Latest / Money Grows on Trees / #326 - I'm a Multi-Millionaire and I Rent

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#326 - I'm a Multi-Millionaire and I Rent · Money Grows on Trees

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Owning a home in Australia isn't a financial strategy anymore. It's
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a trap. Most people think buying a house is the ultimate sign
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of financial success. The reality is millions of Australians are sitting on
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$1.2 million of home, but zero cashflow. Drowning
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in mortgage repayments and completely broke in
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the practical sense. My name's Lloyd J. Ross, and I'm a seven-figure investor
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entrepreneur, and I've never owned a home to live in. And
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in this video, I'm gonna show you why and the number one thing
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that will change how you look at property forever. Let's
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go back to the beginning, which is the
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narrative, the religion of property in Australia. So
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property ownership in Australia specifically, but also you can apply this to
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United States, Canada, New Zealand, and some of the Western markets. And in the 80s,
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it was Japan and Probably up until the
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2020, it was China, okay? Every market's been through this and will
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continue to happen. So property ownership in Australia isn't financial
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advice. It seems to be a moral identity, right?
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If you own, it means you are a responsible adult. Rent,
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and you're a flipping emo teenager pleb. I call it
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a peasant. I'm a renting peasant, I like to say. Governments,
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banks, media, real estate
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industry, everyone's profiting from your purchase. And
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they're also the ones telling you to buy. If you look at this, the
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government's in on it, 5% deposit scheme, immigration,
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lead boom, the banks are in on it, for sure, it's how they make money.
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They don't even lend to businesses that much, they just pretty much go, do you have a mortgage? Or
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do you have a house? And then a lot of industry
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runs off it. Construction, of course, real estate, marketing, etc. There's just
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a lot of people that are affected by whether this
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wins or loses. And I'm talking like the big players, okay? So
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there's a lot of conflict going on there. They're profiting from
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your purchasing, okay? They've got to let this machine continue. They can't let
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it stop. There's a huge incentive to keep going. So,
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it's not really financial education for you, it's more of a conflict of interest dressed up as
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common sense, right? So, property, without a
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doubt, if you look back, property has worked, of course. I mean, you
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don't need to be a genius to work that out. But a 30-year bull run
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doesn't make it the only path and it doesn't make it repeat, okay?
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So just because it worked in the past doesn't dictate it's going to work in the future.
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That's what you have to understand about cycles, whether it's asset
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cycles, market cycles, business cycles, whatever it might be. So
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where the wheels fall off for people with houses or homes is
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that they're buying a home to live in. and they're doing it in a way
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that positions them as being house poor. That's the saying, house
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poor. I'm house poor. I have a house, but I'm poor. When they say poor,
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they mean I feel poor because I don't have the free cash flow or disposable income
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to live the life I want to live, which I find fascinating that you compromise your
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ability to live a cool life for what? To say that you maybe got
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bricks and mortar and have a mortgage? To go through right of passage? That's
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ridiculous. What a terrible life philosophy and I
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haven't signed up for it if you haven't noticed. You may
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have signed up for it but you don't have to, right? You don't have to. So
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here's what it looks like. If you're someone who bought a house, house poor denotes
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that you have no investment portfolio, you have no
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emergency fund, you have no real holidays and both
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of you as partners have to work and put your kids in daycare. It's
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just like passing ships in the night. That's the reality
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for most people. Just because you
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have to buy a house to be an adult, you can't leave your job, right?
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And your mortgage doesn't care for your burnout. And every interest rate
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rise feels like a threat almost, right?
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So there's high asset value you've purchased. There's no cash flow from it because you're living
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in it. There's no freedom and no options. Whilst
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people put up on Instagram, whatever it might be, we bought it like this.
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It'd be like, we bought a play site. It's weird
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because it's, well, it's not weird. It's a rite of passage. So they're saying to
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you and I, I have gone through one of the, there's
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a three rites of passage, marriage, maternity, mortgage. Okay. And
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then there's fourth one's misery, but that's a joke. Mortgage,
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maternity, marriage, maternity, mortgage. So
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they're saying to you, this is what you see, we're getting married, boom, rite
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of passage. We had a baby, bang, rite of passage. And then
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we have a mortgage, rite of passage. So they're showing you we
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are moving through the rite of passage within our tribe to
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say to you, we are now responsible, we've gone through this. Accept
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us into your family. value system. That's what's
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happening. That's what they put, but they don't put in there, oh, by the way,
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we bought the price at 13 to 1 income ratio and we have no money
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left for holiday. We have no money left to raise our kid. We're cooked. Our
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marriage might be destroyed because we literally cannot rub two cents
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together. That's not what they talk about, but that's what happens behind
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closed doors. You never know what's happening in someone's bank account or bedroom. You
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never know. And you'd be just mesmerized and shocked as
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to what can and does happen. But that's not what is put on
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social media. It's like, we got a house, right? What would be really interesting is
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if someone said, boom, we got a $1.2 million mortgage at
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7% rates. And after tax, we have to make $100K. So one of us has to put that.
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And now because of that, we can't go on holidays. We've got to put our kids in daycare. And we're scratching
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ourselves to find a dollar. And we can't live our life. That's
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kind of what, that's the reality for most people. Not all people, not all
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people. I know, right? Some of you are like, no, no, no, I bought a house and put
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a lot of big deposit, we're good. This is not for you then, right? But it's
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a lesson for those who are just throwing themselves through this rite of passage, okay?
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So if you haven't checked out our episode, on
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what happened in Australia in 1890s, do it. There was a huge bubble. It
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burst for various reasons that are happening now too. I'm not
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suggesting it's not gonna recover for 70 years like it did back then, but
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it's possible. If you look at 1989, I've spoken about this before. I just
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got back from Tokyo, right? One of the best cities ever. But in Tokyo in
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1989, people were buying houses for 18 to one times earnings. So they
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were buying houses for prices that were 18 times the annual earnings
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of a typical salary. And that hasn't recovered
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yet. So what's that? 95, 35 years and it still hasn't recovered. So
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we could be on track for a 70 year recovery there, right? And
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so this is, this can happen, right? I don't know to what extent, but
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you can see very clearly. And I've said this before that in Canada, prices
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are down 30%. USA prices are down the most since the GFC.
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And in New Zealand, it's very obvious that they're falling. Okay. If you don't
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believe me, ask someone from New Zealand, they'll tell you. You can see that China has
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fallen a long way since 2020. We know that Japan has fallen
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a long way. In fact, you can buy a place in Japan an
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hour from the city in Tokyo. The biggest thing about this, Tokyo
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is the biggest city in the world, 38 million people in the wider Tokyo area. And
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you can see that if you go and you can buy
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houses there for 150 grand USD and the same house
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in Parramatta, which is the same distance from the city of a city that's much smaller, Sydney,
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it's 1.5 million. Like,
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you kidding me? Like that's the difference. Yeah. So what
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drove those real estate markets in New Zealand, Canada, USA, Australia, China,
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all of them is cheap credit. Cheap credit, rising prices
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and a narrative that is going to continue and a cultural obsession. Yeah. Banks
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were maxed out, property always goes up, that type of stuff. And you hear that today, right?
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And so Australia's got every single one of those ingredients, all of them. A
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cultural obsession, banks are maxed out, limited land supply, and they talk
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about not making any more, cheap credit, more immigration, like
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it's just all there. Like every single thing you can imagine has driven this,
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has driven it. Which means there's nothing left to drive it. And so as
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those things start to come off the ball, of course we're gonna see an adjustment, we
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will. What's really cool about doing this podcast too and doing this channel on
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our YouTube, sound like a boomer, at this channel on
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our YouTube channel is I get to
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go back and check this out. Now, what was really cool recently is I went back and did an
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episode on oil, and then three months later, oil's cranking. That's fun. So
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it will be interesting to see, and I've done many on crypto, so it's gonna be fun
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to come back in the future and see how accurate this was. So,
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so far, we're one up on the oil. I've been fighting crypto for a long time. It's
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50% down, so we'll see. But I'm also thinking that property's
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gonna come off the ball too. And I think progressively more people
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in the comments are agreeing with me because they're now starting to see where the wheels can fall off
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it because rates are going up, like it's starting to happen. And
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I think it's pretty crazy now to run out and buy a house for 13 times earnings. I
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just see lots of things changing, right? So it's
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got every single one of those ingredients. As I said, history doesn't repeat,
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but it's, it's kind of rhyming now. Okay. So if
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you're skinning it down as to what causes someone to become house,
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but what's the real cost of ownership. Okay. So, uh, most
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people don't stop to think what a house actually costs. Cause they see a house in Brisbane. Oh, it's
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900 grand. Oh, it's not. It's
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not the 900 grand, right? It's 900,000 of which
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90% or more, you got to borrow to get it because you don't have $900,000 cash, right?
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Most people don't. And then all of a sudden you got stamp duty. Oh,
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well, that's 35 grand. That's a tax. It's gone. It doesn't
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sit in the house in equity. Gone. Tax. Non-recoverable.
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Then you've got mortgage interest on top of that, which is about 46,000. Now it's probably more
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than that. It's at 908c borrower, 808,756. So
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it's 56,000 now interest, not including the principal repayments,
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gone. Like rent money, gone. Just
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the same. And the only thing you're banking on at that point is capital growth or
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paying down the principal over time. And then you've
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got rates and insurance and maintenance. And then if you have to
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borrow more than 90%, you've got mortgage insurance, which is another 30K
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or 22K, whatever it might be. That's gone too.
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It's not your mortgage insurance, it's for the bank. They get paid
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if you default, right? So
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yeah, you're down probably, you know, 40 or 50, 60,000 in cash,
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non-recoverable when you buy a house. It's just a transaction cost.
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It's a very heavy duty one too, right? And
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then you've got, then, then, It's not just
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900, it's a 960. But then the real
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problem arises and it's this, it's the operating costs of
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a property. And no one ever contemplates this or
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very few people contemplate it and think about it. It rates, which
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are going up all the time, which are actually CPI or actually growing higher than
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inflation. So actually it's not hedged with inflation rates.
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Insurance also going up, not hedged against inflation. So they continue
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to rise over time. And maintenance, which is also not hedged against
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inflation because the ability to get higher labor and goods and
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materials to maintain is going up, which is about 1%, just saying
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it's 1%. So a $900,000 house is 9,000 a year. So we're at 9,000 plus rates. plus
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insurance and so forth, we're probably looking at $15,000 or
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more a year, $15,000 and $20,000 a year. So now you're
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at $56,000 in interest, you're at $20,000 in operating costs
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and other things because sometimes we have to do it up, honey, because we don't like the kitchen and so forth and there's
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an emotional attachment to that. Now we're at $76,000 plus
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we've lost $50,000 or $60,000 in non-recoverable costs in the stamp
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duty and the mortgage insurance. If we're at
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$75,000 plus and we haven't even contemplated the principal repayments, you add
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on another $50,000 you know, $25,000 of that, you're
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up at $90,000. Divided by two, so you're up at like
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$1,800 a week, versus $900 a week you could have rented it for. So,
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you know, you do the numbers. It's just simple arithmetic. The
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true cost is $8,200 a year to run it, and I know that the principal falls
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over time, so I know that the interest cost doesn't stay there, but for the
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first, I don't know if you know this, but for the first 15 years,
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most of it's interest. 20 years, you
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don't start paying down principal till later, right? So
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it's very cumbersome to get into, which
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is why if you have the ability to put a higher deposit in there, for sure,
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if you have no other better uses for it, it makes some sense to protect yourself from rising rates,
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of course. So that's
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the numbers in a bit more detail that people don't do. But
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then there's the other thing we call opportunity cost. And it's probably one
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of the most important concepts that people just completely miss in
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conversations. Just quickly, if you're ready to take control of your finances, but
12:34
feel stuck on where to start, I have a solution. My
12:37
book, Money Buys Happiness, simplifies investing and
12:41
wealth building with practical steps to help you achieve financial peace.
12:45
get your copy via the link in the show notes and let's get your money working for
12:48
you. Now back to the episode. If you were to put down that 100k
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deposit and the stamp duty and the mortgage insurance,
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we're at 160 to 180k of deployed money that
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are some of it, most of it sitting in the bricks and mortar in equity, but
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the rest of it is unrecoverable, gone as a tax. So
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let's say you took that 100 and $60,000, $180,000 odd dollars,
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and you invest it in global equities, for example, at 9% or 10% over the next
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20 years, it turns into $1.1 million. No
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extra contributions, by the way. If you've just taken the $180,000, invest it, don't
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touch it for 20 years at that prevailing interest rate. Now, will it
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continue to grow that way? Time will tell, but since 1957, the
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S&P 500 has compounded on average at that rate, so there's a
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likelihood it will continue. No extra contributions. You're not putting anything else. You're
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just putting in what you put into the house. Yeah, of your cash.
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Now just compound at 1.1 million. Yeah. And
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you've got to also account for at that point, at that point, you've got to account for interest,
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maintenance, interest above the rental rate, maintenance, rates,
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illiquidity, a hundred percent concentration risk in one asset classic, fall
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into a sinkhole, get flooded, get white ants, just saying, right?
