What did you think of Kiyosaki on Oprah? - Posted by Ben (NJ)

Real Estate Investing
21

Even if your house is paid off it’s a liability? - Posted by Rick Dawson

Posted by Rick Dawson on April 28, 2000 at 19:28:32:

I think one thing people miss when debating one of Robert’s most controversial topics (your house is a liability), is that you have a certain amount you must pay to live somewhere every month!

Therefore, if you must spend $500/mo. to pay for somewhere safe to live, and your house is paid off, it IS an asset. It saves you money you would otherwise HAVE TO pay on rent. If the amount you pay to cover principal(if any), interest (if any), taxes, and insurance comes to less than $500/month, this is a net POSITIVE cashflow.

On the other hand, if you’re being talked into buying a $500,000 house by a real estate agent who tells you “this is your best asset”, then I think you’re looking at a liability in disguise.

22

I think we all expect too much - Posted by Emmett-NC

Posted by Emmett-NC on April 28, 2000 at 22:37:56:

As CREOnline folks, we have come to know Robert and all his books, tapes, and games. We have read and re read his books, and I think we all expected him to summarize 3 books into 10 minute on Oprah. Kinda hard to do. I think it was good financial food for thought. If it sparked interest, then the folks will pick up his books…much like we all did. If not oh well.
I TOTALLY agree that the show transformed from a get RICH to a “Be middle class, Save everything, and Coupon your way to Wealth”. I was disappointed in that. Also, Donald Trumps comments were a lil short as well. Hell he ADVICED us to get mutual funds!! Totally anti-Kiyosaki. His advice was short and choppy as well. I taped the show too, if you folks have anymore questions. And I also believe he said to pay yourself first and put the money into A house not HIS house…I interpreted it to be a rental. That was my take. Oh well, it was nice to see him doing well. Just waiting for the book now!!

23

Re: What did you think of Paul Rodgers? - Posted by Matt

Posted by Matt on April 29, 2000 at 15:10:29:

Hey Bert and all:

Paul is a good buddy of mine. He’s a great guy and father and I think that came across very well on the screen. He is also an inspiration to all who want to better themselves–he’s doing very well–very busy now but as you saw the benefits of his hard work are paying off.

I do know the home business he started but this forum might not be the appropriate place to divulge that information…so I’ll just pass on that question (don’t want that to come across as any type of solicitation).

In sum, I agree with the other posters–Kiyosaki as great an orator as he is (We gave him a standing ovation in Orlando at Legrand’s Convention) may have come off a bit bland but understandable given the forum and audience. I really feel Paul did well and am proud of him. He provided quite a “plug” for Robert’s book if nothing else. As an aside, my parents watched it and are buying a copy of RDPD for their upcoming vacation next week. LOL.

Matt

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Re: Remember, he was on national TV and probably nervous - Posted by Glenn-OH

Posted by Glenn-OH on April 29, 2000 at 07:04:39:

His definition is an asset makes you money, and a liability costs you money. Therefore, your free and clear house is a liabilty (not accoarding to GAAP) becase it cost you 100% of the cash you put out to get it free and clear. If you had financed it, and used the rest to but income producing property, you would be farther ahead. To wit:

  1. Your return on the houses 30% appreciation would be higher on a smaller investment (leverage).
  2. You would have had tax deductions on the house’s interest.
  3. Taking the money you put in the house would have given you the opportunity to leverage several income properties, which would all now be producing income, which could be used to buy more properties.
  4. You would still be in the same house, just better leveraged.
    Glenn
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Re: That was my point, he seemed to contradict himself… - Posted by Brandi_TX

Posted by Brandi_TX on April 29, 2000 at 24:53:11:

Ben,

What you may not be seeing is this…

Your equity may be an asset, BUT the second you borrow against that asset you have less equity (read asset) and have gained debt (read liabilty).

Now you might buy something that produces positive cashflow with that loan, thereby creating another asset, but as Robert said… there is GOOD debt and there is BAD debt.

Try not to look at the word liability as a bad thing, some liabilities are a necessity (e.g. a place to live). Try to look at the big picture.

I don’t think it really matters what you call it. What matters is that you recognize what is costing you money and what is making you money AND that you take that recognition and limit the former and increase the latter.

Bottom line is, wether you call it an asset or a liability, as long as what you get in from your assets is more than what you pay out for your liabilities, you are on the right track.

Brandi_TX

PS - As for that whole put the $ he pays himself into his assets (houses) - I do not recall his exact words, but I do recall following it in the context of rental properties and the like - NOT his personal residence. Where is the Grade A memory when you need it?? LOL

26

Re: That was my point, he seemed to contradict himself… - Posted by Sharper Memory

Posted by Sharper Memory on April 28, 2000 at 23:53:47:

What he said was he puts his cash into buying
other (more) houses, not his own house.

