Re: Does my logic make sense? - Posted by eric-fl
Posted by eric-fl on February 07, 2001 at 14:05:56:
Regardless of what Kiyosaki says, you should almost always own your own home. There are very few exceptions to this rule. One would be if you KNOW you are relocating in less than 2 years. Another is if you live in a rent-controlled apartment in an expensive city, where it otherwise might cost 3 times as much in rent.
Regardless of whether a house is a liability or an asset, in Kiyosaki’s terms, consider the following, fairly standard scenario. You buy a $100,000 house for 5% down, or $5000. You haven’t lost that money, it’s simply tied up in the house. Now, you live in the house for 5 years, and it appreciates, let’s say, only 3% a year. In 5 years, the house is worth roughly $116,161. You still have the original $5,000 you “invested” as a down payment, plus $16,161 in profit. According to my financial calculator, that’s an annual rate of return of 23.6% on your investment. Not bad, and a heck of a lot better than most investments, especially relatively stable ones that traditionally appreciate in value over a long-term horizon.
Of course, this is an over-simplification, and does not account for your closing costs when buying & selling, holding costs during the marketing period, commissions, repairs, etc. But it also does not account for tax shelter, pride of ownership, or the full bundle of property rights (if you find oil in the ground, it’s yours.) People normally don’t account for commissions when analyzing the ROI on stocks either. The bottom line is, strictly as an investment, a house that you live in is almost always a good one. Note that I said “a house you live in”. If you own a house that someone else lives in, and it drains money from your pocket every month, then I firmly agree with Kiyosaki - that’s a bona-fide liability, not an asset.
In the sophisticated discussions that occur here, sometimes we lose sight of the basics. One of the basics is this: Real Estate is the only investment I know of where you can achieve massive leverage of 20-to-1 (5% down on a NORMAL transaction), and yet still have a high amount of long term pricing stability. In fact, the only other investment vehicle that I am aware of that offers 20-to-1 leverage is commodities and futures, which are so volatile they can wipe out your entire investment in a day. By this one factor alone, no other investment in the world comes close to Real Estate.
