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Is a house an asset or a liability, as Rich Dad, Poor Dad? suggests?

September 23, 2011

Date:  Mon, 28 May 2007
From:  Robert

Dear sir:

A friend of mine sent me your book review on Rich Dad, Poor Dad.

We had a discussion about assets. I have a home with no mortgage.

I believe it is an asset, even though I live in and donít have to pay anything except taxes and utilities.

My friend says itís a liability, not an asset, because I live in it.

Can you enlighten us on this issue?

Sincerely, Robert

Answer

Date:  7 Jun 2007

Hello Robert,

Kiyosaki doesnít use terms according to their "standard" meaning in his book.

In accounting literature, an asset is something that exists, that you can own, and that has value. According to that definition, your residence is an asset. The accounting definition of liability is an amount you owe somebody, or a debt.

Kiyosaki is trying to educate us about how to build wealth. According to his definition, an asset is an item that generates income or builds wealth. A liability is an item that consumes wealth. He believes that personal items, such as a residence or a car, are nice to own, but they consume your wealth to maintain them.

Kiyosakiís concepts are helpful for getting out of the mindset of simply making a livelihood by being an employee earning a salary, and into the mindset of building wealth by accumulating assets that work for you.

Sometimes we can get into word games because a word can mean different things in different contexts. When we do this, weíre creating confusion.

Instead of playing word games, focus on concepts. A personal residence continues to have the same advantages and disadvantages it always has had. It can be a "money pit" and also an inflation hedge. The same residence converted to rental property can be part of a wealth building plan.

Iím sure glad I bought my home back in 1978 and have a much smaller monthly mortgage payment and property tax bill than people who are buying now.

Good luck!

Mike Gray

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