Years ago I attend the Rich Dad, Poor Dad informational session in San Jose and it was neat to hear their perspective on home ownership. Robert Kiyosaki has made millions by branding a series of educational material that are good sources of information to to distinguish assets from liabilities. Today, I want to take a closer look at these definitions as it relates home ownership.
Liability: Anything that puts an individual at a disadvantage can be considered a Liability. By this definition your home mortgage debt is a liability because it prevent you from allocating those funds to other purposes.
Assets: According to Wikipedia, anything tangible or intangible that has a positive economic value can be considered an asset.
In Robert Kiyosaki’s universe, these definitions are much simplified. In fact, according to Robert if anything does not put money in your pocket, it’s a liability. So, owning home might not be a good idea by Robert since every month you are spending money out of your own pocket to live in the property.
Using Robert’s definitions cash flow rental properties are assets since they produce positive income. They put money in your pocket. No one disagrees with this assessment. In fact, we have written extensively about creating retirement income with cash flow rental properties.
In a recent article CNN Money had an interesting article about converting your home into an Asset. The article recommends purchasing smaller homes which tend to come with much smaller liabilities. The articles highlights that buying the cheaper home that subjects you to $75,000 less debt can save your $162,000 with a 30 year mortgage.
Finally, if your home’s value is still lower than the mortgage you owe on it, the distinction between Asset and Liability should be crystal clear that you have a huge liability on your hand. Specially if the massive rise in home prices in 2013 has not closed the gap, it might be time to seriously consider selling your home and down size.
Contact Us to see if you need help exploring your option on your home.