Rich Dad/Poor Dad Assets

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rich251076
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Rich Dad/Poor Dad Assets

Post by rich251076 » Sun Aug 28, 2016 6:56 pm

After reading Rich Dad/Poor Dad.

I am definitely familiar with all kinds of liabilities :)

Can anyone advise on the kinds of income accumulating assetts he is describing, I am guessing these are not regular mortgaged real estate deals or straight stocks and mutual funds, more like buying small business, using creative financing for real estate?

I'd appreciate if anyones delved into this.

Thank you.

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unclescrooge
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Re: Rich Dad/Poor Dad Assetts

Post by unclescrooge » Sun Aug 28, 2016 7:03 pm

It's been 15 years since I read the book, but I don't see why regular investment properties don't for the bill. So long as they throw off a profit every month!

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slayed
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Re: Rich Dad/Poor Dad Assets

Post by slayed » Sun Aug 28, 2016 7:22 pm

Honestly I'm amazed that people still read his books, they are garbage.

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Re: Rich Dad/Poor Dad Assets

Post by Wricha » Sun Aug 28, 2016 7:27 pm

It's been many years for me as well since I read his book. I think he was saying a house is not an asset because it cost you money and produces no income. Stocks are what "rich" people sell to the unwashed masses. Even John would admit that stocks and bonds are assets. I do agree with him things like cars, boats and "do dads" are not assets.

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Re: Rich Dad/Poor Dad Assets

Post by bottlecap » Sun Aug 28, 2016 8:30 pm

I agree that the books are garbage. I admit I read one.

Don't waste any more of your time on it.

JT

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Re: Rich Dad/Poor Dad Assets

Post by gclancer » Sun Aug 28, 2016 8:40 pm

bottlecap wrote:I agree that the books are garbage. I admit I read one.

Don't waste any more of your time on it.

JT


They're not worthwhile as investment how-to books. However, for beginners, I do think they can help people get in the right frame of mind, which is focusing your energy on acquiring income producing assets and not income draining liabilities. Once you've figured out that's the foundation to financial success you're ready to graduate to better books with better ivestment guidance.

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Re: Rich Dad/Poor Dad Assets

Post by sschullo » Sun Aug 28, 2016 8:48 pm

The author is brilliant in one important area, he can sell books! Over 25 million last I heard.
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Re: Rich Dad/Poor Dad Assets

Post by LarryAllen » Sun Aug 28, 2016 8:52 pm

slayed wrote:Honestly I'm amazed that people still read his books, they are garbage.


I totally agree. I re-read Rich Dad recently thinking I must have missed something when I read it years ago. With such a huge following there must be some great info that I just hadn't gotten the first time. However, I found it to be a waste of time. Just an overly-full of himself guy telling you how great he is.

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Re: Rich Dad/Poor Dad Assets

Post by moneywise3 » Sun Aug 28, 2016 8:54 pm

He is sort of in the show business, not investment advisor. He sells doesn't mean his advise is good. Anytime I see such people, it feels like a dating proposal to a happily married man. I haven't found a reason to budge from Bogleheads philosophy.

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Re: Rich Dad/Poor Dad Assets

Post by LateStarter1975 » Sun Aug 28, 2016 8:56 pm

slayed wrote:Honestly I'm amazed that people still read his books, they are garbage.


I fully agree!
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StevieG72
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Re: Rich Dad/Poor Dad Assets

Post by StevieG72 » Sun Aug 28, 2016 9:10 pm

I read the book, it was given to everyone at my company.

It was not a great read and is definitely not on my list of books to recommend for others to read.

Do not be discouraged! If you liked this one you will LOVE some of the books listed on the bogleheads wiki....

https://www.bogleheads.org/wiki/Books:_ ... t-up_Books
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Re: Rich Dad/Poor Dad Assets

Post by itstoomuch » Sun Aug 28, 2016 9:40 pm

Well, I kinda like his books.
Really summed up in the CashFlowQuadrant.
Most will always be Employees: Quadrant Q#1; Some will be SelfEmployed Q#2; Fewer will be Business Owners, Q#3; and a rarified Investor Class, Q#4.
Most of my life I've been in Q1. Tried unsuccessfully to do Q2. And now retired doing Q4 by investing in Indexes, RE, and Individual companies. No bonds.

IIRC, at one time Kiyosaki had licensed his brand to seminars and training schools in RE and Options Market trading. To Donald Trump. To various co-authors in the financial and RE fields. Cashflow Game. Motivational Speaking, Multilevel Marketing. Publishing. He had/is/was doing apartments.

I gave son one of his books. Forgot which one. However, I am pleased to see that he has developed another stream of income besides his J.O.B. and thinking about another income stream. More importantly, he has developed a big network of friends and acquaintances. Ultimately it IS the Network.

YMMV
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Re: Rich Dad/Poor Dad Assets

Post by bottlecap » Sun Aug 28, 2016 9:47 pm

gclancer wrote:
bottlecap wrote:I agree that the books are garbage. I admit I read one.

