I agree. Owning a home is an investment. You would need to pay rent if you didn't own. At least with owning you have the chance of recovering something. And Tim's (Dibble) points are excellent. Homeowners are more likely to get involved in local politics, schools, and neighbours.
The other factor of home ownership versus renting is the involvement in community. Owners participate in local politics, they have a reason to make sure the school remains high quality, that the sewer and water systems operate. Owners tend, more than renters to be connected to other people, sometimes no more than waving recognition, but many times much more connectedness. HOA get togethers often bring people in the same socioeconomic class together increasing the opportunity for friendships to develop (something sorely lacking in our world).
For the illiquidity of the home, you didn't factor in the costs of realtors, closing costs etc. that further limit any potential profit a homeowner might realize.
These are all great points. In the "buying happiness" series I will soon be diving into a lot of the research on the "non financial" pros and cons of homeownership, that will get into some of these issues you raise about community and connectivity vs. the amount of time and labor required by a homeowner... Which, again is a mixed bag.
Calling bull$hit on this analysis. A single-family home that does not generate revenue for the owner is NOT an asset.
Here's why: property taxes.
You only mention property taxes twice in this article. The problem with property taxes is that when they are levied against a non-income generating home (i.e. a single-family dwelling) they become a de facto income tax.
Property taxes have to be paid from a pool of money. The tax man doesn't differentiate revenue from income.
Now a home IS an asset if it generates revenue. That can be from rental platforms like Airbnb or if you own a multi-family home, rent paid by the other occupant(s).
When a property generates revenue that can cover the cost of the tax burden of the home itself then it is an asset. Absent that property taxes are a hidden income tax, making it a liability.
Also on property taxes they are not a hidden income tax, they are a very visible wealth tax. The difference being they are taxes levied as a percentage of an asset you own (your house) which as you pointed out does not produce income. The tax is levied on property not income. I know that was not your main point, but thought I should mention that as it was at the end of your comment.
Thanks for reading and commenting, It doesn't look like we will see eye to eye on this which is fine! Always great to have a lively discussion.
Thanks for the thoughtful response! Here's my point: yes the tax is levied on the property, not an income, yes...HOWEVER, the tax itself is paid for out of the owner's income.
Think about it: if you have a modest salary and you own a single-family home from which you derive no revenue how are you paying for the property tax?
The only pot of money you have access to is the money you generate from a W-2 job.
On paper it is not levied against your income but because you aren't utilizing the home to generate revenue the tax is paid for from the money you bring home from your job. Hence, de facto income tax.
I also disagree with your definition of an asset. It is not just "anything that you can own that can be converted into cash."
That's definitely one function of it, sure. But according to that definition a used soda bottle in a deposit state would be an asset because they can be recycled for a nickel.
An asset is something that generates revenue (i.e. rental home, business) or something that appreciates in value (i.e. a rare piece of art, a PSA 10 Charizard card).
A single-family home does fit the criteria of appreciating in value...HOWEVER, the value of a home is dependent on where you live.
In my hometown in Upstate NY single-family homes sell for <$100K still, despite this housing market. Why? No one wants to live there. Compare that to Austin, TX where everyone wants to live.
Location matters. If you own a single-family home in an economically depressed area it won't appreciate in value, making it a lousy asset.
Who wants to buy a home for $100K and liquidate it a decade or two later for $125K after pouring an equal amount -- if not more -- into maintenance and taxes? No one. It's a terrible ROI.
So first these are not "my" definitions these are "the" definitions.
On the property tax, it does not take your source of income or the amount of income into consideration. You need to pay it whether you have $80,000 in business income or $50,000 in income from a 9-5. Yes it can be a drag on your cost of living but that does not make it a tax on income no more than buying a flatscreen TV is an income tax.
Back to the asset definition, an asset does not need to generate income, it just has to have monetary value. So, I guess a soda can is an asset worth exactly 5 cents. Some assets are better than others, but that does not mean a house is not an asset.
Using Rich Dads logic, physical gold and silver (something he recommends people buy) would not be assets either because they generate no income and storing and insuring physical commodities have significant costs aka they "take money out of your pocket"
If gold and silver are assets, so is your house.
Thanks for the discussion, Great to have in depth back and forth, one of the reasons I like writing on Substack.
Property taxes and maintence costs etc... Diminish the quality of housing as an investment but it does not mean it is not an asset.
Something does not need to produce revenue to be an asset. An asset is anything that you own that can be converted into cash. So, it is an asset.
If you're argument is that housing is a lousy asset, sure so are lots of things, but it is still an asset. because you can sell it an convert the equity into cash.
I agree. Owning a home is an investment. You would need to pay rent if you didn't own. At least with owning you have the chance of recovering something. And Tim's (Dibble) points are excellent. Homeowners are more likely to get involved in local politics, schools, and neighbours.
