Rich Dad Poor Dad

[hmkpoker]

It's a good little book. It basically attempts to get the reader thinking with an investor's head, and it does so admirably. If you're not already a successful millionaire, there's valuable content.

[midas]

While I have not read the book but the author may have had this rationale:

1. Rent vs. Buy Analysis - compare the costs of owning an equivalent home to renting. You would be shocked at how much an owner spends on their house that doesn't drive value compared to a renter. Reinvest the savings from renting every year into the stock market. What was the better financial move? I have no idea what the outcome but I'll bet it's closer than you think.

2. Rising tide theory - unless you plan to move from a hot RE market (CA, DC, Boston, NYC) to Kansas, Nebraska, etc. you will never extract the "gain" on your home investment until you're dead. You will just move from one expensive home to the next. I have had older relatives "downsize" from a home to a slightly smaller condo in the same community and basically executed a equal swap.

[Sniper]

[ QUOTE ]
Homes over long periods appreciate at 4% a year. Banks will lend you 90% of that for an interest rate that is tax deductible. Essentially your 10% equity will appreciate at 40% per year, a pretty awesome return. If you don't own a home, you have to pay rent.

[/ QUOTE ]

You neglect the cost of the interest on the loan in your calculation... your real rate of return is pretty low.

RK's premise that your home is a liability and not in asset, is based on cash flow theory... If it gives you income its an asset, while if it gives you expenses its a liability.

[DesertCat]

[ QUOTE ]

You neglect the cost of the interest on the loan in your calculation... your real rate of return is pretty low.

RK's premise that your home is a liability and not in asset, is based on cash flow theory... If it gives you income its an asset, while if it gives you expenses its a liability.

[/ QUOTE ]

Well I agree with much of what you and Midas say here, I think it's a HUGE over-generalization to say homes are NEVER investments.

Specifically, if your cost of renting is equal to your cost of owning, that's a tremendous investment as you are getting appreciation for free. And while there are some areas (as Midas pointed out) that might not appreciate for a time, over long periods almost all property does appreciate.

Clearly all home owners should do the "rent vs. buy" math. And right now, renting may be much better than buying for most people who don't already own. But in most of history, I think buying works out much better.

For example, in my neighborhood are many older folks who bought their homes for between $50k & $100k 25-30 years ago. They probably made a downpayment of between $5k & $20k. Their homes are paid off and worth around $600k. That turned out to be a pretty nice return on a pretty small investment. For most folks, it's the greatest investment they'll ever make.

Do the math. Say you can buy a home for $300k by putting down $30k. If you pay 6% interest, that's $16,400 per year. Assume maintenance plus taxes is equal to tax benefits. Add to it the cost of not investing that $30K (let's say about 6% or $2k a year). Together thats about $18k or $1,500 per month.

If you can rent a similar house for $1,000 a month, it would appear you are losing $6k per year by buying. But that's decieving. At 4% appreciation, your home will appreciate $12,000 in the first year. So in reality, you are making an excess profit of $6k per year by buying instead of renting. And that profit compounds along with the value of your home.

Of course this math doesn't work as well if you aren't planning to live in your home for at least 10 years or so. In the short run your appreciation could be 4% a year, 10% a year, zero or worse. Buying a home knowing you have to move in a few years can be a horrible decision. But over long term ownership, the math is very compelling, so compelling I've always regretted myself not buying a home sooner.

If the author of "Rich Dad Poor Dad" made a blanket statement about homeownership being a poor investment, then it strikes me he's an idiot guilty of some horrible advice. If he actually said, "homeownership can be a poor investment if you don't do the math and make poor decisions" and the book explains how to do the math and make the correct decision, then I'll stand corrected.

[Sniper]

[ QUOTE ]
If the author of "Rich Dad Poor Dad" made a blanket statement about homeownership being a poor investment, then it strikes me he's an idiot guilty of some horrible advice. If he actually said, "homeownership can be a poor investment if you don't do the math and make poor decisions" and the book explains how to do the math and make the correct decision, then I'll stand corrected.

[/ QUOTE ]

Cat,

Have no fear.. he doesn't say you shouldn't buy a home!... just that you should reorient your thinking to understand that its a liability because it adds expenses. (an investment property producing positive cash flow would be an asset)

As a side point, it seems a little silly to me that you would argue with an author when you haven't even read his book (he actually has a whole series of them). I highly recommend that you pick up a copy, at the very least its a quick read and an interesting story [img]/images/graemlins/wink.gif[/img]

[DesertCat]

[ QUOTE ]

As a side point, it seems a little silly to me that you would argue with an author when you haven't even read his book (he actually has a whole series of them). I highly recommend that you pick up a copy, at the very least its a quick read and an interesting story [img]/images/graemlins/wink.gif[/img]

[/ QUOTE ]

I have a stack of books two feet tall I'm trying to work through. I'll skim his book next visit to the book store and see if he belongs in the pile.

thanks, dc

[BradleyT]

The author says a better route for home ownership would be to build assets first and then use the income they produce to buy the nice house and car.

[DesertCat]

[ QUOTE ]
The author says a better route for home ownership would be to build assets first and then use the income they produce to buy the nice house and car.

[/ QUOTE ]

Since home ownership at a proper (good) price helps you build your net worth (assets) faster, his advice is to stay poorer for a longer period of time? I've got to read this book.

[kiemo]

Only problem I had with this book is he completely ignores any retirement funding.

His entire book was pretty much saying the only investment options worthy of your time are real estate, high risk stocks (which he says 'YOU' should never do, but since he is so smart he makes millions on these high risk stocks all the time) and if you have to tax lien certificates.

But mostly he emphasises getting real estate that returns monthly income. This way you can reinvest the montly income into more real estate. Etc..

[Puss In Boots]

This book is -EV.