A house can positively generate income. At 4% on a 100k HELOC put that money into stocks and you will easily beat 4% not even counting the tax deduction. Free money.
Make your money make more money for you.
Taking out a loan to invest in stocks? Is this 2007?
Interest rates weren't 4% in 2007.
No, we're selling oversimplifications of finance because this thread isn't a book.
Your house isn't worth 440k unless you sell it, which makes you homeless. And you're still paying property taxes and insurance on it every day which is another loss.
Your house is costing you money, not making it.
Let's say an apartment is $1600 and a mortgage is $5000 a month. After you pay off the house in 20 years, you'll then live rent free, but you'll never break even with how much you've already spent. And houses still cost money even after they're paid off in maintenance, taxes, and insurance.
Your house might appreciate in value, but won't beat inflation.
Some people (with real expertise) have even taken issue with his terminology for things. e.g. even his definition of 'passive income' is quite different from its understood meaning in finance, business, and investing at the time his book came outHe also lied prolifically in his book. Not just about his methods but also about his past. He is a 100% huckster selling snakeoil.
Take a young couple. They live in a small apartment, both are working and they are doing well financially. They are able to save money. Next, they have a child. The small apartment that they are living in suddenly becomes too small. They buy a large house, and incur a large monthly mortgage. They start furnishing their house and put it on their credit card. The cars come next because the family needs two cars so both parents can get to work. What about a pool for those summer time parties? They buy a pool. The spending continues and the rat race to make money begins.
*Their money is tied into a mortage, cars, etc...
*When an offer to make money comes up they can't take the chance because they are overextended.
*This is why most people will never get rich and are doomed to be middle class.
Robert doesn't say that you should never buy things. If you are going to buy a home or a car you need other streams of revenue first. He was against working for other people because a) you're only making the owner rich b) 30% of your income is going to taxes.
The scenario is contrived to fit his agenda. Simply buying a house does not condemn one to all those other purchases and certainly doesn't condemn one to borrowing to make those purchases.
No, we're selling oversimplifications of finance because this thread isn't a book.
Your house isn't worth 440k unless you sell it, which makes you homeless. And you're still paying property taxes and insurance on it every day which is another loss.
Your house is costing you money, not making it.
Let's say an apartment is $1600 and a mortgage is $5000 a month. After you pay off the house in 20 years, you'll then live rent free, but you'll never break even with how much you've already spent. And houses still cost money even after they're paid off in maintenance, taxes, and insurance.
Your house might appreciate in value, but won't beat inflation.
@LegendKiller
To be honest I think the problem is the exact definition of the words asset and liability that is causing confusion.
Technically, you are correct - houses and cars are both assets, and are usually funded by liability. However, if your house is your primary residence, then neither of them will generate any income for you. Your house may appreciate in value (if you are lucky), but your car definitely will not. So your house may stay static in value, and not generate any annuity income, while your car just flat out costs you money.
Compare that to owning a business, or owning bonds, or stocks - they can generate income for you. That, I think is what Kiyosaki was getting at - the traditional thinking was to pay off your car, pay off your house, and then you will be okay. Kiyosaki is saying, rather concentrate on building up assets that will make you money.
It is of course rather more complicated than that, since the interest rate on debt is generally higher than the rate of return on most investments. So, in most cases, investing only makes sense when you have no debt left to repay. But, if there was a family that owned a small house with no mortgage on it, buying a new larger house would not be an investment - it would not generate money. Sure, it might be necessary for a growing family, but its not an investment.
Again, a moronic statement. In what world do you live in that a house costs $5,000/mo but rental, for an equiv place, costs $1,600?
I lived in Manhattan and paid $3,700/mo for rent. An equiv place would have been well over $750,000. Add in insurance and property taxes and I would have been at about that. In South/West CT, same thing.
You are paying for maintenance one way or another, renting or buying. You are just paying somebody else's maintenance and a profit for them.
Houses beat inflation over the last 130 years, even including the bubble. In fact, only in the last 6 years did they *NOT* beat inflation over that entire 130 year period for any other 6 year period before.
This is why these guys get rich. Because people like you refuse to actually research and understand finance.
I take it you didn't do finance in college? By your logic, any time you buy something, your money disappears (you get poorer) and when you sell it magically reappears (get richer)? Or, on the flip side, a liability isn't a liability unless I pay it, so I don't really have a 335K mortgage.
The house most certainly is worth 440K, since I can lever against it to the tune of the equity or sell it or rent it out for a market rate that corresponds to 440K place.
By the way, how do you think rental properties are priced? Landlords aren't in the business to lose money, every time you rent you end up paying someone else's mortgage + taxes + maintenance ... otherwise the people wouldn't do it .
