Latest / Money Grows on Trees / #345 - I’m A Millionaire Who Hates Property (Here’s Why)

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#345 - I’m A Millionaire Who Hates Property (Here’s Why) · Money Grows on Trees

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I'm a multi-millionaire who hates property and I have better reasons than
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you think. See, most Australians believe that residential property is the gold standard
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for wealth and the wealth vehicle in this country. It's safe, it's reliable, it's
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time-tested, it's the path to financial freedom. But the reality is,
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as a property lawyer, I've worked on the largest developments in
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the world and I've been very close to the machine. And
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the closer I got, the less I wanted my money in it. I'm Lloyd
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J. Ross, seven-figure entrepreneur and investor and I've helped thousands of everyday Aussies,
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Australians, Americans, New Zealanders and Canadians get out of debt and build real wealth.
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And in this video, I'm going to show you the seven reasons why
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I walked away from property investing in the exact assets I own instead that
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do the same job but better. So firstly, some background
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on me so you understand I'm not coming here without any context. So
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I became a lawyer when I was 23, admitted to the Supreme Court
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and actually cut my teeth on property law. in the conveyancing realm,
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which is why I didn't really want to be a conveyancing lawyer, because it's quite boring. But,
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you know, going through the transaction process of property law
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in Australia was where I cut my teeth. And I ended up getting a job for the largest developer
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in the world, had $18 billion under projects at the time, was called Aldar Properties,
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and one of them, which is the sixth largest in the world, was Yas Island, which is where I was, which
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is where the Formula One track is in Abu Dhabi and the Formula One circuit
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was one of the first projects I worked on, including the Farrow World theme park. But
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most importantly, I was assistant DM to a wonderful guy
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there and we developed out the master planning and feasibilities and financial
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models for the mixed use residential developments on Yass
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Island. I was there for a number of years doing that and I was in charge of running the financial
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feasibilities across these mixed use projects. And at the same time, I
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grew up with a dad who's been in property for 40 years.
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And so, I would go in and out of his office at the same time too. I was around at a fairly young
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age. He would take me to the auctions, the Ray White auctions when I was 12 and stuff like
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that. So, I was around a fair bit of that. And then, I actually cut
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my teeth on real estate leasing and sales, predominantly
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commercial leasing when I was 20 for the Ray White Group. In fact, the most profitable Ray White
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Group with Andrew and Greg here in Service Paradise when I was 20. I
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became a fully licensed agent. I still have a full real estate license to this day.
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that I collaborate with and use in my dad's business. And so that coupled
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with the fact that I ran the property investment planning business with
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my dad for seven years and completely flipped
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and turned that business around and post GFC, and it's
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a thriving business to this day, right in the guts of running all parts of
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that property investing business, all the way down to, you know. Everything.
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All of those things placed me in a position to
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really understand the ins and outs of the industry. I mean, I
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was at the epicenter of the property religion because even my city is
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where every dinner you go to, every conversation is
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around bricks and mortar. My dad says
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it's a miracle that I never owned a property. And the reason for
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it is I never really felt compelled. And I felt, you know, I
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didn't allow my freedom values to align myself and drop myself into
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an asset that's very illiquid and ties me down to a long mortgage. I just didn't
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ever get that feeling to do that. and I wanted more freedom. So
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I pivoted pretty early because I was living and working in Dubai and at the
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time it was post-GFC, the real estate market was falling there
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incidentally. And I saw a lot of people lose a lot of money. In fact, I've
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seen a lot of people lose a lot of money in real estate. I have seen
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the good, the bad and the ugly. And I just don't think anyone's seen the ugly
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or the bad until now. So I have seen that and I'm
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a GFC baby. So I came out into the worst real estate, like
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in the worst financial crisis ever. So what I did see though was cheap
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stocks. So I pivoted and I
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started to build up an equity portfolio because I wanted cashflow. So
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that was my alternative to property. So it's not like I didn't invest,
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it's just I chose a different asset class. And many of you watching this will have chosen the same asset class,
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although it is very rare. for someone who's grown up on
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the Gold Coast and has all that background to not own a house. It is very weird.
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It's unusual. But it's also about living your life how you want to live it, right?
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So I wasn't seduced by anyone to buy. I almost have
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been, but I like to live my life how I want to live it. And so I hope you're
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the same way. This particular topic is
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I hate real estate. The reality is of course I have leveraged, I've
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made money from the sector. So it's like how can you hate something that you made money
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from, right? I get it. But what I mean to say is I hate to
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buy and own real estate for the fact that I want to then just
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have perceived security and rent money is dead money and
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I just want to keep up with the Joneses and I want to go to my friends how many properties I have, I
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want to leverage like there's reasons why I don't like it. So there
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are seven reasons really why I have been apprehensive to
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do that. The first one is the returns have actually been
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fairly mediocre, because yes, of course, the last
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five years have been crazy, 85% crazy, mental, but that's unusual.
