By on

The Truth About Your Home And Why It's Not The Asset You Think | Ep 58

James and Jessi asking if you're house poor
In this episode, Jessi and I dive into the concept that your personal home might not be the asset you think it is. Inspired by Robert Kiyosaki's definitions, we explore the differences between assets and liabilities, and how your primary residence typically falls into the latter category. We'll talk about the implications for building wealth and share some personal experiences on managing real estate investments.

Listen to the Podcast

Show Notes

  • 00:00 Intro
  • 03:00 Is Your Home Really an Asset?
  • 05:44 The Asset vs. Liability Debate
  • 11:50 Practical Advice on Home Buying

4 Key Lessons

  1. Ask, "How small can I handle?" instead of "How big can I afford?": Minimize housing expenses to free up cash for wealth-building investments.
  2. Rethink your home's role in your finances: Your primary home is a liability, not an asset, because it takes money out of your pocket instead of putting money in.
  3. Equity doesn't pay the bills: Building equity in a home doesn't improve your cash flow unless you sell or rent it—so don't confuse ownership with financial freedom.
  4. Lifestyle upgrades can quietly sabotage wealth: Moving into a bigger home for comfort can increase liabilities. Balance lifestyle choices with long-term financial goals.

Watch the Podcast

Read the Transcript

James: Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. And our mission is to equip people to invest wisely in both properties and residences so that together we can build wealth while improving housing. I'm James, and this is my wife, Jessi.

Jessi: Hey, you know, I was This is like the ongoing saga is our daughter's braces. Yeah, but which it was super fascinating I watched them one time as they were like applying things because I I had stuff done on my teeth But you never get to like watch, you know your own teeth

James: And you didn't get a mirror when you were a kid?

Jessi: I mean not while they were applying things. Oh, you had a nice orthodontist. Oh, dude. My orthodontist

James: was awesome Oh,

Jessi: man next time I should request that for eleanor Dr. Aetha was mine. Yeah. Anyways, so I was watching and they like put the things on and they put these little springs like springy things They're like putting pressure like both way.

I was just like that is weird and our daughter was also like how does this actually? Do anything to my teeth? So of course we had to look on YouTube and now I'm terrified Oh, really? It's so disgusting if you're interested in learning about braces

James: time lapse type of thing. Well, no,

Jessi: that's actually fascinating It's the whole process it like I had no idea when you put pressure on one of your teeth for an extended amount of time, the bone, like your jaw actually dissolves around it, which is what allows it to move.

And then when you stop putting pressure, your jaw will like re solidify around it. But

James: cool. It's like,

Jessi: that's just, I get wigged out from like teeth falling out and,

James: Oh, well, make sure you brush and floss. And

Jessi: I'm just like, okay, we're paying a lot of money. Okay. To make this happen, like, please don't let your teeth all fall out, like, I don't think they will, I think we'll be fine, but I'm just like

James: Yeah, nah, should be fine.

Though I remember I had braces on just like the front teeth while they were doing some stuff, and then After that happened and I got my braces off I lost like four teeth and within a week Because I finally had that because the braces turns out we're holding them all in place And then then they all grew back and then I had that braces again once the adult teeth To make it all look make it look pretty like it does.

Yeah. Yeah, so it's all good Thanks mom and dad paying for that. Yeah,

Jessi: some would say that's an asset

James: my smile

Jessi: Paying to create a nice smile. Oh,

James: okay An asset for the orthodontist.

Jessi: I mean, that's where the money's going, which

James: is actually what I want to talk about today. I want to talk about assets and whether or not your home is an asset.

Okay. Because I think many people and I'm going to adjust this just ever so slightly, I think. Many people they grow up thinking like, Oh yeah, the home that you live in, it's an asset. Of course, like, I mean, we hear that all the time, right? Home is your biggest asset. That kind of stuff. I, I have I disagree actually, it's probably the easiest way to say it.

I actually do not think that your home is an asset, despite what all of what the world tells you. Just to

Jessi: clarify, this is your own personal home that you live in?

James: Yes, yes, yes, yes, your primary home. And it's basically because I've been brainwashed by Robert Kiyosaki.