Don't waste any more of your time on it.

JT


They're not worthwhile as investment how-to books. However, for beginners, I do think they can help people get in the right frame of mind, which is focusing your energy on acquiring income producing assets and not income draining liabilities. Once you've figured out that's the foundation to financial success you're ready to graduate to better books with better ivestment guidance.


I have heard this before and disagree. His advice and even his made-up definitions as to assets and liabilities is confusing and half-baked.

If you are buying his book, you are already in the "right frame of mind" to build a solid financial future. His advice is detrimental.

I had some friends that asked me about his advice after I found Bogleheads.org. They were excited and took his "advice" despite being admittedly confused about much of it. They about went broke in the housing bust. They were thrilled when the government stepped in and saved their bacon.

So I guess it did work for them, but without the intervention it would have been much trouble. I'm sure they still believe in Kiyosaki and never "graduated", despite receiving a copy of the Boglehead's Guide to Investing.

I just don't think detrimental advice becomes good advice because it gets you excited about going in the wrong direction.

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Re: Rich Dad/Poor Dad Assets

Post by heyyou » Sun Aug 28, 2016 10:50 pm

When Kiyosaki was living in Phoenix, someone researched the county tax records on him and found fewer and less profitable real estate (RE) transactions than what Kiyosaki was claiming that he had made. It is easy to see the previous selling prices in RE. The researcher, was his name John Treed, checked on the seminar prices and cost of renting the seminar spaces, and said that the seminars and book sales were the majority of Kiyosaki's income. Kiyosaki has been successful at selling his image as a RE magnate.


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Re: Rich Dad/Poor Dad Assets

Post by RadAudit » Mon Aug 29, 2016 6:01 am

Whiggish Boffin wrote:John T. Reed is a real-estate investor and educator, who kept getting questions about Kiyosaki. He researched Kiyosaki and wrote the brutal dissection found here:John T. Reed's analysis of Robert T. Kiyosaki's book Rich Dad, Poor Dad, Part 1


I wish Mr. Reed had told us what he really thought about Kiyosaki and his book. :wink:
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arcticpineapplecorp.
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Re: Rich Dad/Poor Dad Assets

Post by arcticpineapplecorp. » Mon Aug 29, 2016 7:27 am

Welcome to the forum!

Kiyosaki started a business selling those velcro wallets you might (or might not depending on your age) remember but didn't patent/protect his asset and lost that business because competitors came along and just start selling his product. He got into real estate with his wife and made his money doing that. In addition, he is mostly a salesman (books, seminars, even a board game!). In some of his books (I've read them all*...call me a glutton for punishment) he pretty much puts down investing in the market and instead discusses options trading, etc. He talked about people "losing" money when the market crashes. I guess he's talking about money not being there when you need it, etc.

Now to answer your specific question. My mind's a little fuzzy since it was so long ago but I remember in one book he talked about getting a good deal on property really cheap because there were government subsidies. It was a multi-unit in a somewhat depressed neighborhood so he got special financing for that and it boosted his returns.

Many of these deals are only for larger fish (I'm assuming that's not you). He also may have bought at times when it was a buyer's market and good deals were abundant. This happens from time to time--2008-2010 was one of those times. Now, maybe not as much.

If you want to get into real estate please realize that it is a job that requires real work. If you have a job already, do you really want a second one? If you say you'll let others manage it for you, that leaves you with far less profit and creates an additional layer of risk because now you have to keep an eye on those managing your property(ies). In my mind I like my investments to be passive. Stocks (the stock market as a whole) have historically outpaced real estate. Professor Shiller's data over the past 100 years shows that real estate has really only kept pace with inflation while stocks have outpaced inflation.

Are you familiar with the Three Fund Portfolio? If not read here:
https://www.bogleheads.org/wiki/Three-fund_portfolio

Or just go with a target date retirement fund and invest as much as you can in it as long as you can. You'll likely do far better and have less headaches than trying your hand at real estate. By the way, how do you feel about evicting tenants who don't pay?

There are alot of deductions if you rent real estate out so the government encourages it as an investment so if you do get involved make sure you learn alot about real estate deductions, depreciation, etc. or get a good accountant.

*I didn't buy any of the Rich Dad books. They were given to me by an elderly lady who once had money but spent most of it on get rich quick schemes like this one. I don't recommend them to anyone.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Rich Dad/Poor Dad Assets

Post by Tal- » Mon Aug 29, 2016 9:37 am

rich251076 wrote:
Can anyone advise on the kinds of income accumulating assetts he is describing, I am guessing these are not regular mortgaged real estate deals or straight stocks and mutual funds, more like buying small business, using creative financing for real estate?



Small Business
I think a small business would be his quintessential example of an asset. But, he would also say that it is only an asset it it's creating income - and most small businesses have the opposite effect. He also avoids talking about the time required to build a small business...

