Posted by J.P. Vaughan on December 31, 1998 at 05:56:18:
Great explanation, John. One more point…Robert Kiyosaki
(the author) also doesn’t say you shouldn’t buy a house
to live in. All he says is to recognize that it is NOT
an asset.
By the way, Robert K. will be The Key Note speaker at
our Convention in March. Hope you will join us!
JPV
thanks for RICH DAD,POOR DAD - Posted by Lorenzo,NC
Posted by Lorenzo,NC on December 30, 1998 at 09:22:06:
A big thank you to everyone on this site that recommended reading Rich Dad,Poor Dad. All this time I thought a house was an asset. This book was very insightful and change my attitude about saving and spending.
Thanks again
any other recommended books would be greatly appreciated.
Lorenzo,NC
Re: thanks for RICH DAD,POOR DAD - Posted by Rob FL
Posted by Rob FL on December 30, 1998 at 18:51:23:
I tend to disagree slightly on whether owning a home is an asset or not. It is true that owning a home will not produce cash flow, but compare owning a home for long-term as opposed to renting.
I buy a home for $150,000 with a 30 year mortgage at PITI of $1200 a month. At the end of 30 years I own the home free and clear and its value has probably doubled or tripled in value since I bought it. I do have to pay money for utilities and maintenace also. I get tax write-offs for mortgage interest and property taxes as well.
Suppose I rent for 30 years on the other hand. I start renting at the same $1200 a month, but at the end of 30 years I own nothing and my rent payment has doubled or tripled so that I am now paying $3000+ a month because of inflation. I get no tax write-offs. I still have to pay most of the utilities and maybe some of the maintenance.
Shelter is a necessity in life so in the long-run it is almost always better financially to own than rent, so I conclude that a home is at least somewhat of an asset.
My .02
Re: Another good book - Posted by Stacy (AZ)
Posted by Stacy (AZ) on December 30, 1998 at 14:01:28:
Lorenzo, quite an eye-opener, isn’t it?
I am currently finishing-up a terrific book that was recommended on this site. It’s called “The Path of Least Resistance”, and I got it at www.amazon.com for about $8.
It talks about the art of creating anything from a sculpture to a new business, and ultimately the life you really want. It’s not pop-psychology, but is based on the arts and sciences. It explains why so many of the popular strategies just don’t produce lasting change. Ever noticed that most people make a commitment to change their lives, like losing weight, improving relationships, or “starting a new real estate business”, but eventually end-up right back where they started? This book walks you through the creative process that changes the structure of your life, so that success is the “path of least resistance”. I’m really enjoying it, and I’m no push-over for pop-psychology. I highly recommend it.
Stacy
Re: thanks for RICH DAD,POOR DAD - Posted by John
Posted by John on December 31, 1998 at 02:34:47:
Rob,
If you have read Rich Dad, Poor Dad then you have completely missed the point. If you have not read it, you should. I think it might change your mind about a home being an asset. Of course that’s not the only thing you would get from it. It’s a great book.
The first paragraph of your post is the beginning of where I feel your thinking goes askew. You compare owning a home to renting. That is not the point. The point is whether or not a home is an asset. It’s a yes or no question. It’s not a comparison of techniques to obtain housing. Buying a home and paying rent are actions. I say “buying a home” rather than “owning” because the lender owns it until you pay them the last penny. I know that sounds like I’m splitting hairs but what I’m trying to say is that a home (the structure itself) and how we obtain it is the question. So, without comparing buying to renting, is a home an asset? I say no. I agree with you that renting is throwing money away. But since we’re not going to compare the two let’s just look at buying a home in a conventional way. That is when we pose the question. Is the home an asset?
Just for the sake of argument let’s look a little closer at your example:
If you finance a $150,000 home for 30 years at 7.0% The P&I alone would be $997.95.(Assuming you could get 100% financing) Round that up to $1000.00 even and add a couple of hundred dollars for the taxes and insurance and we reach your $1200.00 payment. Okay, so far so good. Now, how much did you really pay? Your P&I alone for 30 years cost you $359,262.00 tack on the insurance and the taxes for an additional $72,000.00. You wind up paying $431,000.00. And what about the maintenance and utilities you mentioned. If you add those in you would be nearing half a million dollars.
You say it’s probably doubled or tripled in value by now. I hope so because by the time you reach the end of that 30 years you’ll be lucky to break even. Now, some people would say at this point, “I would have $450,000.00 in hand from the sale of the house.” That would be true but now you need to buy a new home. But more importantly than that you’ve lost 30 years. Ask any investor, “What’s the greatest asset of all?” The answer will always be, “TIME!” Using this same example, if you could somehow have paid cash for the $150,000.00 house and invested what you would have paid in interest over thirty years, each month investing what your interest payment would have been, and always re-investing the gains, the same $200,000.00 that you paid in interest would be worth MILLIONS after thirty years.
The bottom line is this. The distinction between assets and liabilities is very simplistic. Assets put money in your pocket and liabilities take money out of your pocket. Everything else is elaboration. It doesn’t matter if you wind up owning a home after thirty years of paying on it. What matters is that it cost you a fortune.
As I am re-read this post it occurred to me that is sounds really rude and pushy. That wasn’t my intention. But, it’s way too late and I’m way too tired to re-write it. So, I hope I didn’t offend you in any way.
One distinction, John - Posted by HR
Posted by HR on December 31, 1998 at 19:35:17:
John,
A very nice, reasoned response. I would like, though, to point out one, new twist, thanks to the new 1997 tax laws, that does indeed turn a home into an asset. It’s the new 2 year personal residence rule: (as I’m sure you are aware) a homeowner can sell their home tax free after living in it for two years, assuming they have less than a 500k capital gain (married, filing jointly) or 250K gain (single, married filing separate).
How does this create an asset from a liability? Buy your personal res, renovate and force appreciation, live in for two years, and sell. All your gain (equity) is tax free. Move on and do again.
This strategy is going to make me some $$$ this summer. My home, with this strategy, is definitely an asset.
The one problem is I can’t see doing this every two-three years. I have maybe one or two more personal rez rehabs in me – then my wife is either going to kill me or leave me. My wife is definitely an asset; my obsession with rei is sometimes a liability… got to keep my priorities straight 
Happy new year,
HR
Re: thanks for RICH DAD,POOR DAD - Posted by Rob FL
Posted by Rob FL on December 31, 1998 at 06:29:35:
I have read the book twice and I understand his reasoning and your reasoning (I think). My point is that you have to live somewhere. You have to spend money on housing no matter if you are Bill Gates or an African pygmy. So by owning a home you SHOULD actually be saving money (lots of it) in the long run. A home does not produce income but it can lower your housing expense which in turn puts money directly into your pocket. That is my reasoning. I certainly don’t want to sound disagreeable with the author (can’t spell his name, sorry) because he is much wiser than me (and also much more credible). This is about the only point in his book that I disagree on. The book is pure gold.
This is my opinion only.
Happy New Year.