Robert Kiyosaki, author of Rich Dad Poor Dad, aruges that a house is a liability, not an asset!

He says that the popular dogma that a house is an asset is wrong. He argues that having a mortgage is a bad idea and that having to pay property taxes and maintenance costs on the house means that the house is a liability because it drains money from your pockets.

But he does not consider the positive cash flows that an owner-occupied house can provide. This is a key flaw with his argument. I do not think he understands the economics of residential home ownership.

What are some positive cash flows from owning a house? There are many, but the most important ones are the rent savings (since you have to live somewhere, you can always count the rent savings from not renting, but instead owning, as a positive cash flow of owning a house). What else? the interest deductions on your taxes from the mortgage are another important positive cash flow to consider. The potential to not pay capital gains taxes on your equity increase is also significant.

Lastly, we can't forget the power of leverage to magnify your returns when the direction of price change is positive. If the price of your house rises 10%, and you have a house worth $500,000 that increase 10% or $50,000, but you only put $100,000 down, then your return on equity is actually $50,000/$100,000 or 50% on a 10% price increase, or 10%x leverage factor of $500,000/$100,000 or 5/1.

If you calculate the present value of the positive and negative cash flows from owning a house, you will find that in most parts of the country, owning a house still makes a lot of sense.

This is the argument we put forth in our new books, Houseonomics:A Homeowner's Guide to Wealth and Financial Security, which will be coming out in Spring 2008. Stay tuned!