Real Estate
I think regular mortgaged real estate deals would qualify - though he would probably argue that the same property using creative financing (i.e. less down, private lender, etc.) would create more income, and thus be a more valuable asset. Creative financing in real estate is risky, complicated, legally difficult, and did I mention risky business. But, I think that's where he would fall.

Mutual Funds
Mutual funds are more tricky, because he largely contradicts himself. In theory - yes - a mutual fund would be an asset to him. They grow over time, produce income, don't require additional capital, are tools of wealth generation, etc. However, he goes out of his way to argue that traditional investments are a sucker's game. I've always viewed this discrepancy as his appetite for risk, more than his understanding of long-term investments.

Overall Thoughts

I rarely agreed with his books, but I also enjoyed reading them because they challenged my way of thinking. And I'm confident that I'm better investor today because I've read his books; not because I have followed his advice, but because his advice helped me question, understand, and cement my own personal finances.
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slayed
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Re: Rich Dad/Poor Dad Assets

Post by slayed » Mon Aug 29, 2016 9:51 am

and then you see this kind of trash getting published by Marketwatch, all because he is a "best selling author":

http://www.marketwatch.com/story/rich-d ... yptr=yahoo

rich251076
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Re: Rich Dad/Poor Dad Assets

Post by rich251076 » Mon Aug 29, 2016 10:05 am

Thank you kindly all for your generous replies.

I did refer to John Reeds reviews and these make good sense. Thanks for that link, it was a very logical review, John Reeds books seems like an attractive read.

I am now looking for some really good sources of information and will refer to the Bogleheads book recommendations page you kindly linked.

My education goes on... TY! :sharebeer

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Re: Rich Dad/Poor Dad Assets

Post by itstoomuch » Mon Aug 29, 2016 12:34 pm

I think Kiyosaki's real message is that Americans should do what Americans do best: Be minimally a self-employed side gig and eventually work yourself to having a business with employees who can make money for you and eventually promote those employees to become like business owners who you collect a royalty. IOW the best investment is investing in yourself and then invest in others.

Bogle says it in a different way: Investing in America isn't difficult. You don't need salespeople/FA. You only need to have believe in the American Way and act on it.

You need to see the forest from the trees. :oops:
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Re: Rich Dad/Poor Dad Assets

Post by powermega » Mon Aug 29, 2016 1:24 pm

I remember reading his book a long time ago, and came away intrigued by his definition of an "asset". In his world, Asset = a positive cash flow (income) entity. For example, our primary residence is not an asset in this regard since it produces negative cash flow for taxes, maintenance, etc. Same for a car, boat, etc.

In a certain way, I agree with his notion that people get rich buying or creating income producing assets. I also see investments like index mutual funds and ETFs as satisfying that definition though. I think this general notion is something more people should appreciate, especially considering how many people end up house poor, barely making payments on a primary residence they can barely afford and leaving no room in their budget for their own savings and investment. Ultimately, the guy is a book salesman. Much of his advice is not good for most people, but I'm willing to debate the merits of his points and take away any bits of wisdom I do find.

A side note... One annoying thing that seems common about so many enthusiastic real estate investors... Many of them talk about how the financial markets are too "risky", and that market investments can decline in value, etc. Then they hold up real estate investing as an alternative, but don't bother mentioning that real estate markets can decline too, and that for most people real estate investing will require considerable leverage which has its own risks. All investors felt some serious pain in 2008, but there were many real estate investors that were completely wiped out from their losses. It's one thing to see your 401k down 35% in the last 12 months. It's another thing to go through a bankruptcy and lose everything because you had too much leverage owning real estate investments that are not nearly as liquid and involve significant transaction costs. I say this as one who has a great deal of respect for real estate investing too.
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Re: Rich Dad/Poor Dad Assets

Post by grettman » Mon Aug 29, 2016 1:35 pm

...What I can't stand about the guy is that Market Watch, and other financial porn sites, pull him out occasionally and have online chats/Q&A. He typically says radical things that grabs headlines and clicks. Last week he did a Facebook interaction and basically said long term investors are foolish (paraphrasing).

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Re: Rich Dad/Poor Dad Assets

Post by Toons » Mon Aug 29, 2016 1:39 pm

I recall delving into a few pages of the book.
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Re: Rich Dad/Poor Dad Assets

Post by Alan S. » Mon Aug 29, 2016 7:27 pm

Gurus who have one successful book or market call invariably make a fool of themselves down the road when trying to capitalize on their name recognition.

Often we see extreme predictions to get attention, misleading article or book titles to get attention, or re stating in a different way a generally accepted opinion to make it sound somehow new and different when it is not.

Much good advice is unfortunately boring.

