Rich Dad says a home is a liability………
Many investors quote Rich Dad to support their contention that a HOME is not an investment.
Often this is done as an argument to invest capital in their commerical real estate deal instead of buying a home. Let me also say, I love buying rental real estate. I own everything from single family real estate to 200 unit plus apartment complexes. I am PRO rental real estate ownership.
This argument is simplistic at best and in my opinion often false because it ignores the cost of shelter.
If one doesn’t own a home they have to pay rent somewhere else, right?
Before looking at numbers. let’s frame the question by posing the following two questions:
1. If paying a mortgage payment is a liability, then what’s paying a rent payment? An asset?
2. As an investor, we are told it’s a great thing to have our tenants pay the mortgage. I agree.
But if an investor doesn’t buy a house, he is a tenant and laying that investor’s mortgage down.
There’s a logical inconsistency here. If it is good for YOU to have a tenant pay down YOUR mortgage, why is it good for YOU to pay down someone else’s mortgage? That makes no sense, does it?
Let’s look at some numbers:
Let’s compare rent v ownership numbers.
First, let’s recognize paying $3,000 in ownership costs AFTER TAX is equivalent plus minus to $2,000 a month rent. Often the after tax cost of ownership is equivalent to rent. And if you get a 30 year fixed rate mortgage, it is almost certain the cost of rent will go up much faster than the cost of ownership.
What about the down payment required to buy a house?
Let’s assume 10% down - one can actually buy a residence for 3% down.
Let’s say one buys a $300,000 house with 10% down.
That’s $30,000 investment.
Let’s say value of house goes up 5% per year.
After 5 years, the $300,000 house will be worth $375,000.
Equity increases from $30K to $105K in 5 years.
That’s a 50% annual increase in value.
Is that not a good return?
Run the numbers anyway you want.
At 3% annual value increase, rate of return is 30% annual return.
Buy a house first, get great long term debt and then start building your rental empire.
Don’t believe every real estate mantra you here, they often are not correct.
Most Popular Reply
Never really got that notion either, my wife and I held rentals in San Mateo for 30 years and made a ton when we sold them. We also had a primary in Los Gatos for over 30 years and made a lot more money when we sold that. To me Real Estate that makes money is an asset whether you live in it or not.