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Like this last five year period is ridiculously unusual.
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In fact, if you went back all the way in our history of our property price rises, I
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think it'd have to be up there with the greatest spike of all time. In
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fact it is. So what you've experienced in the last five years historically hasn't
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happened in like 150 years. And by the way, if you go and look forward now
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for the next 10 and 12 and 15 years, will it be the same? Probably not. So it's going to
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be this long term return equation that's not the best. It's
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probably 8% long term, 7.5%, 8% long term. The S&P 500 has been 10.5%. So
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it's not performed as well as international
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stocks or American stocks over the last 30 years just hasn't. The story that gets
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ahead of that is always this leverage story. It's like, well, yeah, but
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you get leverage and that's fair and true. But you also have
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to understand that leverage goes the other way too. So like now we're experiencing a
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housing downturn and leverage is going to go the other way on you. So you're going to lose five
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times as much faster on your leverage position on your cash position because
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leverage. Okay, so leverage amplifies gains and amplifies losses. So
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yes, you can get a great cash and cash return if you've got leverage over a portfolio over
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time as it grows. But if you hold on to it, it goes back the other way.
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So we don't know yet what the returns of property investors are going to be if you only started
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investing the last five or six years, which is not we need to push it out further
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to see what the real returns are. But I definitely have the returns of the last 30 4050. In
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fact, The returns back to 1957, the S&P 500, they're
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about 10%, right? And there's data to support that. So I
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like the historical returns of that better, because it's more known. But
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it's also simpler, right? Which I'll come to in a second. Number two is
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the costs are hidden, too. They are. They're hidden. People
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don't factor in this when they're buying a house. Stamp duty. If
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you're buying a $1.5 million or $2 million property, stamp duty is like $90,000. $90,000 tax
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you never see again. No
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one talks about that on their social media, right? The transaction costs are
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high. Then you've got LMR, which is mortgage insurance that you have to pay if you've got a 10% or
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a deposit that's less than 20%. You
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have to pay mortgage insurance. That's a hidden cost. And it can be up to $30,000. So
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all of a sudden, you're at $110,000 transaction costs. Then
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over and above that, you've got operating costs that no one talks about, but they see
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them later. rates, insurance, strata,
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maintenance, land tax, blah, blah, blah. Not to mention the interest rate rises over
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time to seven or 8%, that's more than the yield. So you're getting hit by
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negative gearing. And then now going forward, if you're not grandfathered, there's
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no tax deduction for that either, which is why people are like, holy shit, do I want to
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own property now? But there's the operating costs, right?
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So yeah, you're starting to lose money long term. And
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also number three, it's illiquid. Here's an example. We
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got this share portfolio. I think it's pretty cool. And
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we own these American companies, primarily American equities. And
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one of them spun off one of his business, got five businesses, it
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spun off and it popped up in our portfolio. I
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said it last night, I was like laying in bed at 11 o'clock at night, and I'm like, oh, there's 10 grand
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just laying in that pool, it's a little tiny little slice, it's a small position. However,
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that company spun off its business available, so all right, sold that, re-bought back in the
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main company instantly in my bed within five minutes. So it's just readable,
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and it's only a small position, but redeploying some of the capital instantly. Right?
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So I can click a button and I would say after settlement, it takes about two
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days. Within two days, I can put my hands on multiple millions of dollars in
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cash. Multiple. Instantly. And it would probably cost,
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I don't know, maybe a thousand bucks in brokerage. Not much. Whereas
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when you want to sell a house, it's like, you know, you got to pay 3% to the agent. So
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it's, you know, you got to pay 60 grand to the agent. Then you got to pay the transaction
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costs. And it's also the time it takes to sell it. And the enigma and
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the aggravation and the contracts and then go, ah, it's just, you can hit a button. You can
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hit a button in shares. That's why I like it. Okay, so it's more liquid. The
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fourth one is, it is total concentration. Like if a one
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asset on one street in one suburb, one city in one country. Everything
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is concentrated and not just that, all of your
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wealth. Like most people's wealth is in their house and it's concentrated in one
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place. So it's not diversified. Most people's wealth
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is not diversified. If that goes pear-shaped, you've got nothing else.
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So most people are concentrated, they hold concentrated asset positions. Thankfully
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they have some superannuation which is typically in shares so it does diversify them somewhat.
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Most people are very concentrated. They don't really know it, right? So I don't like the concentration
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of one sector, one city, one suburb, one thing. It's not for me.