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Re: Rich Dad/Poor Dad Assets

Post by henry001 » Mon Aug 29, 2016 9:58 pm

I just ran across this article today - its so easy for a novice to fall for his way of thinking.

http://www.marketwatch.com/story/rich-d ... 2016-08-25

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Re: Rich Dad/Poor Dad Assets

Post by abuss368 » Mon Aug 29, 2016 10:06 pm

I read his book with Donald Trump and got zero out of it. I found the Jack Bogle and Bogleheads book so much better and useful.
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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Mon Aug 29, 2016 10:21 pm

Folks,

If some of my peers read his books at some point and chose not to be "House Poor", they would have been saved. Unfortunately, this continues. People treat their house as an "asset" and choose to be "House Poor". Then, they lose their jobs / incomes and their houses sunk their financial futures.

So, in spite of everything that could be wrong about RDPD, it did stop some people from being "House Poor". This saves some people. It is a good thing.

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Re: Rich Dad/Poor Dad Assets

Post by expat » Tue Aug 30, 2016 12:02 pm

John T. Reed : Don't buy Kiyosaki's books. Buy my books instead! :oops:

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Re: Rich Dad/Poor Dad Assets

Post by SuzBanyan » Tue Aug 30, 2016 2:11 pm

KlangFool wrote:Folks,

If some of my peers read his books at some point and chose not to be "House Poor", they would have been saved. Unfortunately, this continues. People treat their house as an "asset" and choose to be "House Poor". Then, they lose their jobs / incomes and their houses sunk their financial futures.

So, in spite of everything that could be wrong about RDPD, it did stop some people from being "House Poor". This saves some people. It is a good thing.

KlangFool

I would suspect that more people are influenced to not be "house poor" by advice to "live below your means" than by any advice that tortures the definition of common financial terms to suit a need to sell further dubious advice. According to Kiyosaki, wealth is not created by living below your means, probably because no one will pay him to get that advice.

I always try to imagine the perfect Kiyosaki world: no one owns their own home and no one works for someone else. Am I the only one who thinks this is a pretty dystopian view of our world?

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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 2:28 pm

SuzBanyan wrote:
KlangFool wrote:Folks,

If some of my peers read his books at some point and chose not to be "House Poor", they would have been saved. Unfortunately, this continues. People treat their house as an "asset" and choose to be "House Poor". Then, they lose their jobs / incomes and their houses sunk their financial futures.

So, in spite of everything that could be wrong about RDPD, it did stop some people from being "House Poor". This saves some people. It is a good thing.

KlangFool

I would suspect that more people are influenced to not be "house poor" by advice to "live below your means" than by any advice that tortures the definition of common financial terms to suit a need to sell further dubious advice. According to Kiyosaki, wealth is not created by living below your means, probably because no one will pay him to get that advice.

I always try to imagine the perfect Kiyosaki world: no one owns their own home and no one works for someone else. Am I the only one who thinks this is a pretty dystopian view of our world?


SuzBanyan,

<< I would suspect that more people are influenced to not be "house poor" by advice to "live below your means" than by any advice that tortures the definition of common financial terms to suit a need to sell further dubious advice.>>

My "House Poor" peers believed that they are LBYM since they are saving money with a big mortgage. The sad part is that they are really LBYM except for the house. They did not go out for lunch. They drove old cars and so on. But, it took only one big mistake aka THE HOUSE to sink their financial future. This is a very common occurrence in HCOL area.

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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 2:31 pm

SuzBanyan wrote:I always try to imagine the perfect Kiyosaki world: no one owns their own home and no one works for someone else. Am I the only one who thinks this is a pretty dystopian view of our world?


SuzBanyan,

I work for myself. I do not work for anyone else. Some employers just happen to pay for my hours / services at the moment.

<<Am I the only one who thinks this is a pretty dystopian view of our world?>>

Why do you think that you work for anyone else?

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Re: Rich Dad/Poor Dad Assets

Post by SouthernCPA » Tue Aug 30, 2016 2:35 pm

Robert Kiyosaki's definitions of Assets/Liabilities frustrates me. For what it's worth, many Boglehead's definition of assets/net worth also irritate me. Many Bogleheads of these forums only consider Liquid porfolio assets without factoring in the entire balance sheet.

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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 2:44 pm

SouthernCPA wrote:Robert Kiyosaki's definitions of Assets/Liabilities frustrates me. For what it's worth, many Boglehead's definition of assets/net worth also irritate me. Many Bogleheads of these forums only consider Liquid porfolio assets without factoring in the entire balance sheet.


SouthernCPA,

Unless you are "House Poor", why should any of this irritate or frustrate you?

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Re: Rich Dad/Poor Dad Assets

Post by SouthernCPA » Tue Aug 30, 2016 3:03 pm

KlangFool wrote:
SouthernCPA wrote:Robert Kiyosaki's definitions of Assets/Liabilities frustrates me. For what it's worth, many Boglehead's definition of assets/net worth also irritate me. Many Bogleheads of these forums only consider Liquid porfolio assets without factoring in the entire balance sheet.


SouthernCPA,

Unless you are "House Poor", why should any of this irritate or frustrate you?

KlangFool


I'm definitely not house poor, as I bought 1/4th the house of what a "normal" person would buy with my situation, but it's frustrating because it's an incomplete and inaccurate picture. People act as if equity in illiquid assets, such as real estate, farm/timber land, etc are irrelevant. In the real world, people and businesses operate based on the entire balance sheet, not just one piece of it. Being an accountant also has something to do with the frustration of people using accounting terms incorrectly, I guess....

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Re: Rich Dad/Poor Dad Assets

Post by leonard » Tue Aug 30, 2016 3:44 pm

SouthernCPA wrote:
KlangFool wrote:
SouthernCPA wrote:Robert Kiyosaki's definitions of Assets/Liabilities frustrates me. For what it's worth, many Boglehead's definition of assets/net worth also irritate me. Many Bogleheads of these forums only consider Liquid porfolio assets without factoring in the entire balance sheet.


SouthernCPA,

Unless you are "House Poor", why should any of this irritate or frustrate you?

KlangFool


I'm definitely not house poor, as I bought 1/4th the house of what a "normal" person would buy with my situation, but it's frustrating because it's an incomplete and inaccurate picture. People act as if equity in illiquid assets, such as real estate, farm/timber land, etc are irrelevant. In the real world, people and businesses operate based on the entire balance sheet, not just one piece of it. Being an accountant also has something to do with the frustration of people using accounting terms incorrectly, I guess....


Though not a CPA - I have dealt extensively with corporate finance and accounting. I understand assets and liability.

However, thinking about my "total assets" with respect to personal finance is not meaningful and isn't meaningful to any decision I might make. The laptop I am typing on is by definition an asset - but I wouldn't bother counting it as part of my assets, depreciate it, or attempt to monitor it's value. Primarily because I never plan on cashing it in to use the equivalent cash. I'll use it until it's worthless, so tracking anything about it isn't actionable.
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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 3:54 pm

SouthernCPA wrote:
KlangFool wrote:
SouthernCPA wrote:Robert Kiyosaki's definitions of Assets/Liabilities frustrates me. For what it's worth, many Boglehead's definition of assets/net worth also irritate me. Many Bogleheads of these forums only consider Liquid porfolio assets without factoring in the entire balance sheet.


SouthernCPA,

Unless you are "House Poor", why should any of this irritate or frustrate you?

KlangFool


I'm definitely not house poor, as I bought 1/4th the house of what a "normal" person would buy with my situation,



SouthernCPA,

<<I'm definitely not house poor, >>

Is your asset other than the house 2 to 3 times bigger than the house value?

<<I bought 1/4th the house of what a "normal" person would buy with my situation,>>

Which has nothing to do with whether you are "House Poor".

<<it's frustrating because it's an incomplete and inaccurate picture>.

If the house value is a small and insignificant part of total net worth, why do this matters? And, if it matters, you are "House Poor".

I do not count my house or my home equity as part of my net worth. I count all my mortgage payment as an expense. My house / home equity is insignificant for my overall financial well-being. If you can say the same thing as I am, you are not "House Poor". If not, you have too much money tied your existing house.

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Re: Rich Dad/Poor Dad Assets

Post by SouthernCPA » Tue Aug 30, 2016 3:57 pm

leonard wrote:
Though not a CPA - I have dealt extensively with corporate finance and accounting. I understand assets and liability.

However, thinking about my "total assets" with respect to personal finance is not meaningful and isn't meaningful to any decision I might make. The laptop I am typing on is by definition an asset - but I wouldn't bother counting it as part of my assets, depreciate it, or attempt to monitor it's value. Primarily because I never plan on cashing it in to use the equivalent cash. I'll use it until it's worthless, so tracking anything about it isn't actionable.


I understand that reasoning - I wouldn't track my laptop either as it would fall under my capitalization threshold and would simply be expensed :wink:

But, yes I get what you're saying and I agree with small items in regards to personal finance, but for material assets, such as land, houses, etc it makes little sense to ignore it. Sure they are illiquid today, but that could change as your life changes. I'll use my grandmother for example. She is likely going to have to move into assisted living soon. The $700k +/- in equity will certainly come into play to help fund her last years when we (the family) sell the home after she moves into assisted living. Planning based on her $300k in liquid assets with pension/ss income without considering the home equity would be a little short sided.

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bottlecap
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Re: Rich Dad/Poor Dad Assets

Post by bottlecap » Tue Aug 30, 2016 4:00 pm

KlangFool wrote:Folks,

If some of my peers read his books at some point and chose not to be "House Poor", they would have been saved. Unfortunately, this continues. People treat their house as an "asset" and choose to be "House Poor". Then, they lose their jobs / incomes and their houses sunk their financial futures.

So, in spite of everything that could be wrong about RDPD, it did stop some people from being "House Poor". This saves some people. It is a good thing.

KlangFool


Having read RDPD and seen the effects of it in execution, I would say that RDPD does exactly what you say it doesn't: to become house poor.