And I, and I fully recognize that what I'm about to say here, isn't the technical accounting definition of an asset, but I think when it comes to building wealth, Using this framework that, that I've adopted of his, I think it's just super helpful when you're trying to decide, Hey, should I invest in this thing or not?

Right. And so super easy and asset is something that puts money in your pocket. A liability is something that takes money out of your pocket. Okay. And, and really specifically from like a monthly cashflow standpoint.

Jessi: Okay.

James: Okay. Okay. Is, is how he tends to think about it. And so so if you think about like, okay, so I'll rent a property, right?

You sell it, they give you money. Ideally more than your expenses. Yay. That by definition is an asset because there's money going into your bank account, into your pocket every single month. A car on the other hand is a liability because not only might you have a Or not a mortgage, but a loan that you're paying for it.

You're also paying for gas. You're paying for insurance. You're paying for maintenance, that kind of stuff. In some ways you're paying with your time, which is even worse than all of it. And so and so therefore your car is a liability now. Let's talk about your primary home. , right? . So if you think about it, like, so what are, so our primary home, right?

Jessi: Mm-hmm .

James: Do we have any expenses? Oh, absolutely. Yeah. Like what are we, we've got

Jessi: heating. Okay. Heating, air conditioning, electricity.

James: Yeah. All the utilities. Our garbage

Jessi: utilities. Maintenance when stuff breaks.

James: Yep. We have a mortgage.

Jessi: There's a mortgage. Yep. We make payments every month. It's taxes. Keep it.

Yep. Insurance

James: Sure. Bundle it into the mortgage payment, but they're definitely there. True. Yeah. Yeah. And so. Are there, is there any revenue that is coming in from our, from our personal home that we live in?

Jessi: I don't think so. Maybe from our solar?

James: No. That's not really revenue.

Jessi: It's like stored energy.

James: Well, they don't actually get money for it. We don't

Jessi: actually get money at, like, lowers expenses, I guess. Lowers expenses. Correct.

James: Even if that goes into the red, they just, it just credits your account. They're never going to give it to you. Yeah. So charge you in the future.

Jessi: No, we do not make money. Personal property.

James: Go off of this, this definition, your primary home is a liability. And the name of the game. Is not is to increase this, but buy as many assets as you can and decrease the lever, the number of liabilities or the amount of liabilities. So by using this logic, what it means is don't go out and buy the biggest house that you can figure out.

Like, honestly, like the question you should be asking is not how big can we afford, but how small can we handle is really the question that you should be asking. And, and I remember like when we bought this place here, like it was a big deal because the house that we lived in was a 900 square foot place that we paid 60, 000 for, and our monthly mortgage on it was five 98.

That was, it was including taxes and insurance. And I mean, it was, it was a great deal. And from a, just from that definition standpoint, like it was an awesome liability to own because not very much money was coming out of our pocket for it. Yeah. And so it was great. And then we ultimately decided for lifestyle reasons, namely kid number two, that it was time to upgrade and do something bigger.

And I remember at the time, like we were, we moved from, well, again, it was 600 bucks a month to this one, which was 1, 500 a month. I was just like, Oh my gosh. Which today it's like, Oh, how quaint, but in today's industry environment but. But that was a big deal, right? And that was something that we had to talk through because we genuinely like, this is a living expense, right?

This isn't like we're quote, moving up in assets. Now, interestingly for that home that we were living in, we then got tenants into it and they were paying us 1, 200 a month, plus they were covering all of the utilities and all of a sudden, boom, just like that

Jessi: became an asset became an

James: asset for us, but

Jessi: we weren't living in it.

So

James: correct. Right.

Jessi: So if you were to rent out a portion of your personal home, And it covered your mortgage plus some, is that an asset?

James: Yeah, yeah, yeah. And again, get away from the accounting technical definition of a store of value, right? Cause that's how accountants think about it. Could you sell it for something?

The answer is yes. Then it's an asset and there. And their definition, a car is an asset, right? Cause you can resell the car. Now you might be cool underwater because they're saying, well, you also have an attached liability to it. And that liability is worth more than the asset itself. But again, that's an accounting definition.

That's not how you actually live life. That's not how you build wealth. It's all about focusing on like, where's that cash, the cash flow.

