What are Assets?


Cash flow is king

Rich Dad said buy assets not liabilities!

Maybe this is not as straight forward as it seems. Some liabilities masquerade as assets!

If you say “real estate is an asset, I’ll buy a rental house” you could well be investing in a liability. Look at it closely. Do the sums. Will it put money in your pocket (a cash producing asset) or take it out (a liability)?

We have invested in property that gives us positive cash flow after all expenses have been taken out. Our houses are cash producing assets. They put money in our pocket. Obviously, if the rentals didn’t cover the expenses, and we had to top them up, they would be liabilites.

Your own house is not your asset if you have a mortgage from the bank. It’s the bank’s asset!

Some ‘assets’ don’t do much at all;  I met some friends the other day who have a valuable art collection but no money. They don’t get any cash flow from their art.  They have thousands of dollars worth of paintings on their walls and they can’t make ends meet.

I would say “Sell the paintings! Buy some positive cash flow real estate! Buy your paintings with the cash flow!” Of course, it is too late now and they wouldn’t dream of doing this anyway. They are stuck.

In reality these paintings are not investments at all. They are doodads.

Always use the yard stick of ‘does it put money into your pocket or take it out’ when you are determining what sort of asset it is.

Happy investing!

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