equity through a loan or a line of credit, effectively costing you your gains in interest?

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.

Updated July 16, 2010 and originally published March 15, 2006. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar SingleMom

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).

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avatar Shaun

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.

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avatar Brian

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.

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avatar Luke Landes ♦127,485 (Platinum)

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.

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avatar Steve Mertz

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.

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avatar RS

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.

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avatar mbhunter

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.

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avatar Sean

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…

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avatar Tyrone Solee

Hi, I have made the same article on my blog and this is one of my most commented article. You will be surprised by the various comments that my readers gave. Great thoughts there and they have proven somehow that not all Kiyosaki teachings are correct.

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avatar n1kk1andy

I remember reading “Rich dad , Poor Dad” a few years ago. The book leads you to believe that having liabilities are bad, you need to have assets. This of course is the end game/plan, you want to have assets (e.g., houses paid for in full, or houses generating equal or more income to cover expenses associated with owing it).

I have learnt that if starting small ( i.e, with little or no money) having a house as a liability is not that bad. If the liability (the house) eventually starts paying for itself through rental income.

So, don’t get upset your house is a liability if it incurs and expense to you. The end game is to have it become an assets, that is creating wealth for you.

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