In the best case, Robert Kiyosaki’s way of looking at this is very simple enough to demonstrate a point. That is, assets should work for you not someone else, and you have to consider the liabilities and the cash flow when working out how much that asset contributes to you. Good concept to point out.

In the worst case he’s an idiot or a scammer pretending he has found something new. A balance sheet puts all Assets and Liabilities together to measure your net worth (Assets – Liabilities) and the profit or loss (change in assets) and cash flow tells you whether they are feeding you or eating you. It’s a simple calculation. The loan is clearly the liability, not the house. His changing the classifications breaks down in many cases. For example, if you put the house as the liability, how do you account for the loan? The loan gave you $xxxx to pay for the house does that mean it’s an asset? No it’s not. It’s just nonsense at that level. It just does not stand up to scrutiny.

Is a home an asset or a liability? …well it’s a home and it doesn’t matter. But if you want to treat it as a financial investment, you’ll keep up with inflation/deflation only or lose money on transaction costs and maintenance. Because despite the market value changing a house itself doesn’t grow or make anything (except for memories). Generally it’s a bad financial investment to “build real wealth”, but a good hedge against inflation.

i couldn’t even tell my uncle to leave!

You can learn more about it when you read his book. He teaches the power of leverage. e.g how to buy a house or build a business with little or zero cash at all.

And I would believe in his principle because his already a multi-millionaire. He knows that from his experience and he already has proved of it.

Suugest we organize cashflow 101 clubs and promote financial literacy in another level.

There are some major flaws in this logic. By your logic no one would ever buy a house. How about when a mortgage payment is cheaper than paying rent? By your logic the house is a liability, but at least the house has resale value and you will end up getting some of your money back.

Plus, should never look at where you live as an asset or a liability, or even an investment for that matter. It’s a necessity, you HAVE to pay money to live somewhere. Also, as a general rule of thumb if you are going to be living in a house in order for it to be financially smart you need to be staying there at least 7 years.

Thanks a lot for sharing your views.

The use of debt funding (a mortgage) to buy the property does not change the property itself from an asset into a liability. How can it?

The position can be illustrated very clearly by contrasting the positions of:

1. a person with no assets or liabilities at all; and
2. a person whose only asset consists of a self occupied unencumbered home.

If you beleive that the home is a liability (because you have to pay outgoings) you would have to conclude that person #1 has a higher net worth that person #2 – which is obviously nonsense.

Another way of looking at the issue is to consider other instances where there is negative cash flow associated with an asset – a property development, a business start up, a mine development. If Kiyosaki is right then all of these are liabilities rather than assets. Again, that would be obviously wrong.

P.S. I’m an avid reader of your blog! Keep posting!