House: Asset or Liability?


I just finished hearing the audiobook of Robert Kiyosaki’s Rich Dad Guide to Investing. I must say it is really really a very good audiobook and I’ve been learning a lot from it. A lot of thanks to Richard who is an avid reader of this blog who gave me the audiobook. In this article, I will write what I have learned about your house or your home as an asset or a liability.

Is you house an asset or liability? This is also the topic in one of the forums that I visited. We are used in the traditional accounting principles that a house is considered as an asset. When you are making a balance sheet where assets and liabilities are listed down, a house falls under the asset column since an asset is defined as anything that has value. And of course, a house has value.

Well, according to Kiyosaki, an asset is anything that flows CASH IN our pockets and a liability is anything that flows CASH OUT of our pockets. Now, how do you classify a house? Is it an asset or a liability? Kiyosaki said it would depend on the INCOME STATEMENT and not on the balance sheet.

In another video that I watched, Kiyosaki said that if he stopped working, ASSETS will FEED him while LIABILITIES will EAT him.

If a house provides rental income more than the expenses associated in owning it such as maintenance costs, utility bills, real estate taxes, and insurance costs, then a house is considered as an asset since it flows CASH IN our pockets. However, if your house has more expenses than income, then it is a liability.

Let’s look at the following example to illustrate it more clearly. Suppose you own a house that has a tenant renting it at 1,200 per month. As an owner, you are paying the real estate taxes, insurance costs, and some maintenance costs with an aggregate amount of 1,000. In this case, your house is considered an asset because it has a NET INCOME of 200 which provides CASH IN your pocket.

Now, as an educated investor, you should know the difference between an asset and a liability. Kiyosaki continued to tell that an educated investor does not look into one financial statement alone but to at least two financial statements.

When your bank told you to avail of a home loan to own a house and they keep on telling you that your house is the best asset that you will have, yes it is the best asset but not yours. It’s the BANK’s ASSET since you will keep on paying the mortgage for years with interest to them. You will end up paying double or even triple the original value of your house as you pay your mortgage and interests for 10, 20 or even 30 years. What’s worst, if you were not able to pay them, then they will foreclose it and you will end up paying for nothing. It provides CASH IN to the pockets of banks! However, it is your liability. It flushes CASH OUT of your pocket.

So one’s asset is someone else’s liability and one’s liability is someone else’s asset. We must look on to the income statement and not on the balance sheet in determining whether our house is an asset or a liability.

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Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

21 responses on “House: Asset or Liability?

  1. @ Tom: Thanks for the comment.
    @ Jay: It took me less than 2 months to have a Pr of 1. I am also interested on what accountants will comment about this post. Any accountants there? =)

  2. Hi! I’ve loved your post. Surely, this will be an eye opener for many.

    I am a member of one of the business community http://www.CreateAbundance2020.com which is an affiliated site of http://www.RichDad.com.

    Create Abundance Business Community compose of group of Businessman and Investors who follows Robert Kiyosaki’s principles. If you wouldn’t mind, is it ok with you to add your blog link to my links on my blog at rhyanmiraflores.blogspot.com so that I can have updates everytime you post? Can you also include our Create Abundance Business Community: http://www.CreateAbundance2020.com website? In return, I will post all your links to our blogspot accounts. More power and thank you.

    Best regards,
    Rhyan Miraflores
    http://www.CreateAbundance2020.com
    http://rhyanmiraflores.blogspot.com

  3. Assets are everything of economic value. You can either acquire future economic benefits from it or loss totally its value (depreciation/amortization). Kiyosaki is very good motivationally, but I disagree on some of his terms used like these. How about trade secrets, copyrights, patents, goodwill, etc. which are intangible assets or unutilized lands, unexplore minerals, which still no cash coming in. Would you not consider those assets.
    Kiyosaki and Sharon Lechtern???(his partner) really tried to simplified it. In accounting, that is form over substance. (cash over value). So what is cash if it has no value. What is 1,000,000 pesos or even US$1,000,000 dollars if it cannot buy you shirt. Therefore, substance over form should always prevail, which is one of the principle of accounting.

  4. You are right! I live in Canada. I migrated here a couple of months ago. Everything that Robert K. says on his book is true.

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

  5. Sorry, but I respectfully disagree. Claiming that a house is a liability rather than an asset is 100% rubbish. Cashflow (positive or negative) may make an asset a good investment or a bad investment but it will not turn an asset into a liability. The house still has value and can be sold for whatever the market determines it to be worth (whether that is more or less than cost may determine whether it has been a good or bad investment but does not change the fact that it is still an asset).

    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.

  6. Hi traineeinvestor, good points you raised there. The best part of it was that “Cashflow (positive or negative) may make an asset a good investment or a bad investment but it will not turn an asset into a liability.”

    Thanks a lot for sharing your views.

    • Hi Admin,

      “Cashflow” does not determine if the asset is a good or bad investment.

      I just bought a house last August at 997,000 and now the value of the same property after 10 months is 1,097,000 or a 10% increase. Prospects are very with huge government projects in the pipeline and I expect the value to 1,500,000 2 years from now.

      I don’t have a positive cashflow for the house but it’s not a bad investment due to price appreciation.

      @traineeinvestor has a very good point on development cost like oil exploration.

      P.S. I am not a big fan of Kiyosaki.

  7. Tyrone,

    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.

  8. the house you own is an asset, whether you are living on it or just for an investment (for sale at a future time). accounting standards wouldn’t classify a house you owned as a liability. but if owning a house is a burden, like inheriting a large property which you can’t afford to maintain, then sell it.

  9. I think Kiyosaki just want to teach us on how to be FINANCIALLY LITERATE/SMART. “Asset is anything that flows CASH IN our pockets and a liability is anything that flows CASH OUT of our pockets.” He DOES”NT SAY that NO one would should ever buy a house. He just want us to realize what’s the truth hidden associated with house ownership.

    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.

  10. don’t buy a house of you don’t intend to live on it sooner. i made a mistake of buying my grandma’s ancestral house. her children divided the money among themselves. one of my uncles and his family live on the house with my grandmother since he don’t have a house of his own. now i pay for the bills and other maintenance expenses (the latest was 25k for the roof) because my grandmother doesn’t have a source of income nor does my uncle… bad bad investment.

    i couldn’t even tell my uncle to leave!

  11. Vincent, your situation is quite hard especially because it involves your relatives. You could buy a house even if you don’t intend to live on it sooner IF AND ONLY IF you intend to rent it out to tenants for passive income.

    In your case, why did you buy your grandma’s ancestral house? Is it because of its sentimental value to you? Do you have your own family in which you are supporting? If I were in your case, I’ll tell my uncle to find a source of income.

  12. I think house can be either assets or liabilities, depending on how you use or look at it, even it does not literally bring cash to your statement, it can still be an asset in a way that it can lessen your expenses.. ex. if paying a mortgage for a house is much cheaper than renting..

  13. Jay Costillo: I’m a Chartered Accountant and an Entrepreneur so I hope you find this interesting.

    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.

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