Many people view their home as their largest asset.  I am coming to learn that it may not necessarily be the case.

According to Rich Dad Poor Dad author, Robert Kiyosaki, an asset is defined as an item that puts money into your pocket each month.  Now that is quite a simple definition, and is certainly different from what the banks would have you believe!  In many ways it is true that your house is an asset – but whose asset is it really?

I currently pay in the region of $1350 per month for my mortgage.   That is $1350 that leaves my account and goes to the bank.  So basically, my house is the bank’s asset – and a very nice one indeed.  Yes, they have loaned me the money for it, but the interest they make back is incredible.  Over a 40 year period, I will pay over double the cost of the home. Ouch!

Many argue that real estate values increase over time.  While this is generally true, it still does not make my home an asset for me.  It costs me a considerable amount of my salary each month and is my largest monthly expense.  If I am to follow the thinking of people like Robert Kiyosaki then I must concede that my home is the bank’s asset and my liability.

Will this change in 30-40 years my mortgage is paid off?  NO! At that point it will no longer be my greatest expense, but it will still be costing me money in repairs & maintenance.  Therefore it will be taking money out of my pocket and remain a liability!

I don’t like liabilities.  I want to acquire assets that produce cashflow every month.  In other words I want to learn the technique of buying things that generate money.  Kind of like what I do with the musical instruments, but that involves even less of my direct time.

Currently I think that a company that is making a good profit and is well run might be a good asset.  There is one or sale in my area.  Its monthly profit is currently $5000, and it is being offered for sale for just $56,000.  There are 2 employees.

Borrowing $56000 would cost me around $1150 per month (over 5 years).  I already work full time, so I would need to employ a manager.  If I was paying $45,000 a year for someone to manage the business, that would cost me another $3750 per month.  I would only be cashflowing $100 per month.  Would it be worth it?

Personally I would prefer a better deal than that.  I am going to keep looking.  But please tell me about any cashflowing businesses you have been involved in.  Have you found a system for generating income that works well?  Leave a comment below and let us know!