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In one specific suburb. And the people in Dubai are starting to realize, holy crap, I
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never thought this was going to happen. And here we are, concentration risk. It
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happens, right? So you've got to contemplate not
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just is this challenging on our cashflow to own this house,
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more so than if we just rented for a period of time and got it in a better position, but also
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what's the opportunity cost of us not deploying it into other assets? And
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what's the risk of interest rate exposure? What's the risk of single ownership
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in one asset class? What's the concentration risk? And this
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is what people don't contemplate or discover. And floating
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around the interweb at the minute is a book I wrote called Housepour about this stuff. And
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what's on one of the meta ads that we're running at the moment is this
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little screenshot there that's real. This guy said to me, Lloyd, he's
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a guy I've known for a long time. He said, if you zoom into it,
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it says, I'm so glad we didn't buy a home. We ended up just buying a property investment
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for a lot less. So straight away, less debt, less interest rate exposure, and
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we're getting tax deductions, and we're getting the tenant to cover the repayments,
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and we're actually renting. It's rent vesting, and it's been around a long time, and
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it's what a lot of people do. It's just a more sensible approach if
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you want to get exposed to the real estate market. It's just so much more sensible. So
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that is a good example of someone who's just been intelligent about
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exposure to real estate. So again, I want to harp
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this. I'm not vehemently against the asset class
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like I am with crypto. I am completely vehemently against crypto. Real
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estate is a wonderful asset if it's invested
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in correctly. Perhaps you do the numbers and you have a good rent vest
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situation. Awesome. Perhaps you have got a
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home and you have bought it for cash because you've got – great. If
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the ROI of your lifestyle is going to trump it, also do it. But
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that's not what we're seeing. I just don't see that. That's
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what this episode is about. It's about understanding that it's
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not the bill and end all if you don't do it correctly, right? And it's
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okay to rent. It's okay to be different
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and contrarian. I guess people really worry about other
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people's opinions a lot, but I find it fascinating and kind of
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fun that I rent. And a lot of my, in fact, one,
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two, three, I mean, I reckon a dozen of my multi-millionaire
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friends, and some of them make millions, like, some of them
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are making 25 million a year plus, like, they're exiting businesses
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for 50, whatever. Almost all of them rent.
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I'd say, if I think, they rent. A
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few of them have property investments they've purchased, of course, but they're
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renting. It's fascinating. That's a
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very statistically significant thing, right? So,
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it's not the be all and end all. What's interesting about those friends too
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is they've taken their capital and instead of putting it in a home, they've
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taken the capital and started businesses, which are cash flowing asset that can pay you for a
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long period of time, that can actually help you buy more than one home, right?
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That's what they call them on X, hooms. So it's
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okay to be contrarian, so long as you're doing intelligent things
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with the capital. Like if I rented, which I do, and I
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was like, I'll rent, and then I just blow it all on flipping, I don't know,
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whatever. then that's dumb. I'm not
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suggesting to do that. Of course, renting, yes,
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you're paying the landlord's return, but you're also saving money in
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operating costs. You're also saving money in interest costs. You're not exposed. You
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also have more flexibility and optionality, and you've taken the capital from the deposit and the costs
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like mortgage insurance and rates and stamp duty, and you've
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actually deployed it into buying a business. In fact, the
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amount of money that you would have put into a $900,000 house in
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Brisbane, you could buy, as one else said the other day, a laundromat. Cash,
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done. $35k income, done. There's one in Cooma recently for
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sale. For the price of
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the transaction cost, you could buy the prince net income,
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what the property prince, with no risk. Well, very
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little risk anyway. You know what I mean? It's just like
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there's other uses of your capital, right? So capital
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deployed intelligently is just a good thing to do. Now,
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if the tides change or when they change, depending
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on how much they change, and real estate falls to a
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point where people don't want to touch it because they've just been burned and
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scorned by it, which I've seen before in 2009 and 2011 here in my city. I
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was, at the time, I was offered, you know, to buy places in the middle of
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South Paris for 56 grand. I mean, we were selling houses
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in America for $8,000. People were using their credit cards to buy houses. I
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mean, I've seen that. Now, I'm not suggesting that's going to happen, but it could. But
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if you see me going, hey guys, the tide's changed in real
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estate. You can buy it for three to four times earnings now. The cash return on this is 10% net.
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It's sensible. It's in a good growing city. We can diversify across multi-doors.