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Bored on friday night before my soccer game. - Posted by David Alexander

Posted by David Alexander on April 28, 2000 at 20:18:27:

He never said anything about putting the money toward his house.

As far as the rest of your comment. Ok, your house has appreciated 30% and that’s fine and dandy, but until you sell it’s not an asset. You can pull cash out to buy other assets, to offset it’s being a liability, but it’s still a liability.

And if the market goes down so does what your calling an asset.

David Alexander

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Re: Another Point… - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 01, 2000 at 11:28:07:

I made WAY more than 15% a year on my house. And it was leveraged better than 12:1 and the interest on that leverage was tax-deductible.
I agree with the “spirit” of what Kyiosaki is saying with this, just not the “letter” of it. To take that to the extreme, I would buy a tent, find some public land and move my family onto it… That isn’t going to happen anytime soon. I will keep the house.

Mark

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Re: Even if your house is paid off it’s a liability? - Posted by David Alexander

Posted by David Alexander on April 28, 2000 at 19:54:17:

Still wrong, on the basis of fundamentals.

A liability takes money out of your pocket and an asset puts money in your pocket.

If you spent the money to pay off the mortgage then you will have spent money you could have Invested. Once you have paid off the mortgage and then the house is free and clear you’ll get peace of mind, but not an asset.

Then the liability is the money (equity) you that you cant use that is tied up in the house and that you are paying taxes, and insurance on.

If you quit paying the taxes on your house who will then own it, the government. It is a liability.

A required one, but nonetheless a liability.

David Alexander

30

Lowest common denominator… - Posted by Matthew Chan

Posted by Matthew Chan on April 29, 2000 at 10:52:40:

Peter Lynch did a good job on his part when he said that investing and finance is a very personal thing and that you have to select things that is right for you.

The trouble is the middle-class is so large. We have middle-class people that are poor people in the making (weighed down with all kinds of pretty things with little, except a job, to support it), we have middle class people that are rich people in the making who are receptive and will incorporate new ideas, and those who want to stay RIGHT where they are.

I am fairly certain if he was talking to a more aggressive group of people, Trump would have recommended other things. As a matter of fact, he kind of did with his comments on his love for real estate.

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Re: What did you think of Paul Rodgers? - Posted by Bert G

Posted by Bert G on April 30, 2000 at 12:14:39:

I’m not looking for a sales pitch, just a quick 5-word or less description. Multilevel vitamins? Mortgage broker? Gerbil ranching?

BG

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Glenn you are absolutely right but… - Posted by Ben (NJ)

Posted by Ben (NJ) on April 29, 2000 at 08:54:16:

everything you say is correct however it still does change the character of the house. The house may be an
underutilized asset, a non-income producing asset, a
dead asset but still an ASSET. It does not magically change to a liability just because I am not maximizing its potential. (As an aside I am a very big believer in leverage but I sleep better at night knowing my house is paid for even though I could be using the equity to do MANY more deals. It’s a small price to pay for peace of mind).

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I know what I heard Dave… - Posted by Ben (NJ)

Posted by Ben (NJ) on April 28, 2000 at 22:21:59:

he said he would pay himself first and the money would go towards assets such as his house. Maybe he just made a slip of the tongue. If anyone remembers and/or videotaped this (and/or cares) please resolve this.

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Sorry, buddy, but I disagree with you on this one… - Posted by HR

Posted by HR on April 28, 2000 at 20:39:54:

David,

Sorry buddy, but you are wrong on this one imho. Until he sells his free and clear house, it’s not an asset? I know you don’t mean this. Every banker in the world will lend agains this collateral (and FREE and CLEAR!!!) all day long. FREE AND CLEAR is as good as it gets in the rei asset game; it’s the goal many of us are working toward.

Of course it’s an asset. What else is it?

Ok, I hear you already: it’s a liability because he has to feed it with funds he otherwise could use towards leveraged investments. Yes, I agree, he must feed it. But you are making major assumptions that he is just letting it sit there. He may use it for a line of credit to fund deals. If he does, it’s an asset. Notwithstanding the point that you have to live somewhere, when you use your home to fund your deals it IS an asset. In fact, ANY equity you have IS an asset; this is basic accounting.

Your point (I believe) is that it is a “dead asset” in that you can’t use the paper equity you are creating thru mortgage paydown to fund more deals. It’s in this assumption that this is the only way one can treat one’s house that your error lies. Create equity thru forced appreciation by rehab and good buying, and then using that equity as a line of credit to fund your deals you would not have been able to do without the home, transforms that home (which I’ll give you is a liability to most folks) into an asset in the hands of a rei.

I get Kiyosaki’s point, and I get your point, and while I agree that it is a liability for most folks, it doesn’t have to be, especially in the hands of a rei. Also, when we get out of Kiyosaki-speak into the everday world, it’s accounting 101 to recognize any equity as an asset; it’s just not an income producing asset.