RDPD does encourage people to by more real estate than they can afford. He encourages them to buy multiple properties and rent them out. Their "balance sheets" are still overly leveraged, they just don't notice until a rental situation goes bad and/or the housing market tanks. These people are subject to the same, and even some additional, risks of being house poor. Because they are.

RDPD just masks the reality by obfuscating ordinary terms as to what an asset is, which I suspect is what annoys most people.

His advice has made real people broke and/or upside down on multiple properties. There is more than one way to be house poor.

JT

leonard
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Re: Rich Dad/Poor Dad Assets

Post by leonard » Tue Aug 30, 2016 4:03 pm

SouthernCPA wrote:
leonard wrote:
Though not a CPA - I have dealt extensively with corporate finance and accounting. I understand assets and liability.

However, thinking about my "total assets" with respect to personal finance is not meaningful and isn't meaningful to any decision I might make. The laptop I am typing on is by definition an asset - but I wouldn't bother counting it as part of my assets, depreciate it, or attempt to monitor it's value. Primarily because I never plan on cashing it in to use the equivalent cash. I'll use it until it's worthless, so tracking anything about it isn't actionable.


I understand that reasoning - I wouldn't track my laptop either as it would fall under my capitalization threshold and would simply be expensed :wink:

But, yes I get what you're saying and I agree with small items in regards to personal finance, but for material assets, such as land, houses, etc it makes little sense to ignore it. Sure they are illiquid today, but that could change as your life changes. I'll use my grandmother for example. She is likely going to have to move into assisted living soon. The $700k +/- in equity will certainly come into play to help fund her last years when we (the family) sell the home after she moves into assisted living. Planning based on her $300k in liquid assets with pension/ss income without considering the home equity would be a little short sided.


I do the same thing with my house as my laptop. Until I die, I'm going to need shelter. And, I have no plans to liquidate all or part of my house to cover expenses, ever. Therefore - I am not factoring in the value of my house as assets I have on hand to eventually tap. So, I don't care what my house is worth for purposes of quantifying my net worth or total assets.

Purely as a back up emergency plan, I do have a rough idea of my house's worth, what alternative housing might cost, and therefore what could be had in a serious emergency. But, that's an emergency thought experiment. I still don't track my house value as part of my assets or net worth. It's simply not an actionable number.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

SuzBanyan
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Re: Rich Dad/Poor Dad Assets

Post by SuzBanyan » Tue Aug 30, 2016 4:12 pm

SouthernCPA wrote:
leonard wrote:
Though not a CPA - I have dealt extensively with corporate finance and accounting. I understand assets and liability.

However, thinking about my "total assets" with respect to personal finance is not meaningful and isn't meaningful to any decision I might make. The laptop I am typing on is by definition an asset - but I wouldn't bother counting it as part of my assets, depreciate it, or attempt to monitor it's value. Primarily because I never plan on cashing it in to use the equivalent cash. I'll use it until it's worthless, so tracking anything about it isn't actionable.


I understand that reasoning - I wouldn't track my laptop either as it would fall under my capitalization threshold and would simply be expensed :wink:

But, yes I get what you're saying and I agree with small items in regards to personal finance, but for material assets, such as land, houses, etc it makes little sense to ignore it. Sure they are illiquid today, but that could change as your life changes. I'll use my grandmother for example. She is likely going to have to move into assisted living soon. The $700k +/- in equity will certainly come into play to help fund her last years when we (the family) sell the home after she moves into assisted living. Planning based on her $300k in liquid assets with pension/ss income without considering the home equity would be a little short sided.

I agree. And it doesn't require twisting the financial meaning of a term such as "asset" to understand that for some purposes an illiquid asset or depreciating asset should be treated differently than a liquid asset or an appreciating asset. And if many people placed too much faith in wealth-building on the appreciation of their home, many have also found that their home can be a place to weather many financial storms.

And I see nothing in the Kiyosaki books that tells me a house to live in is ever an acceptable purchase as it will always be a "liability." Thus, anyone who owns a house is "house poor" but would be a wise investor had they only bought the house next door and acted as landlord to their neighbor while their neighbor acted as landlord to them. To suggest rental real estate carries no risk is nuts.

KlangFool
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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 4:15 pm

bottlecap wrote:
KlangFool wrote:Folks,

If some of my peers read his books at some point and chose not to be "House Poor", they would have been saved. Unfortunately, this continues. People treat their house as an "asset" and choose to be "House Poor". Then, they lose their jobs / incomes and their houses sunk their financial futures.

So, in spite of everything that could be wrong about RDPD, it did stop some people from being "House Poor". This saves some people. It is a good thing.

KlangFool


Having read RDPD and seen the effects of it in execution, I would say that RDPD does exactly what you say it doesn't: to become house poor.



bottlecap,

We are talking about 2 different groups of people

A) People that only buy the house that they live in

B) People that "invest" in real estate

So, you may be right about the effect of RDPD on people in (B). I could be right about people in (A) too. Most if not all of my peers are in (A).