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It makes some sense. I'm seeing some capital growth. I'm
18:42
in, but I'm not seeing that. That's all. That's
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all. That's all it is. Capital deployed intelligently
18:49
into businesses, good quality shares that you understand or an index
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fund that you understand for long periods of time and property that doesn't
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make you house poor is reasonable and rational
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because it will give you the psychology freedom that no one talks about. It
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won't anchor you down, you can move through the opportunity, you
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can create optionality in your life, right? I
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had this student of mine, it's actually in the new book, and
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he came into one of our programs, he read this book Money Buys Happiness, and
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he ended up, he did have this property investment, and it
19:22
was negatively geared, and it was just sucking cash flow from him, and
19:26
he had equity tied up in it, and he said, you know, I find the equities there, I wanna do this,
19:29
I'm not pretty, any future cash flow, and It
19:33
hadn't served him and so he actually sold it. And
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he put his money into a portfolio of shares and
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he's now, I think he's up 20% capital
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growth since he did that, producing income, but
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also gave him the optionality to move and rent. It just freed him up
19:49
and now he's just a different guy. He just changed
19:53
his focus, right? So it was turning a
19:56
cash drag into, I'm laying awake at night thinking about this, to
20:00
from what if something breaks to like, How
20:04
can I shift this and change this? It's those
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questions you ask yourself that start to shift how you deploy your capital. The
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decision will feel scary. It's
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going to, but is it serving you now? Don't take me
20:19
wrong. I'm not saying go and sell your investments, but just think about
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it. Is it serving your objectives or do you have a better place for the
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capital? We all get to choose. We all get to make decisions. I had another
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student of mine in one of our elite programs and he sold his house and bought a gym and
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it just changed his life. He's just winning, winning, winning, winning and
20:35
did it while he was in his job. There
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are some astute options out there for you to consider. But
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in Australia, there's a blind spot. It's just where they
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just focus
20:48
on property. No portfolio, no passive income, no options. A
20:52
mortgage with a good It's
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a good primary residence, fine, but it's not wealth. It's
21:00
the appearance of wealth. And there's a gap between those where
21:05
it's fine, but then where lives get destroyed. When
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you buy, buy well within your means where
21:15
you have a serious deposit and it makes sense. And when things change,
21:19
someone loses their job, whatever it is, you don't get wiped out. Does
21:22
this serve us in all seasons? Yeah. And so in that way,
21:26
you really limit your exposure and risk. Okay. So.
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Buy from the spreadsheet, not from the shame. That's
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a very important thing to write down. Buy from the spreadsheet, not from
21:38
the shame. Every investing activity is best done when it's most businesslike. And
21:42
that came from Ben Graham to Warren Buffett. And I think of things like that all
21:45
the time. Is this most businesslike? And most people aren't doing most businesslike.
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They're doing, this is exciting for me so I can put it on Facebook and tell everyone that I
21:52
have a house so I can show them I have a right of passage and then I can feel better about myself and perceive security as
21:55
just not real. This is an
21:59
interesting stat. The average Australian holds 93% of their net worth in their primary residence.
22:03
One asset, illiquid, undiversified. It's
22:06
like holding 93% of your wealth in one stock. It
22:11
can work, but why? Just a little
22:15
bit of diversification. Decide with
22:18
clear eyes and real numbers, not cultural fog or the shame or
22:22
someone else's timeline as to whether you buy, right? Someone
22:26
in your life right now is sitting at a kitchen table at 10.47 PM
22:31
feeling like they can't say it out loud. So
22:34
send this episode to them. Hit the subscribe button, but
22:38
send this episode to someone who you know is housebound and tell them, and I'll tell
22:41
them, you've got a choice. No one's holding a gun to your head to say you've got to sit
22:44
on this thing and cash outflow to yourself and compromise your life, four
22:48
bricks and more. There are other ways, okay? So
22:52
hit the subscribe button if you want to get more of this unfiltered, unadulterated
22:56
financial education in a way that is hopefully entertaining, interesting,
23:00
and factual for you to make better financial decisions, which is why we're here.
23:03
So I'll see you in the next episode. Thanks for listening to Money Grows
23:06
on Trees. If you enjoyed the episode, leave a five-star review on Apple
23:10
Podcasts and Spotify and subscribe to us on
23:13
YouTube so you never miss an episode. And if you're serious about building wealth,
23:17
make sure to check out the links in the show notes and follow me on all
23:20
social media platforms, at LloydJamesRoss for