This is probably one of the most foolish statements I have seen in a long time. According to you nothing is worth any money unless you sell it, you actually have no assets, unless you own bonds, preferred stock, or dividend paying stock, or rental RE. Unless you own specific securities, rather than funds, you are paying load and you'll pay taxes.
Everything costs money, everything.
*Your home is not an asset but a liability.
*The Rich focus on assets, the middle class focus on liabilities that they think are assets, and the poor focus solely on liabilities.
*You should be self-reliant and when you rely on government assistance you are asking for trouble. This is also true for government workers.
Sounds like every MLM presentation I've ever been dragged to (BWW, Amway, Market America, Yusana, etc.)TL;DR version: "Create a company, become a millionaire, then you don't have to work a lot." Derp
Spending money makes you poorer.
If you buy a house to rent it out, that's an asset. That makes you a business owner. :thumbsup:
A house costs money even after the mortgage is fully paid off. That's a liability. :thumbsdown:
If you sell your only house for 440k, you don't have a place to live. :thumbsdown:
If you turn your only house into a rental property, you don't have a place to live. :thumbsdown:
It was Warren Buffet who said "If you buy things you don't need, soon you will have to sell things you need." You can't just sell your house at a moment's notice to make a profit. You need a house.
Currently, you're a homeowner and not a real estate agent. There's a huge difference.
It is an excellent book because it teaches those basic financial principles that nobody seems to grasp. Income is money in; expenses is money out. Assets give you income; liabilities give you expenses. The rich buy assets (real estate, businesses, investments like stocks, etc.), which create income. It's as simple as that.
People flip out when you tell them their home is their biggest liability. Is your home making you any money? Unless you're renting it out & making a profit on it, NO. Maybe...MAYBE when you move you can sell it for a profit. Maybe you'll take a loss. Maybe you'll break even. But until then, it's costing you money in taxes, maintenance, services, and all the other stuff that goes into running a house. Per the basic financial definition in Rich Dad/Poor Dad, your house is a liability because it gives you expenses.
If you were to buy or create a profitable business, then your expenses wouldn't matter because overall, that asset is creating income, which is how they define assets in the book. So then you pull back & look at the big picture, from that very simple perspective: what assets do you own that are giving you income? Most people simply have a job, which can be considered an asset because it generates income. But if you want to be rich, you typically need to have multiple assets that increases how many income streams you have.
You can make money at pretty much anything. Look at Marilyn Manson. Look at people who own plumbing businesses. Look at people who star in Youtube videos. If you're willing to do the work to acquire & maintain a profitable asset, then you'll get the reward of an additional income stream. If your asset is not profitable, then by definition, it is a liability because it costing you money, which means it creates additional expenses for you.
And then people nitpick those definitions to death, get all wound in up in the details, and make no changes because they choose to ignore those basic definitions of finances. I also really like their definition of wealth: how many days you can survive without a job on what you currently make. If your current expenses equal $1,000 a month and you have $2,000 in savings, then you're 2-months-rich. If you have an asset $1.2 million cash in a savings account that gives you 1% interest, then that automatically generates an interest profit of $12,000 a year, which covers your expenses every month (don't get hung up on the details, I'm just using it as an example). So now you have a solid asset for financial freedom since you can quit working today & lose your primary income if you keep your current expenses at $1,000 a month.
The majority of the population does not understand the income/expenses/assets/liabilities model. The majority of Americans do not think or act within that model. Most people shuffle along with their 401k & plan for Social Security & Medicaid & stuff. If you focus on buying & maintaining assets and work to make it cover or exceed your expenses, then that's a great first step. Very few people are willing to put in that effort. America is the land of opportunity, you can go after anything you want. Heck, the guy who makes those fake rubber teeth for 50 cents in the little vending machines has made $50 million so far.
Also, a good companion to this book is Dave Ramsey's book(s) on getting out of debt. I know he isn't always popular around here, but his "snowball" principle of paying off the smallest bill first & going from there really works for a lot of people. I don't agree with everything he has to say (for example, leasing cars - that worked out to my benefit tremendously for a good 10 years or so), but he has some really solid base principles like the Rich Dad book has.
Everything costs money. Which is why you want to have money, not "stuff you can sell."
And my point is there are plenty of things you can't or won't sell. If you have to sell half your stuff just to pay next month's rent, you're not doing well.
Spending money makes you poorer.
If you buy a house to rent it out, that's an asset. That makes you a business owner. :thumbsup:
A house costs money even after the mortgage is fully paid off. That's a liability. :thumbsdown:
If you sell your only house for 440k, you don't have a place to live. :thumbsdown:
If you turn your only house into a rental property, you don't have a place to live. :thumbsdown: