Is Your Home Really an Asset?

Not according to well known author Robert Kiyosaki.  The best-selling author of Rich Dad Poor Dad and many other books makes the case that an asset is anything that brings in cash flow.   He defines a liability as anything that sends cash flow out

​If you think about your home, cash flow goes out doesn’t it?  You pay insurance, property taxes, repairs and maintenance costs, mortgage interest and principal, alarm monitoring fees and more.
 
So therefore, under Robert Kiyosaki’s definition of assets and liabilities, your home is a liability. 
 
I know that is hard to get your mind around. However, I also know I pay a lot of expenses on our home and receive no cash flow in.  On the other hand, I oversee a rental property for my in-laws and every month they have cash flow that is paid to them on the rental of their home that is well in excess of such costs.
 
Now I know you may be thinking, what if I factor in the appreciation on my home?
 
I would counter right off the bat that appreciation is not cash flow, but obviously some of that appreciation could be monetized with a home equity line on the property.  That aside, what if we factor in appreciation?  Does it offset the costs of ownership?
 
I will use my home as an example since I am not sure how else to answer this question.  We bought our home in 1994 and have lived in it now 25 years.  Yikes!
 
We purchased the home for $130,000.  Today our 1700 square foot home is worth roughly $500,000 after expected 6% realtor fees if we were to sell.
 
The net sale value of $500,000 minus our cost basis of $130,000 equals a potential net profit of $370,000.  $370,000 divided by the 25 years we have lived in the home equals $14,800 in appreciation per year.
 
Our annual costs on the home include:

Does the appreciation change anything?
 
As you can see, we may have proved Mr. Kiyosaki wrong if we factor in appreciation.
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​However, you might have noticed that there was no mortgage interest or principal repayment costs in our home costs as our home is paid off. 
 
What if that home was not paid off as is the case with so many homeowners?   What if we had a loan for 60% of the value of the home?   Further let’s assume that we have a fixed rate mortgage for the sake of simplicity at 3%, which I believe is an excellent long-term rate.  Using a mortgage calculator and a 30-year mortgage term our monthly payment is as follows:

Oh no, that cash flow is now negative.  Maybe Robert Kiyosaki is right! 
 
So, what should be the take away from this?

1. Owning a home, at least in my case, does not provide a net positive cash flow and is really a liability.
2. The right rental property, assuming you have factored in all the above costs of ownership and are able to charge a higher rent, should deliver you a positive cash flow and therefore is an asset.
3. What type of property is best for building wealth?  Obviously, the asset, not the liability.  So, you should own more assets.  It is kind of like a Chick-Fil-A commercial where the cow implores you to eat more chicken!

 
A final comment, you must live somewhere obviously, and I am not suggesting you live in a cardboard box on the side of the road.  There is a cost to any place you might live whether you own or rent.  However, what I think this exercise has proven is that maybe its to your advantage to keep that cost as low as possible?
 
As a wealth building strategy, I may even go as far as suggesting you rent where you live, and you own where you rent.    Think about it!   You rent your personal residence so you can buy properties that you rent to others who cover all the costs of that home and then some and provide you a positive cash flow.    If you then own enough assets, your cost of the liabilities is eventually covered by that positive cash flow.
 
This sounds simple doesn’t it?  Let me know your thoughts in the comments.