Re: thanks for RICH DAD,POOR DAD - Posted by John
Posted by John on December 31, 1998 at 02:34:47:
If you have read Rich Dad, Poor Dad then you have completely missed the point. If you have not read it, you should. I think it might change your mind about a home being an asset. Of course that’s not the only thing you would get from it. It’s a great book.
The first paragraph of your post is the beginning of where I feel your thinking goes askew. You compare owning a home to renting. That is not the point. The point is whether or not a home is an asset. It’s a yes or no question. It’s not a comparison of techniques to obtain housing. Buying a home and paying rent are actions. I say “buying a home” rather than “owning” because the lender owns it until you pay them the last penny. I know that sounds like I’m splitting hairs but what I’m trying to say is that a home (the structure itself) and how we obtain it is the question. So, without comparing buying to renting, is a home an asset? I say no. I agree with you that renting is throwing money away. But since we’re not going to compare the two let’s just look at buying a home in a conventional way. That is when we pose the question. Is the home an asset?
Just for the sake of argument let’s look a little closer at your example:
If you finance a $150,000 home for 30 years at 7.0% The P&I alone would be $997.95.(Assuming you could get 100% financing) Round that up to $1000.00 even and add a couple of hundred dollars for the taxes and insurance and we reach your $1200.00 payment. Okay, so far so good. Now, how much did you really pay? Your P&I alone for 30 years cost you $359,262.00 tack on the insurance and the taxes for an additional $72,000.00. You wind up paying $431,000.00. And what about the maintenance and utilities you mentioned. If you add those in you would be nearing half a million dollars.
You say it’s probably doubled or tripled in value by now. I hope so because by the time you reach the end of that 30 years you’ll be lucky to break even. Now, some people would say at this point, “I would have $450,000.00 in hand from the sale of the house.” That would be true but now you need to buy a new home. But more importantly than that you’ve lost 30 years. Ask any investor, “What’s the greatest asset of all?” The answer will always be, “TIME!” Using this same example, if you could somehow have paid cash for the $150,000.00 house and invested what you would have paid in interest over thirty years, each month investing what your interest payment would have been, and always re-investing the gains, the same $200,000.00 that you paid in interest would be worth MILLIONS after thirty years.
The bottom line is this. The distinction between assets and liabilities is very simplistic. Assets put money in your pocket and liabilities take money out of your pocket. Everything else is elaboration. It doesn’t matter if you wind up owning a home after thirty years of paying on it. What matters is that it cost you a fortune.
As I am re-read this post it occurred to me that is sounds really rude and pushy. That wasn’t my intention. But, it’s way too late and I’m way too tired to re-write it. So, I hope I didn’t offend you in any way.