Very impressed and interested in the perspective, As I live the expat life and until this piece I did not question Rich Dad, Poor Dad
But you have made me curious thank you
Thanks Raven! Glad the article got you thinking, that is always the primary goal!
Cheers,
Ben
The other factor of home ownership versus renting is the involvement in community. Owners participate in local politics, they have a reason to make sure the school remains high quality, that the sewer and water systems operate. Owners tend, more than renters to be connected to other people, sometimes no more than waving recognition, but many times much more connectedness. HOA get togethers often bring people in the same socioeconomic class together increasing the opportunity for friendships to develop (something sorely lacking in our world).
For the illiquidity of the home, you didn't factor in the costs of realtors, closing costs etc. that further limit any potential profit a homeowner might realize.
Hey Tim,
These are all great points. In the "buying happiness" series I will soon be diving into a lot of the research on the "non financial" pros and cons of homeownership, that will get into some of these issues you raise about community and connectivity vs. the amount of time and labor required by a homeowner... Which, again is a mixed bag.
I would think twice about paying off your mortgage - here's why: https://gregdermond.medium.com/why-i-cant-agree-with-mr-wonderful-s-advice-on-mortgages-ac910720ac4b
Calling bull$hit on this analysis. A single-family home that does not generate revenue for the owner is NOT an asset.
Here's why: property taxes.
You only mention property taxes twice in this article. The problem with property taxes is that when they are levied against a non-income generating home (i.e. a single-family dwelling) they become a de facto income tax.
Property taxes have to be paid from a pool of money. The tax man doesn't differentiate revenue from income.
Now a home IS an asset if it generates revenue. That can be from rental platforms like Airbnb or if you own a multi-family home, rent paid by the other occupant(s).
When a property generates revenue that can cover the cost of the tax burden of the home itself then it is an asset. Absent that property taxes are a hidden income tax, making it a liability.
Also on property taxes they are not a hidden income tax, they are a very visible wealth tax. The difference being they are taxes levied as a percentage of an asset you own (your house) which as you pointed out does not produce income. The tax is levied on property not income. I know that was not your main point, but thought I should mention that as it was at the end of your comment.
Thanks for reading and commenting, It doesn't look like we will see eye to eye on this which is fine! Always great to have a lively discussion.
Thanks for the thoughtful response! Here's my point: yes the tax is levied on the property, not an income, yes...HOWEVER, the tax itself is paid for out of the owner's income.
Think about it: if you have a modest salary and you own a single-family home from which you derive no revenue how are you paying for the property tax?
The only pot of money you have access to is the money you generate from a W-2 job.
On paper it is not levied against your income but because you aren't utilizing the home to generate revenue the tax is paid for from the money you bring home from your job. Hence, de facto income tax.
I also disagree with your definition of an asset. It is not just "anything that you can own that can be converted into cash."
That's definitely one function of it, sure. But according to that definition a used soda bottle in a deposit state would be an asset because they can be recycled for a nickel.
An asset is something that generates revenue (i.e. rental home, business) or something that appreciates in value (i.e. a rare piece of art, a PSA 10 Charizard card).
A single-family home does fit the criteria of appreciating in value...HOWEVER, the value of a home is dependent on where you live.
In my hometown in Upstate NY single-family homes sell for <$100K still, despite this housing market. Why? No one wants to live there. Compare that to Austin, TX where everyone wants to live.
Location matters. If you own a single-family home in an economically depressed area it won't appreciate in value, making it a lousy asset.
Who wants to buy a home for $100K and liquidate it a decade or two later for $125K after pouring an equal amount -- if not more -- into maintenance and taxes? No one. It's a terrible ROI.
Hey Amanda,
So first these are not "my" definitions these are "the" definitions.
On the property tax, it does not take your source of income or the amount of income into consideration. You need to pay it whether you have $80,000 in business income or $50,000 in income from a 9-5. Yes it can be a drag on your cost of living but that does not make it a tax on income no more than buying a flatscreen TV is an income tax.
Back to the asset definition, an asset does not need to generate income, it just has to have monetary value. So, I guess a soda can is an asset worth exactly 5 cents. Some assets are better than others, but that does not mean a house is not an asset.
Using Rich Dads logic, physical gold and silver (something he recommends people buy) would not be assets either because they generate no income and storing and insuring physical commodities have significant costs aka they "take money out of your pocket"
If gold and silver are assets, so is your house.
Thanks for the discussion, Great to have in depth back and forth, one of the reasons I like writing on Substack.
Hi Amanda,
Property taxes and maintence costs etc... Diminish the quality of housing as an investment but it does not mean it is not an asset.
Something does not need to produce revenue to be an asset. An asset is anything that you own that can be converted into cash. So, it is an asset.
If you're argument is that housing is a lousy asset, sure so are lots of things, but it is still an asset. because you can sell it an convert the equity into cash.