HR

35

You Are Right… - Posted by Scott (AK)

Posted by Scott (AK) on May 01, 2000 at 20:55:50:

I don’t believe Robert means for everyone to take it so literal, I’m not either. I just think he wants people to understand that folks may have the wrong idea about a home. Although, we do need a place to live.

Which brings up another point, if I dare. My daughter will be going to school tomorrow even though he say not to if she wants to be rich and happy.

I agree Mark, I wasn’t trying to be literal.

Thanks for posting,

Scott (AK)

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It depends on your game plan. - Posted by HR

Posted by HR on April 28, 2000 at 20:22:54:

I’ll admit from the start I’m a luke-warm Kiyosaki fan. I really have enjoyed his books, but Robert is a very poor public speaker and a poor book author. His ideas are great, but his articulation of his ideas stand a lot of room for improvement. (By the way, I thought his speech this year at the convention was MUCH improved over two years ago; practice makes improvement, I guess…)

Rich Dad, Poor Dad is a must read, but it is redundant, the ideas are choppy, he fails to give relevant details… One thing he also does, and it revolves around the home isn’t an asset debate, is give gross generalizations.

Now, I know what Kiyosaki is trying to do: he’s trying to shock the reader into realizing that this big purchase that they have been conditioned to believe is an “asset” is actually not one, because it drains one’s ability to invest, takes too long to pay off, etc. I agree with his thinking and the shock approach, too.

The question is: is a house always a liability? No.

Here’s a good example. A personal example. The house that my wife and I own, we rehabbed. We plunked down 15k, rehabbed the house, created 105k in equity, refied a year later (and took back the 15k for a no money down deal), and have used our 105k to fund our rehabs.

Is our house an asset? You bet it is. I puts money in my pocket. In fact, it puts FAR more money in my pocket than what I could get leveraging $1000/month in investing (Pi on the mortgage). Furthermore, when we sell this home in the next few months, it will be TAX FREE (new tax laws for a personal rez.). Thus, not only do I control a no-money down personal rez that has created over 100k in profit the last year in re deals, but when I sell it, all my 100k in equity will be TAX FREE. There is no better investment (or rei angle, imho) than the two year personal residence rehab.

That particular angle transforms the house-is-liability debate to house-is-asset. Do most folks do this? Heck no. I don’t know anyone else who is (I dont’ know why not). Nevertheless, this is not just an academic, philosphical point. It is a real niche of rei. And Kiyosaki misses it. (which is no big deal). But the folks who stridently declare that a house is always a liability are wrong.

HR

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Re: Glenn you are absolutely right but… - Posted by Glenn-OH

Posted by Glenn-OH on April 29, 2000 at 21:46:53:

Again, it depends on the definition of Asset. If you use Generally Accepted Accounting Principals (GAAP) then it is an asset. If you use Kiyosaki’s definition of income producing, then it is not. He is saying that anything not producing is not an asset to your production of wealth. Thus, as he points out, if we put more money into the house, it is a liability because it keeps us from obtaining more cashflow. That is why so many people in this country are slaves to a JOB, rather than truly well off financially.
As far as peace of mind, I think it would be even better if you could turn your house into an asset again by tapping its equity to create a much larger cash flow than the amount of the mortgage, so that in a short time you would be much farther ahead. There are ways to own income properties that are lower risk than the shortage of money can create.
Glenn

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Re: I know what I heard Dave… - Posted by Bert G

Posted by Bert G on April 29, 2000 at 09:06:34:

I taped the show, so watched it again paying particular attention to this part. What he said about paying himself was: “I buy a house or put it in stocks”. It was clear to me that he meant an investment house, not a personal residence.

BG

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Wow Hal, You’re Scaring Me. - Posted by phil fernandez

Posted by phil fernandez on April 28, 2000 at 21:33:03:

Hi Hal,

The reason you are scaring me is that in the two short years I’ve known you, you are getting the whole picture. I agree with what you said about your own house. If properly managed, your house, as Robert says is a liability, could be turned inbto an asset. You can borrow against it to invest into more profitable deals etc. etc etc.

Hal, in Dallas two years ago I was hoping you would prosper in real estate investing. After last years convention in Atlanta I knew you were going to prosper. And now, could you lend me some money.

Keep up the good work and thanks for sharing.

40

Actually, Hal - Posted by CarolFL

Posted by CarolFL on April 29, 2000 at 07:02:20:

Robert made this same point to Karl Hartley during his talk in Dallas… but that’s all mechanics.
I think his real point is : do your own thinking, and don’t just takesomeone else’s word as to what is in your best interest (i.e. your cpa about buying a larger house).

Just don’t sell that house before Dennis and I get to NOLA, ok? We can’t wait to see it!

Carol