Robert Kiyosaki is a world renowned real estate investor and best selling author. Some of his most notable works include Rich Dad, Poor Dad and Cash Flow Quadrant.
Many of his teachings are great. In fact, his book Cash Flow Quadrant was the basis for my post Passive Income: The Holy Grail of Financial Independence and Retiring Early.
Robert Kiyosaki is Wrong
‘Your home is not an asset’ is one of Kiyosaki’s most well known teachings. Well, I am here to tell you that’s wrong. Yes, Robert Kiyosaki is wrong. My house is an asset and your home can be too.
First, let’s discuss why Kiyosaki believes homes are not assets. He defines an asset as anything you acquire that puts money into your pocket.
Remember that assets provide money flowing in.
If something is not an asset then it’s a liability. Robert Kiyosaki defines liabilities as anything you own that takes money out of your pockets.
Think of cars, boats and houses. All of these items require upkeep and maintenance. The upkeep and maintenance requires time and money, which is money leaving your pocket.
Liabilities cause money to flow out of your pocket.
Now that we clearly defined the terms ‘assets’ and ‘liabilities’ – let’s revisit Robert Kiyosaki’s belief that a home is not an asset.
For most people, their primary home takes money out of their pockets. Homeowners are on the hook for their mortgage every month. If that wasn’t enough, homeowners also pay for insurance.
Repairs and maintenance are unavoidable. Oh, and let us not forget home improvements. Homeowners love, love, LOVE to upgrade their home.
New granite counter tops? Sure.
Renovating the guest bathroom that no one actually uses? You bet.
Lastly, we all have that uncle. You know that greedy uncle…. Uncle Sam. He is the one who always has his hand in your pockets. Homeowners pay real estate taxes as well.
Wow, when you look at a home like this…. Robert Kiyosaki might be on to something. That sounds like cash leaving your pocket every month.
No, let me rephrase that – that sounds like a shit ton of cash leaving your pocket every month.
If you would like to dive further into this debate, I would recommend the ChooseFI podcast episode 47 – The Cult of Home ownership & Crushing Geoarbitrage – with Millennial Revolution. The episode discusses why homeownership is a BAD investment.
Hint: its because the average person’s home is a liability.
Listen to episode 47 here:
I would also recommend listening to episode 47R which is a detailed ’round-up’ of the episode by the podcast’s hosts. The round-up discusses how homeownership generally sucks as an investment but how real estate investing can be a great wealth creator.
House Hacking: Why My House IS an Asset
Now, let’s discus why Robert Kiyosaki is wrong.
I live in a house hack and have been house hacking for almost four years. Every month, I get PAID to live in my house as my roommates/tenants rents are almost double my mortgage payments. Even after repairs and expenses I am getting paid to live.
Question: Does this sound like an asset or a liability? Is the money flowing in or out of my pocket?
Answer: Asset. The money is flowing in.
Now, you may be asking yourself – What is a House Hack or House Hacking? – simply put:
House hack noun – an owner occupied property that keeps the owner’s cost of living low. This is achieved by renting out extra rooms or apartments. In some cases the owner makes a profit while living at the property.
House hacking verb – the act of living in a house hack to keep one’s cost of living low or getting paid to live while living in said house hack.
When you are house hacking, does your home sound like an asset or liability? It appears Robert Kiyosaki is wrong; my house puts money in my pocket. By his very own definition, my house is an asset.
I have found house hacking as the greatest way to generate wealth and income. In fact, house hacking has allowed me to go from a negative net worth to over $500k in four years.
Benefits of house hacking
Are you still not sold on house hacking? There are tons of benefits to house hacking. Hopefully the list below convinces you to buy a house hack.
Lower cost of living – house hacking you will reduce your cost of living. Housing expenses make up about a third of the average American’s budget. In higher cost of living cities Like San Francisco, New York, or Chicago, housing consumes 50% or more of the average monthly budget.
Why would you want to spend HALF of your money on a place to live?
Most house hacks reduce your cost of living. The best house hacks eliminate your housing expense and actually put money in your pocket every month.
My first property was a house hack. The home had 3 bedrooms and 2 bathrooms. I rented the two extra rooms out to friends. Their rents covered most of the mortgage and I paid a few hundred dollars a month to own a house.
This was a bargain as I was living in an expansive area (DC) where the average one bedroom apartment rents for about $2,000. The house provided a positive cash flow when I moved out and rented all the rooms.
My second property was also a house hack. This was the best kind of house hack. I eliminated my housing expense. The house rents for about double the mortgage. I get paid to live in the house. Life does not get much better than that.
Increased savings rate – living in a house hack will allow you to save more. Increasing your saving means you are able to save more of your paycheck every month (take home pay). The increased savings can (and should) be turned into increased investing. Savings rates are the biggest factor in determining how long you will need to work.
Interested in learning more about savings rate? Checkout:
Others pay down your debt – What is better than getting paid to own something? How about buying something with someone else’s money. That’s what happens when you get a loan for a house. You are buying the house with the banks money.
And you know what’s better than that? Having your renters pay back the bank AND pay you every month. House hacking provides you with monthly income and your renters pay down your debt. Over time, your renters will pay down and eventually pay off your mortgage. If that is not winning, I am not sure what is.
Tax benefits – home ownership or owning real estate in general provides several tax benefits. The interest payments for the mortgage provide a dollar for dollar tax deduction. Real estate also allows you to claim depreciation of the building (read another fancy word for a tax break).
Tax benefits should never be the reason you buy an investment. However, they can be a nice bonus to an already kick-ass investment. Consult your tax advisor for more details.
Why are you not house hacking? Are you still not sold yet?
Why you should house hack
House hacking can be achieved by most anyone and I highly recommend everyone consider house hacking.
If you are younger, single or without kids house hacking provides a great way to start creating wealth at an early age. House hacking is especially great for recent college graduates; you are already use to living with roommates. Lets keep the party going!
House hacking is not just for the young, single and childless crowd. Middle age or older people can house hack. The same holds true for married people or parents. However, house hacking may be less appealing when you have a crying baby on your hands.
House Hacking Course
We are developing a House Hacking 101 course. The course will educate you on how to buy your own house hack. You will learn how to analyze neighborhoods and properties. We will discuss the various ways to house hack, like a house hacking duplex. By the end of the course you will have all the tools necessary to create your own path to financial independence.
If you are interested in the course, please complete the form below.
If you cannot wait for the course you can also listen to a house hacking podcast interview I had on the FIRE Drill Podcast.
Carl’s NOT a Loser
Oh, and most importantly. Carl from 1500 days is NOT a loser. This is another false teaching of Kiyosaki.
In fact, there is nothing ‘loser’ like about retiring at 43 and enjoying your life. That’s right, he retired earlier this year in his 40s. So, yeah, Robert Kiyosaki is wrong yet again.
Most people would find retiring so early cool. In fact, many would be jealous. Carl is living the dream. Oh, and he also invested in real estate 😉