KlangFool

KlangFool
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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 4:20 pm

SuzBanyan wrote:
And I see nothing in the Kiyosaki books that tells me a house to live in is ever an acceptable purchase as it will always be a "liability." Thus, anyone who owns a house is "house poor" but would be a wise investor had they only bought the house next door and acted as landlord to their neighbor while their neighbor acted as landlord to them. To suggest rental real estate carries no risk is nuts.


SuzBanyan,

I have to disagree with that statement. The house that you live in can be a "liability" but it is an acceptable purchase. That is possible if the total housing costs (cash flow) is lower than renting. In that case, you achieve positive cash flow by renting.

I bought my current house for this reason.

KlangFool

SouthernCPA
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Re: Rich Dad/Poor Dad Assets

Post by SouthernCPA » Tue Aug 30, 2016 4:24 pm

KlangFool wrote:

Is your asset other than the house 2 to 3 times bigger than the house value?

<<I bought 1/4th the house of what a "normal" person would buy with my situation,>>

Which has nothing to do with whether you are "House Poor".

<<it's frustrating because it's an incomplete and inaccurate picture>.

If the house value is a small and insignificant part of total net worth, why do this matters? And, if it matters, you are "House Poor".

I do not count my house or my home equity as part of my net worth. I count all my mortgage payment as an expense. My house / home equity is insignificant for my overall financial well-being. If you can say the same thing as I am, you are not "House Poor". If not, you have too much money tied your existing house.

KlangFool



My liquid assets are nearly the same value as my house - which I bought only 3 years ago since I'm in my late twenties.

I'm not sure how I would be considered "House Poor" when I'm able to service my mortgage (which is cheaper than comparable rent would be) and still save nearly 40-45% of our household income? The liquid assets are growing, but since I'm young (28) I have only been at this game for a short period of time it will be a few more years until I'm 2-3x my home value. I consider "house poor" being the people who buy a house and borrow so much money that they must use half their income to service the debt - leaving them nothing to invest, save, travel, etc. So, in my definition, yes how much house I bought does factor into whether or not I'm "house poor." That's the funny thing about using different definitions for the same word - we are both right or both wrong depending on who you ask. I guess when you look at it, I have about 25% equity in my house right now, so my liquid assets are nearly 4X how much cash I've actually got invested in my house at this given point in time - does that make me not "house poor" by your definition?


That's fine if you don't want to count home equity, but based on actual accounting terms your house is an asset, the mortgage is an offsetting liability and the difference is equity and all three are all included in your net worth.

leonard
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Re: Rich Dad/Poor Dad Assets

Post by leonard » Tue Aug 30, 2016 4:29 pm

SouthernCPA wrote:
KlangFool wrote:

Is your asset other than the house 2 to 3 times bigger than the house value?

<<I bought 1/4th the house of what a "normal" person would buy with my situation,>>

Which has nothing to do with whether you are "House Poor".

<<it's frustrating because it's an incomplete and inaccurate picture>.

If the house value is a small and insignificant part of total net worth, why do this matters? And, if it matters, you are "House Poor".

I do not count my house or my home equity as part of my net worth. I count all my mortgage payment as an expense. My house / home equity is insignificant for my overall financial well-being. If you can say the same thing as I am, you are not "House Poor". If not, you have too much money tied your existing house.

KlangFool



My liquid assets are nearly the same value as my house - which I bought only 3 years ago since I'm in my late twenties.

I'm not sure how I would be considered "House Poor" when I'm able to service my mortgage (which is cheaper than comparable rent would be) and still save nearly 40-45% of our household income? The liquid assets are growing, but since I'm young (28) I have only been at this game for a short period of time it will be a few more years until I'm 2-3x my home value. I consider "house poor" being the people who buy a house and borrow so much money that they must use half their income to service the debt - leaving them nothing to invest, save, travel, etc. So, in my definition, yes how much house I bought does factor into whether or not I'm "house poor." That's the funny thing about using different definitions for the same word - we are both right or both wrong depending on who you ask. I guess when you look at it, I have about 25% equity in my house right now, so my liquid assets are nearly 4X how much cash I've actually got invested in my house at this given point in time - does that make me not "house poor" by your definition?


That's fine if you don't want to count home equity, but based on actual accounting terms your house is an asset, the mortgage is an offsetting liability and the difference is equity and all three are all included in your net worth.


I think you're struggling with semantics and the wrong analogy. If you are doing GAAP or statutory accounting - you are right. But, for personal finance - it's really more like managerial accounting - where actionable numbers tend to be emphasized over strict GAAP or statutory definitions and reporting. My total Net Worth is irrelevant to my decision making about personal finance, AA, and low cost investing.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

SouthernCPA
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Re: Rich Dad/Poor Dad Assets

Post by SouthernCPA » Tue Aug 30, 2016 4:41 pm

leonard wrote:
I think you're struggling with semantics and the wrong analogy. If you are doing GAAP or statutory accounting - you are right. But, for personal finance - it's really more like managerial accounting - where actionable numbers tend to be emphasized over strict GAAP or statutory definitions and reporting. My total Net Worth is irrelevant to my decision making about personal finance, AA, and low cost investing.



