To buy or rent (forever)???

In the literal sense; a PPoR takes money from your pocket via holding costs and loan interest etc; hence his description of a liability.

Of course; it goes up in value over time, but most folks don't get to use that wealth - unless they are like all of us here on PC who access the equity for further investing.

I vaguely remember somewhere in one of his books that he does make the distinction once the equity is accessed.

In his mind; an asset is something that creates pos casflow into your pocket - such as a business or a pos cashflow IP, etc.

He wouldn't class a painting as an asset under that description, I'd reckon.

Neither would I - until it was sold at a Cap Gain.

 

Yeah I think his description of asset/liabilities does not reflect the reality of how wealth via property in Australia and other places really works. Also most development sites when bought will be negative cash flow until the site is developed. So that would mean he would not be recommending sites to be bought either because they are liabilities. I think his definition is way to narrow and not realistic. I am also highly dubious as to how much wealth he actually made from property and not all his marketing products.

 

Books in general are targeted at beginners, so to them, you need to teach them to be making passive money. Developing is quite an advanced topic.

 

No one's mentioned the herd of elephants in the room - apra's bonus intetesr rate for investors, cgt and land tax. The ppor is exempt from these 3.

Also rent will only increase by a small % annually (not necessarily market), if the agent/owner forces the issue (but it doesn't necessarily keep up with costs eg insurance, rates, special levies, strata etc) whereas owned property doubles every 7 years (so the spruikers tell me) - the gap widens significantly over time (of course good landlords kick their tenants out after 3-4 years to achieve market rent and not fall behind).

 

I believe Kiyosaki took that approach to people's PPOR to try alter the way people in the US think of their PPOR. In the USA, the family home is tax deductible and many people borrow heavily against their house simply to get more tax deductions - not necessarily to invest.

Kiyosaki's books have some great lessons in them, especially in regards to mindset. There's a lot of US specific examples and more than a little embellishment as well; these books were written to be best sellers after all.

As for the own your own home vs rent debate, there's good arguments for both. Early cash flow is certainly better if you rent, but owning your own home gives you much better personal and financial security.

I do know that if you rent and don't use the cash flow savings to invest wisely, you'd definitely have been better off owning your own home.

I'd suggest a good compromise is to rent when you're getting started. As you mature and get a better understanding of where your life will lead you over the longer term, make some decisions about your own home along with that commitment. If you need to, buy a house and put a tenant in it for the first 5 years until the cash flow position becomes more affordable.

 

I agree that development is not for the beginner. But going back to his definition of assets and liabilities, that would mean we shouldn't buy any property that takes money out of our pocket because it is a liability and not an asset. I definitely do not agree with his narrow definition of this and/or to teach beginners that passive income from rent is necessarily the way to go. That's my opinion. But just going by his definition of asset/liability, its total nonsense imo. His mindset stuff is great though.

Also I am not aware of him saying anywhere that if your not a beginning investor (not that it really matters) then his definition of asset/liability changes. From what I have read he has a blanket belief that any thing that takes money out of your pocket is a liability and not what he ascribes to. If anyone can find some writing of his that shows flexibility in his definition I'd love to see it.

 

He's an american though and books are targeted primarily at americans. Over there they don't have negative gearing so they rely on positive cashflow to make their money. Any property that loses money on a weekly basis over there is a failure (they don't have the same lending environment or tax environment that we do), unless its for future speculation (which is a chapter of its own).

 

Yes I agree, that's why I said in my earlier post he is marketing to US people, even though his material is sold world wide.

 

Yep. Can't really generalise every country's environments. Even Aus and NZ are different.

 

100% agree there.

 

There will come a point where a negatively geared IP does become positively geared (even after all deductions).

At this point if said IP is of similar condition of what you are currently renting, then you would be best off moving into the IP.

My sister bought a unit 3.5 years ago. Based on the rent she is currently achieving (even if she borrowed 105%), it would be positively geared today. She would be better off financially kicking the current tenants out and moving in with her partner, but she's just bought a house and would rather live in that and you can't always let the financial side rule over your enjoyment side.

Excluding the changes in APRA (as the decision was made prior to this), moving into her IP would have resulted in approximately $4,700 p.a. tax return (after depreciation). She should rather live in a house and have her dog than get an $4,700 extra per year. With the new APRA changes, this number would reduce to $3,225 p.a.

 

Isn't that when you should sell it and buy another negative one to keep up the deductions?

 

ha???.....

 

Avoids having substantial non-deductible debt. As I said, not everyone's situation is the same, so was just one idea.

Buy investment properties to serviceability limit (or whatever level is comfortable), then save cash to buy PPOR outright. Then use equity in PPOR to finance other investments.

 

i'm not trying to be combative here.. but really for the fast majority of people to save and buy ppor outright is extremely counter productive to growing a portfolio before they reach 105.

 

If your dream is to buy 100 IP's and at the moment you only have 1, I'd suggest you concentrate on getting more ip's before you indulge in the luxury of owning your own PPOR.

 

For 95% of the population, by the time they have saved say; $400k, or $500k for a decent modest PPOR, it will be close to almost double in value...they'll never get there, BB.

 

I hope you're joking with that one

 

That's why it's written in the smartalics font, remember?