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I don't like it. Number five, it's a bit of a part-time job that doesn't pay you
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that well. You got to administrate it, it's not passive. Dave
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Ramsey will tell you this, he did it earlier, there's nothing passive about real estate. Tenants,
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toilets, tradies, property managers, administration. I
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think a property manager these days takes 7% of the return. My index funds,
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or my shares I should say, because I don't have any index funds presently, but they
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don't call me up on a Sunday or, you know, I don't have to do anything, literally nothing. I
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just collect the dividends. Like, you know, this
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week, what's it today? Today, we'll get a dividend and there'll be some thousands of dollars dropping in
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our account today, every quarter. It's beautiful. I'm sitting here recording this, money
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dropping in the account. I like that. Passive income is most passive
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through shares it is, and especially an index fund. Number six, the
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government has more levers to pull on
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the property sector than it does in shares. And
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we've realized that with the latest budget. So we can all agree that the 50 cent
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CGT discount hurts shares and property, but probably
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got hit by the negative gearing. So there seems to
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be more policy levers to pull on property than shares. The
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government also doesn't really understand shares that well. Number seven, the
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leverage, as I said, cuts both ways. So you're actually starting to see now with
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auction clearance sites falling and then property prices falling, you're going to exacerbate your
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leverage return. So I think the leverage is something that I'm not comfortable with,
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particularly in a rising interest rate cycle, as well as a
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down price movement, which is typically, they go together. So when you increase rates,
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you drop in property. So not only is it going to cost you more to hold it, but the value is
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falling. If it's falling with leverage, it's falling faster. It's amplified losses.
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And I'm not comfortable with that on a substantial portfolio.
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So again, these are the reasons I'm giving you as to why I'm not. So I
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think I wanna give you context. It's
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not like I have property derangement syndrome that people have where
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there's no real reason for it, whatever it
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is. And you might think I do. And same with crypto and
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Bitcoin. It's not that I have derangement syndrome. It is very
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obvious That it's not a store of wealth, it doesn't hedge inflation,
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because we saw that. It doesn't help trends. The
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stories just don't stack up. So I've been
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thoughtful about this. It's not like
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I'm reacting and I'm vehemently against it. I'm just explaining the reasons.
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And you may share the same reasons, you may not. And you will have someone in the comments go, well, I
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made $4 billion. Great. There's a
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bit of survivorship bias there, like there isn't anything. Sure. I'm
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not suggesting you can't make progress. I'm just telling you the reasons why I don't like
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to. And by the way, I go on for multiple month
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holidays in Thailand. You know, so
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I was like, shouldn't I give a finger to my, that's to the haters by the way, I love my audience.
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Just quickly, if you're ready to take control of your finances but feel stuck on
11:36
where to start, I have a solution. My book, Money Bias Happiness,
11:40
simplifies investing and wealth building with practical steps to help
11:43
you achieve financial peace. Get your copy via the
11:46
link in the show notes and let's get your money working for you. Now back
11:49
to the episode. It's not all about like, oh yeah, if I manage money I
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made. Who cares? What kind of lifestyle do you have? Do you get to wake up
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on a Monday morning and sleep in? Do you get to go on holidays wherever you want? Do you get to work around
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the world? Do you get to, you know, like I think I've got a
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sick life. You walk to the gym in the middle of the day, like what's your life like?
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So it's not like I'm, I don't optimize for money. There's so many
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people rich in there. I'm not even that rich, but I'm rich in life. I'm
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so proud of that. I've built this philosophy of this way of living that
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I love. And I'm more proud of that than money I've got. Like
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money, who cares about money? Money's a tool, right? To build
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the life you want. So the philosophy is, I've
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done those things by not aligning to property for my
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lifestyle. And I win that game. You follow me
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on social media, I win that game, hands down. Hand on
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heart, I win. I don't know if anyone's got a cool, we've
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got a pretty cool life. So you can keep your property portfolio if it's destroying
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your lifestyle. But if you have both, awesome. Kudos to
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you. That's awesome. That's what I want for you. It's great. So yes, you can make money in property, but
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as long as it doesn't sacrifice your ability to build a life, right? Let's go
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through this then. What I'll concede. So things that I love about property,
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because this is the alternative to it, right? I'll definitely concede on this. I'll
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say, you're right. One, the home you live in
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could be a different animal to that because it's CGT-free, there's no landlord
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risk, it's for savings, and you
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can generate leverage over a long period of time. And it's a lifestyle decision
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for family development. There's some elements of that that I like. I
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like the forced discipline part actually and this is probably the second part
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of it is that most people actually can't be trusted with
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liquid cash or liquid assets. They're too impulsive. So
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having a home and a mortgage actually forces discipline to save.
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So I actually like that and that's why I think for most people, the reason
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they're attracted to property is because they like it too because they also don't trust themselves.