Jessi: Yeah, that's yeah. How I've been able to wrap my head around it is, is using that definition of, is it putting money in my pocket today?

James: Yeah. You know?

Jessi: If it's not.

James: Yeah.

Jessi: Then it's a liability.

James: Now you get some people that are going to make the argument of like, well, you're building equity. In your home, right, either by mortgage pay down or appreciation or there are certain tax advantages. Like you do get like a mortgage interest deduction from like deduction on the expense that already happened.

Like, I don't like, it's not actually a quote savings, but yeah, but the building equity, right. And that's where they will say like, yeah, therefore it's an asset because the value of, again, there They can think accounting, right? The value of what's going up, even though every single month is costing them money.

And I mean, you take, you hear this all the time. And people go, Oh, I'm house poor, right? Like, yeah, I own this awesome house, but the cashflow is so, or the, the cash outlay is so much that it's squeezing me on my monthly budget and we can't go do much. I'm like, dude, that's not wealthy. Like, cause. Yeah, great.

Because in order for you to actually, quote, enjoy this wealth, you have to sell it. Right. And so

Jessi: you don't have it.

James: Yeah. You're

Jessi: not actually enjoying it.

James: Yeah. And so it's really like, Again, it's kind of a narrow definition, but it's that idea again of like, what is happening on a monthly level from cash either coming in or coming out of your bank account.

And yeah, you can have a rental. That's a liability for you. Yeah.

Jessi: If you're spending money on it each month, that's a liability. Yeah.

James: And that's like, Yeah, and, and sometimes that's okay, right? You go, yeah, I mean, I'm quote investing in this. I'm making it better so that in the future, it becomes an asset and it's okay.

Things can flip flop between depending on where you're at with them, but I just think that's really it's just such an important distinction when you're building wealth to really think like, okay, where is this? I thought this was interesting. He has a quote in his second book. Yeah. Cashflow quadrant that says when bankers say your house is an asset, they're not lying when the government gives you a tax break for being in debt.

It's not because they're concerned about your financial future. The government is concerned about its financial future. So when your banker, your accountant, your attorney, and your teachers tell you that your house is an asset, they just fail to say whose asset it is. Right. From a bank standpoint. Yeah.

Right. That they send out a mortgage. That mortgage is an asset. Yeah, exactly. Like we love your house. Please go into more debt. And so I think also if you're a passive investor and you're lending out loans. Yeah. Those loans are assets to you. Like that's putting money into your pocket. It's awesome. Keep doing that because the more money you can keep putting in your pocket, you can reinvest, you can spend it, do whatever that, that is what that is what real wealth is, is that ability to go spend stuff, either buying back your time or doing really cool stuff with it, you know, being generous in certain ways, whatever that that to me is, is the wealth and, and And the most effective way to measure that is by, well, as money coming in, coming out of your pockets.

And the second you look at it that way, you go, Oh my gosh, this house that I'm living in is not actually an asset. It's a liability. My goal again, shouldn't be, Oh, let me buy a really big house. So it'll appreciate over time. It's like, no, how small of a house can I handle and just try to minimize my expenses.

You know, and Warren Buffett, right. Famously lived in his house and hasn't moved. Right. Cause he thinks of it that way as well to him. That's not an asset. It's a liability. And for him, the cheapest thing to do is just to leave it alone. It's a nice size house, you know, he's, he's, he's fine, but well, yeah, does it

Jessi: ever make sense to How do I want to say this?

Buy a home that you realize in the future will be too big for you.

James: Okay.

Jessi: With the intent of knowing that like, yeah, when our kids leave, you know, when we, when our life changes, we'll downsize and we'll get the equity out of this and use it for something else. I mean, does, does that make sense? Like I, that's how people think about it.

I

James: guess, again, for me, think of your primary home as really think of it as liability as an expense. And how do you minimize it? I think like, you know, it's like the kid thing, right? Have we bought a, if you need a bigger house, cause you have a big family. Cool. Awesome. Go for it. And yeah, if in the future you recognize like, Oh my gosh, this liability that I have is way more than I need.

Yeah. Let me trade in this one for a smaller one and that's a good financial move. Yeah.

Jessi: Okay,

James: like, yeah,

Jessi: but you're not when you when you initially buy that house, you're not thinking of it as this is an asset for my future because I'll be able to downsize and sell it.

