Home is a liability. How?
A home is often considered a liability rather than an asset, especially in the context of Rich Dad Poor Dad and financial literacy. Here’s why:1. A Home Takes Money Out of Your Pocket
An asset is something that puts money in your pocket, while a liability takes money out. A personal home requires:
Monthly mortgage payments (if bought on loan)
Property taxes
Maintenance and repair costs
Utility bills
Insurance
Since your home does not generate income (unless rented out), it is a liability because it continuously drains money.
2. Opportunity Cost
The money spent on a home could be invested elsewhere, such as in rental properties, stocks, or businesses, which could generate income and appreciate in value.
3. Not a Liquid Asset
A home is not easily convertible into cash. If you need money urgently, selling a house takes time and often involves additional costs like agent fees and taxes.
4. Value Fluctuations
Real estate prices can drop due to market conditions. Unlike rental properties that generate cash flow, a personal home doesn’t provide immediate financial benefits.
When Can a Home Be an Asset?
If it generates rental income exceeding expenses
If it's used for business (e.g., a portion rented out or used as a home office)
If its value appreciates significantly and can be sold for profit
In simple terms, unless your home generates income, it is a liability, not an asset.
Let's take an example
let's break it down properly to see if your home truly acts as an asset.
Total Investment Over 10 Years
Initial Home Cost = ₹22,50,000
Maintenance Cost = ₹10,000 × 12 months × 10 years = ₹12,00,000
Total Cost (Investment) = ₹22,50,000 + ₹12,00,000 = ₹34,50,000
Total Returns After 10 Years
Selling Price = ₹40,00,000
Net Gain/Loss = ₹40,00,000 - ₹34,50,000 = ₹5,50,000 Profit
At first glance, this seems like a ₹5.5 lakh profit, making it look like an asset. But let's consider two additional factors:
1. Opportunity Cost
What if, instead of buying a home, you had invested ₹22,50,000 in an asset generating just 10% annual returns (which is quite achievable in stocks, mutual funds, or rental properties)?
Using compound interest:
Future Value = ₹22,50,000 × (1.1)¹⁰ ≈ ₹58,40,000
This means if you had invested the money elsewhere, you could have had ₹58.4 lakh instead of ₹40 lakh from selling your home.
2. Inflation Factor
₹40 lakh in the future will have less purchasing power than today due to inflation. If inflation is around 6% annually, then:
₹40,00,000 / (1.06)¹⁰ ≈ ₹22,37,000 (in today's money)
So, in real terms, after 10 years, the ₹40 lakh may have a purchasing power similar to ₹22.37 lakh today—almost the same as your buying price!
Final Conclusion
Your home appreciated in value, but its growth was not as effective as alternative investments.
The ₹5.5 lakh profit is misleading because of inflation and lost investment opportunities.
Unless your home generates monthly income (like rent), it is still a liability rather than a true asset.
Inflation plays a crucial role in determining real returns. Many people assume that selling a home at a higher price means profit, but when adjusted for inflation, the actual gain might be much lower—or even negative in some cases.
That's why cash flow matters more than just appreciation. If an asset generates regular income (like rent, dividends, or business profits), it helps you beat inflation and grow wealth over time.