Tuesday, December 2, 2008

Your House

Is your home as asset or a liability? Let's assume you own your home. Is it still an asset?

According to Rich Dad, Poor Dad (see my 12/1 post below), it is a LIABILITY! Why not an asset? While an accountant will say it is an asset; in the economic sense, it is a liability.

An asset is something that makes you money; a liability is something that costs you money. Sure, you may make a profit when you sell your home but will the costs include just the buy/sell prices? To determine whether you're ahead financially, you've got to include all the maintenance and upkeep costs as well. Yes, these costs are a part of your normal living costs - costs you have to incur anyway. This is precisely the reason your home is a liability.

Rich Dad's advise is to acquire things that make you money. He calls it "generating cash flow". Normal living expense is just that: normal living expense. The operative word here is "expense". Investments and income producing properties are outside of living expense.

And that is why your home is a liability, not an asset.