Probably. I just view my financial life as a trial balance - every transaction has two sides to the entry and it's either increasing, decreasing or reclassing assets/liabilities at the end of the day. The goal for me is a healthy balance sheet and that can be accomplished with more than just liquid assets. I realize anything other than vanguard index funds is not very bogleheadish, however.

KlangFool
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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 4:50 pm

SouthernCPA wrote:
My liquid assets are nearly the same value as my house - which I bought only 3 years ago since I'm in my late twenties.

I'm not sure how I would be considered "House Poor"


SouthernCPA,

<<I'm not sure how I would be considered "House Poor" >>

1) You are "House Poor" because the house value is large enough to affect your overall net worth and financial well-being. So, as per my definition, you are "House Poor".

2) I do not have to accept your definition of "House Poor". Ditto, you do not have to accept mine. We can agree to disagree.

KlangFool

P.S.: Many of my peers lost their jobs during 2008/2009. And, they were forced to sell their house and move elsewhere. They were "House Poor". So, selling their house wiped out a significant portion of their liquid asset.
Last edited by KlangFool on Tue Aug 30, 2016 5:02 pm, edited 1 time in total.

SuzBanyan
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Re: Rich Dad/Poor Dad Assets

Post by SuzBanyan » Tue Aug 30, 2016 4:59 pm

KlangFool wrote:
SuzBanyan wrote:
And I see nothing in the Kiyosaki books that tells me a house to live in is ever an acceptable purchase as it will always be a "liability." Thus, anyone who owns a house is "house poor" but would be a wise investor had they only bought the house next door and acted as landlord to their neighbor while their neighbor acted as landlord to them. To suggest rental real estate carries no risk is nuts.


SuzBanyan,

I have to disagree with that statement. The house that you live in can be a "liability" but it is an acceptable purchase. That is possible if the total housing costs (cash flow) is lower than renting. In that case, you achieve positive cash flow by renting.

I bought my current house for this reason.

KlangFool

I'm still confused how anything in Kiyosaki's book would help me determine if I am "house poor."

If I can rent anything for less than my cash spent on my owned housing, am I house poor? Do I compare housing types or sizes or neighborhoods or commute times?

How do I account for changes over time in either rental costs or owned housing expenses (such as when debt financing has been paid off)? Would Kiyosaki ever suggest using leverage to buy a home? Can I buy a house if I rent out a room, but not if I will only house my immediate family?

And I really cannot create "positive cash flow" by choosing to spend less or more on my housing needs. In either event, I will spend something on housing and will spend and save the difference. Just like I can't create "positive cash flow" by not buying a Mercedes today.

SouthernCPA
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Re: Rich Dad/Poor Dad Assets

Post by SouthernCPA » Tue Aug 30, 2016 5:01 pm

KlangFool wrote:
SouthernCPA wrote:
My liquid assets are nearly the same value as my house - which I bought only 3 years ago since I'm in my late twenties.

I'm not sure how I would be considered "House Poor"


SouthernCPA,

<<I'm not sure how I would be considered "House Poor" >>

1) You are "House Poor" because the house value is large enough to affect your overall net worth and financial well-being. So, as per my definition, you are "House Poor".

2) I do not have to accept your definition of "House Poor". Ditto, you do not have to accept mine. We can agree to disagree.

KlangFool


You do realize that the house also has value that is greater than the mortgage and I wouldn't have to liquidate my liquid assets to pay off the mortgage if I got in a jam? I could always sell the house and rent somewhere or rent the house out. It's like you're considering the liability of homeownership without the offsetting asset. My house does not significantly impact my networth or well being because the "net worth" of the house is the 25% cash (equity) I have in it. The only way it significantly impacts my networth is if you assume the house value drops to $0 but the mortgage stays the same. But that wont happen. As long as the mortgage has an asset behind it that I can turn into an income producing property, sell, etc I don't see how your definition of House Poor makes any sense. I supposed everyone should just rent until they have 4x value of the house in cash to avoid being "house poor" per KlangFool.

You're right, I guess we'll have to agree to disagree.

KlangFool
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Re: Rich Dad/Poor Dad Assets

Post by KlangFool » Tue Aug 30, 2016 5:07 pm

SouthernCPA wrote:
You do realize that the house also has value that is greater than the mortgage and I wouldn't have to liquidate my liquid assets to pay off the mortgage if I got in a jam? I could always sell the house and rent somewhere or rent the house out.


SouthernCPA,

You ASSUME that

1) Your house value is always greater than the mortgage

2) You could always sell the house and not take a loss.

That was proven wrong for many people during 2008/2009. And, it will happen again in the future.

KlangFool

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