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Use debt and pay no taxes?

Kiyosaki is referring to a strategy often employed by real estate investors.

Investors use borrowed money (debt) to finance the purchase of properties. This allows them to acquire more assets than they could with their own money alone.

Moreover, mortgage interest on the loans used to purchase properties can be deducted from taxable income. This reduces one’s overall tax liability.

Additionally, investors can claim expense deductions for property taxes, property insurance, and costs associated with managing and maintaining the property, such as repairs, maintenance, and property management fees.

Property owners can also claim depreciation, which accounts for the incremental loss of a property’s value due to wear and tear. Depreciation is a non-cash expense that reduces taxable income.

By leveraging debt and utilizing tax benefits such as interest and expense deductions, [real estate investors]( can significantly enhance their investment returns while minimizing their tax liabilities.

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Asset vs. liability

It's important to note that Kiyosaki was referring to properties that generate rental income, rather than one's primary residence. He sees a significant difference between these two types of properties.

“Your house is not an asset,” Kiyosaki said.

According to Kiyosaki, there’s an easy way to determine if something is an asset.

“What is the definition of the word? If it puts money in my pocket, it's an asset. If my house is taking money from my pocket, it's a liability,” he explained.

By this definition, one’s primary residence is not an asset. When most people buy a house to live in, they likely have to make mortgage payments, pay for property taxes and insurance, and cover maintenance and repairs costs. These expenses take money out of homeowners' pockets.

Becoming a real estate mogul

Of course, you can invest in income-producing real estate assets. After all, in an era where passive income has become a big buzzword, one of the most popular ways to create a passive income stream is through real estate — at least in theory.

But the reality can be different, as being a landlord does come with its hassles: mowing lawns, fixing leaky faucets, dealing with deadbeat tenants.

And since most people don’t own a large number of properties like Kiyosaki, their rental income depends strongly on whether the tenants can pay on time.

For instance, if you have just one rental property and the tenant can’t pay rent, that passive income instantly goes to zero — not a scenario you want, especially if you have a mortgage to pay.

The good news? These days, you can invest in real estate without becoming a landlord.

You can look into real estate investment trusts (REITs), which are companies that own income-producing real estate like apartment buildings, shopping centers, and office towers.

You can think of a REIT as a giant landlord: It owns a large number of properties, collects rent from tenants, and passes that rent to shareholders in the form of regular dividend payments.

It’s very easy to invest in REITs because most of them are publicly traded.

Unlike buying a house — where transactions can take weeks and even months to close — you can buy or sell shares in a REIT anytime you want throughout the trading day.

There are also crowdfunding platforms that allow you to own a percentage of a physical real estate property. You’ll gain exposure to high-end properties that big-time real estate moguls usually have access to — from commercial developments in LA to residential buildings in NYC.

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Jing Pan Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.

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