James: Right? And heck, I think about like this house here, right?

When we bought it, we paid 270, 260 for it, I think. And now it's worth around 500. Awesome, but cool, we sell it. Guess what? We got all the other homes are worth 500 now. Like it's like, where's the, how, how good of an asset is this? Yeah. You know, like, I guess

Jessi: if you were going to sell it and plan to live in a tent or something, I

James: think our interest rate on this place is less than 3%.

Like when we go buy a new one, it's going to be over 6%. Like our mortgage will be higher. We'll have to buy, we'll get less house for the same amount. Like, it's just like. Yeah. I don't know how in the world is that an asset with everything going up? There's real, no advantage there. The only way you get that advantage is if you're getting cash every single month that you're able to take off the table.

Cool. Awesome. Or you figure out a way to like specifically add value to it. Do the whole sweat equity thing. Okay. Now we've made it more valuable. Yeah. Okay. Like sure. Now sell it or refinance it, I guess. But for your primary home, like I, again, I think you're better served. to have the mindset of my primary home is not an asset, it's a liability, and I want to do whatever I can to minimize that.

What can I get away with for how, for as long as I can? There was a time where I wanted us to move into a tiny home. And oh, man, I

Jessi: remember.

James: Because that was my whole mindset, right? Like all the cool contraptions. Yeah,

Jessi: but I like all the cool contraptions, creative.

I know, I know,

James: Hey, ultimately, and I think honestly, like we've got a 1200 square foot home. Yeah. That's like a good size. It's a good size for us. We've got a decent sized garage, which is where all my stuff is. So so it all works out.

Jessi: You have your man cave.

James: Yeah. Yeah. And I think that's why we can get away with such a small house.

Yeah. Relatively speaking to other people, but yeah, no, we ultimately decided like, no, that's the size that works for us and it's okay. And, but yeah, so here's the takeaway, okay. Your primary home, do not think of it as an asset. Think of it as a liability, as an expense. And the name of the game is to minimize expenses while buying as many, to free you up to buy as many assets as you possibly can passively investing in other deals, like ourselves, those are assets that you're buying.

And because they do put money in your pocket, those are good. Do more of those. And if you'd like to learn more about it, you can check us out at furlo.com. You can see all of our information, our investing thesis. You can see our portfolio of all the assets that we've actually bought over time. So quite a few, it's been pretty fun.

But yeah, man, that's just like, that's my message. Your primary home is not an asset. Get over it. It's okay. I get it. Accountants disagree with me. Fine. I look forward to your disagreements in the comments, but at the end of the day, I think the name of the game for your primary home is trying to minimize expenses.

Think of it as liability that helps you do that. Boom. Have I said it enough yet? Yeah. I truly, I get it. I truly think that way. Yeah, that's it. So hope you enjoyed that. Again, I'd love to hear your comments regarding that. And so with that, thanks for listening and have a great day.

Let's build your wealth and
improve housing, together

Share what you learned

Furlo Capital Podcast

Furlo Capital
Real Estate Podcast

A conversational podcast between James and Jessi Furlo that dives into the intricacies of passive real estate investing. Our mission is to equip people to invest wisely in both property and residents so that, together, we can build wealth and improve housing.

Listen Anywhere

Let's build your wealth and improve housing, together

Passive Income

Tenants pay monthly rent, which covers expenses and generates a profit for investors. Plus, multifamilies appreciate and usually sell for a significant profit.

Consistent Above-Average Returns

Real estate is less volatile and historically outperformed the S&P 500 by routinely generating average annual returns of at least 10% after fees, inflation, and taxes.

Revitalize Local Communities

We give people a great, safe place to call home. This doesn’t hit the spreadsheet, but every property is managed and maintained with the residents as a top priority.

Extraordinary Tax Benefits

Your income is taxed much lower because of depreciation and because it’s taxed at a lower capital gains rate.

Below-Average Risk

More units mean less vacancy sensitivity. Plus, costs are distributed across a larger number of units, which also allows us to hire a professional property manager.

Leverage

Unlike stocks, lenders like to finance multifamilies and the loans are tied to the property, not the person. This accelerates wealth building.