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And the third thing is, renters, if they did nothing, like
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if they just took their free cash flow that they're saving by not owning and
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having rates, insurance and upkeep and operating costs, but they didn't do anything with
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their money, that's stupid. So I agree with you with that.
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Like rent money is dead money if you're not using it to build a business, buy a
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business or build shares. Like, of course that's stupid. And
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a lot of people do it, that's dumb. And I agree with you, stupid. Not about
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that, right? So what I hate is the religion. That's what
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I don't like about it. It's the religion of property. If you've done it in a sensible way that supports
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your lifestyle goals and it doesn't own you, you've done well
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and I think that's what I'm all about. But I also want you to know too that
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there's alternatives to this. You don't have to go and buy a house because mom and dad said so.
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The whole process of building wealth through housing is completely different now and it's going
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to be different in the future. I just don't – I can't see it being the preeminent asset for people
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now. It's just there's too many headwinds. It's not an asset that I'm super
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excited about for various reasons that I'd mentioned, but also other ones in
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economics, like economically, it looks really bad. So
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what I own instead, I'll go through it for you so you understand, because I've talked about buy cash
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flowing assets. And someone said the other day, what are you talking about? I was like, that's a fair question. So we
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have, I don't mention this before, we have, which is a wonderful little business, laundromat
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business, great business. We have an education business, books,
14:52
courses, coaching. We have an accounting business. and
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advisory. We have books like this particular book here provides royalties.
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It's an international bestseller. We have, you know, this channel produces
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income through YouTube. We have a network marketing business that prints
15:07
every week cash flow. We've got an events business. I
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run with a business partner of mine. And so, They're the
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five and they're multiple and then we of course have our multiple million
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dollar share portfolio That produces passive income and
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grows over time and also instantly have a turn deposit. I'll just throw that out
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there We also have a turn deposit which is float and we also have some
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free cash flow that we put offset Against a business loan to
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produce interest savings too so you can move your capital around. I'm
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not a big super guy I don't know, you know I like to have
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our shares and our assets in a company that we
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can access now. So I'm not a big like, oh, I'm going to pump super. But I think PAYG
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makes a lot of sense. That may change as I get a bit older. You can see the setup
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that I've got. It's just like businesses, cash flowing businesses, that
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don't have any debt. I mean, the loan makes a little bit of debt, but they
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throw off cash flow. They flywheel each other a lot, so they're very symbiotic. We
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don't have any debt on our car sitting over there. No consumer debt. That
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helps a lot. But there's no property in there. As yet, and
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I think I mentioned on a previous episode, the only time I'd buy maybe is my landlord sold
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and I just didn't want to be bothered moving. So fair, I could probably just buy it for cash. But you
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know, I haven't crossed that bridge yet. So I would say that you
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can build it without property. And how you do that probably the most effective way is to kill
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consumer debt, and then start to look for ways to build money
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outside your job, right? You can start investing in share straightaway, you
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can build or buy businesses. And
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when you are renting, make sure you're taking the savings of non-ownership and you're
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deploying it to do those things. And if you buy a home,
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buy it as a home with a sensible economic discussion
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and assessment of it. And review it. Don't just stay in
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there because it's... You have to, you can review it, you can make decisions,
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you can change, okay? So I hope that makes sense. The verdict is, I
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hate property because the math didn't justify me buying it.
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And it was slow returns, heavy costs, zero liquidity, low concentration, real work,
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political, like there's all those things, that's all, right? How's she living?
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Cool, fine, especially if it's paid off and almost done. Awesome, well done, I love it. Especially
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buying property to support your lifestyle goals. And if it's doing that, it's not only, that's wonderful. And
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what I tell 25 year old me, the wealth was never about the bricks,
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it was about, owning cash flow and my time.
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And that's the philosophy I've wanted since probably I listened to Tim
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Ferriss' 4-Hour Workweek in 2010. And over the last 16 years,
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we've built that life and I encourage you to do it because it's all
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about living a good life, not necessarily dying with the most houses.
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And that's the difference. That's the difference, okay? You don't
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have to hate... I don't even hate it. It's just... You
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don't have to also love it because everyone else does. You can stop treating it like
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the only door because the people who found the other
17:45
doors are also quietly winning right now too, and you can
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as well. So I hope you've enjoyed this episode. If you've got any questions, pop them below, leave
17:52
a comment, and of course, most importantly, share
17:55
this episode with a friend. Subscribe to the channel, share it with a friend who
17:58
wants to buy a property or thinks it's the only way. This will hopefully give the encouragement and
18:02
the influence to look at other options as well, especially now. See
18:06
you soon. Thanks for listening to Money Grows on Trees. If you enjoyed the
18:09
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18:17
if you're serious about building wealth, make sure to check out the links in the show
18:20
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