welcome back to the future

Repeat After Me: Your House Is Not An Asset

After a decade of lost wealth, where will you go from here?

In the popular Back to the Future movies, Marty McFly goes back in time, accidentally gets his mother to fall in love with him, and has to work with his future friend, Dr. Emmett Brown, to make things aright. If he doesn't fix things-and learn from his mistakes-a different future will emerge where his parents don't marry, and he never exists.

The whole movie, Marty does everything he can to get back to the future.

For the last decade, many homeowners have been waiting to get back to the future as well…the future where their home prices are the same as they were ten years ago. It's been a long wait.

But it's finally come. As "The Wall Street Journal" reports, "The average home price for September was 0.1% above the July 2006 peak, according to the S&P CoreLogic Case-Shiller U.S. National Home Price index released Tuesday."

Of course, in the fine print is the fact that while prices are the same, value isn't, "Adjusted for inflation, the index still is about 16% below the 2006 high. Home prices jumped 5.5% over the past year."

Speaking of going into the past, in 2010, "The New York Times" wrote about how people-in the midst of the housing crisis-still believed that real estate would go up 10 percent a year. That of course hasn't happened. Back "The Wall Street Journal Article": "Home prices have grown at an inflation-adjusted annual rate of 5.9% since 2012, while incomes have grown by just 1.3%, according to Case-Shiller. By contrast, from 1975 until the present, prices grew at a rate of 1.1% a year, while per-capita incomes grew 1.9%."

The WSJ article goes on to point out that the "recovery" in housing isn't all roses. "The country is building far fewer homes than normal, the homeownership rate is near a five-decade low, and mortgages remain difficult to come by, especially for less-affluent buyers. Rising mortgage rates could also begin to pose headwinds to further price growth."

But, more than likely, people will read a headline that says, "Home Prices Recover Ground Lost During Bust," and start thinking things will be as they were before. Unfortunately, this future of housing will most likely much different than the decade that led up to the bust. But what remains the same is that people will continue to think that buying a house is an investment-that it is an asset-when it is not.

So since we are back to the future of housing, it's a good time to remind folks of the reality that your house is not an asset, and if you heed the word, maybe we can avoid another housing bubble…maybe.

Your house is a liability

Since the lesson still hasn't sunk in for many Americans, I'll repeat here: Your house is not an asset. It's a liability.

Very simply, an asset is something that puts money in your pocket. A liability is something that takes money out of your pocket. The reason people are confused and think that a home is an asset is because from the 1970's through the early 2000's they were able to pull money out of their house in the form of loans, like a real estate ATM. Now that prices are back, they might start thinking the same thing again.

As that 2010, "New York Times" article states: "The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming."

The problem is that wealth wasn't generated. Only debt. People didn't sell their homes to pay for things like college educations and vacations; they borrowed against them. In the process they bought into the illusion that they were tapping an asset when in reality they were growing a liability by taking on more and more bad debt.

How a house can be an asset

Despite the fact that housing prices have not recovered in real terms, I'm buying. This may sound contradictory, but it's not. As you may have guessed, I'm buying investment properties that cash flow.

To me it matters little property appreciates in price. I care only whether it provides cash flow every month. And while investing for cash flow won't provide the home-run returns that speculators saw in the early 2000's, it's the only sure way to build wealth and assure a secure retirement in terms of real estate investing.

The key is to make your money on the buy, not the sell. What I mean by that is that by doing proper due diligence you can find deals that will provide substantial cash flow for years to come. By doing so you don't have to worry about the price of your asset. If it goes up, that's a bonus. If it doesn't, you still have a great property that puts money in your pocket every month.

So, your house is not an asset. But a house can be an asset-if it cash flows.

Learn from the past; build for the future

My hope his that you-and the world-will learn from the past and begin to build for a secure financial future.

In that future, you do not rely on your home to be your primary nest egg. Ask people ten years ago, on the cusp of retirement, how that worked for them.

In that future, you rely on financial intelligence to find cash-flowing assets that provide income month in and month out.

And part of having financial intelligence is investing your time in financial education. This week, I'm doing my annual Rich Dad's 2017 Predictions event, a $19.95 value, and you can attend for free. All it will cost you is an open mind and a bit of time.

In this must-see event, you'll walk away with expert insight:

  • Are we in a bubble and if so, when will it burst?
  • Is the Stock Market going to crash in 2017?
  • What should younger investors do now - to be wealthy in the future?
  • What will happen to the US Dollar - and how you can prosper?
  • What will be the impact of the Trump presidency on investors? And entrepreneurs?
  • What should you invest in whether the economy is good or bad?
  • What one thing can you do to get different investing results?
  • What daily habit can change your life?

I encourage you to register today.


Original Post:

Last week we kicked off the first in a monthly series called, "Ask Robert". It was fun to see all the questions asked, and hard to choose which one to answer. We'll be doing "Ask Robert" once a month, so start thinking now about your questions for the next installment. In the end, I answered Martin's question on whether to put his savings into paying off his personal residence or to invest in a rental property.

My response to Martin was that it's always preferable to invest your money into a cash flowing investment instead of paying down a mortgage on your home—especially in a market that is declining. Interestingly, I came across an article in The New York Times this week on real estate entitled, "Real Estate's Gold Rush Seems Gone For Good". The article highlights what I've been saying for over a decade since the publishing of my book Rich Dad Poor Dad: Your house is not an asset!

Here are some interesting statistics from the article:

That last statistic is frightening to me. Financial ignorance is so high in our country that we still believe that a house is an asset and a sure way to build wealth. It's not.

Your house is a liability

Since the lesson still hasn't sunk in for many Americans, I'll repeat here: Your house is not an asset. It's a liability. Very simply, an asset is something that puts money in your pocket. A liability is something that takes money out of your pocket. The reason people are confused and think that a home is an asset is because from the 1970's through the early 2000's they were able to pull money out of their house in the form of loans, like a real estate ATM.

As The New York Times article states: "The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming."

The problem is that wealth wasn't generated. Only debt. People didn't sell their homes to pay for things like college educations and vacations; they borrowed against them. In the process they bought into the illusion that they were tapping an asset when in reality they were growing a liability by taking on more and more bad debt.

It's amazing to me that people still think their house will gain value given the true statistics about the housing market. The reality is that the housing market will take decades to regain value—and may fall in value in the short term—and most gains will only be keeping up with inflation. Buying a home and counting on it to be your retirement is financial ignorance and recklessness at its worst.

How a house can be an asset

Despite the fact that housing prices may never actually recover in real terms, I'm buying. This may sound contradictory, but it's not. As you may have guessed, I'm buying investment properties that cash flow.

To me it only matters if a little property appreciates in price. I care only whether it provides cash flow every month. And while investing for cash flow won't provide the home-run returns that speculators saw in the early 2000's, it's the only sure way to build wealth and assure a secure retirement in terms of real estate investing.

For many, the fact that housing prices might drop again is a bad thing. For me it is exciting. It means that more deals will be out there for great properties that bring in money every month in the form of rent. As I've said before, we're experiencing the greatest wealth transfer in history. If you're smart with your money, wise in your looking for deals, and ready to make a move, you can find great investments at bargain prices.

The key is to make your money on the buy, not the sell. What I mean by that is that by doing proper due diligence you can find deals that will provide substantial cash flow for years to come. By doing so you don't have to worry about the price of your asset. If it goes up, that's a bonus. If it doesn't, you still have a great property that puts money in your pocket every month.

Your house is not an asset. But a house can be an asset—if it cash flows.

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