Rich Dad, Poor Dad Confusion

There's many ways to skin a cat and there would hence be many ways to invest in an attempt to break free of the 'rat race'. Personally I don't look at books as strict guides on how to invest, but rather they provide readers with options and the pros and cons of each. It is ultimately up to the reader to decide what they intend to achieve by investing and what sort of risks they're prepared to accept.

Robert emphasizes the importance of passive income, the ability to earn money without actually working. This is good, because let's face it: if not for the need to make a living, most people wouldn't want to work as much as they do now. In my mind then, passive income means buying cashflow positive property.

I've taken the negative gearing approach, albeit unintentionally. This is because I wish to buy properties in areas that I would personally live in. To put it bluntly, it's very difficult to find a 'nice' house in a 'nice' area that is positively geared (if someone knows of such an area I'd hope for them to PM me with the name of the suburb), unless you take a very small loan or bought a long time ago. Being young and still living with parents, I've opted to be a bit more aggressive and aim for growth. Eventually I could always clear my portfolio or refinance to buy property with a higher yield to balance things out.

The real answer to both of these is time. People assume that because a PPOR house is a an increasing capital gains tax free asset .. that they are making money on it. This is true .. but its also a lie. You are holding onto an asset you bought in yesterdays dollars, paying todays premium to keep it, and selling it in tomorrows market. And until you are actually selling or leveraging against it .. its worth nothing to you. And for a single doubling boom .. you have at least a 10 yr wait.

As was once pointed out to me at a coin show, a rare coin went from $400 in 1965 to $35,000 in 1995. I then suggested the bleeding obvious .. that there was a 30 year gap in the middle. So unless you were 15 when you bought this coin … you'd been waiting a long time for a result.

Thats really why Kiyosaki goes on about a prime residence not being an asset. Its a place you pump a lot of money into, hold onto over and above a normal investment timeframe, and then expect it to return rewards for you. However, on that same note .. all those people who hold onto their prime residence and dont sell .. keep the market requiring properties, and in turn .. boost the price for all concerned.

Again .. with the growth path .. its a way to get rich .. yes. But again .. it requires a period of time … (you see where this is going?). I'm sure you never went to the grocer and he says .. carrots? I'll have some next season .. you want to wait? It sounds like a laughable scenario, but this is EXACTLY what people expect from property. Wait, and it will all come good. Sure, but … how long to wait? Positively geared properties .. on this note .. are producing an income and return from day one. There is no wait .. there is no negative debt downside, there is only a return.

Hey GameTime,

Just to reinforce what other people have been saying, the US property market is very different to the australian property market. For example, here we have negative gearing tax benefits. These don’t exist in the US. Unfortunately for us, this seems to have made investors more willing to pay a higher price for a property which may have a lower rental yield.

Robert’s strategy in his book encourages people to minimise risks associated with capital growth expectations. His ideas make sense from the point of view that if you find a property that has a good rental yield, one that would provide interest coverage (very hard to find in australia) then you can go out and buy with the confidence that you will not loose money, even if the value of the property goes down at some stage.

The other thing is that when Robert mentions an asset, he means it in the accounting sense of the word. A house is not an asset because if you purchase it on a mortgage you owe that money to the bank and the house itself generates no income.

Hi Guys, Intresting Topic.
I have read a few books by Robert Kiyosaki. I just bought one called retire young and Rich. I read the whole book and i was a bit confused. So i sat down and had a look at the book again. The first page acutally says that this book was written before 9/11 and the GFC. IT was only published this year though.

I see my home as an assest i bought it at 24 and know im 26 and we only owe 90k on it. We did this by buying and selling property in the last 6 years i started at 20. I have just bought a bussiness and becasue i didnt owe that much on my home the bank was more then willing me to lend me the money. So to me my home is an assest becasue without it i wouldnt of have been able to purhcase my bussiness and in 6 month i will be working from 60 hours a week to only 20 hours. So this has created me a good life style.  I think what we have to look at is every one has different ways of investing i dont think there is a straight out blue print that says this is the way you get rich.

What has worked for you might not work for me.
Great topic
Cheers Johann Psaila

If your accountant will prepare your Balance Sheet, he or she will classify the land of your PPOR including its building as an asset. On the Credit side of the Balance Sheet, it will record the liability of your asset (how much you own) under the Bank name (e.g. Creditor). If you have equity (Asset – Liability), it goes into the Equity account of the Balance Sheet as credit entry…hence this is where the DOUBLE ENTRY accounting comes in..DEBIT = ASSET, CREDIT = LIABILITY (How much money you own from the Bank)  + Equity (Asset – Liability)…this is the equity you use to fund another IP.

The concept from Rich Dad, Poor Dad only talks about the CREDIT side of accounting (Liability)…because that is the old way of accounting. The new accounting standard is DOUBLE ENTRY accounting…hence it takes into consideration of the Asset side.

To put it simply….if you are new in DOUBLE ENTRY accounting…here it is again

DEBIT (Asset e.g. IP or PPOR)  = Liability (How much you own the Bank) + Equity (How much you have paid the loan so far) 

or, Equity = Asset – Liability

So if you referring to your House or IP as a Liability, you are only talking about the CREDIT side of the Balance Sheet but failed to discuss the Asset side.

Hope this clears up ANY confusion about Asset  which equals to Liability + Owner's Equity…this Equity is what you use to fund your IP.