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Is renting forever an option? · She's On The Money

0:00
Speaker 1: She's on the Money. She's on the Money.
0:23
Speaker 2: Hello, and welcome to She's on the Money, the podcast
0:26
Speaker 2: for the millennials who want financial freedom. As we've mentioned on
0:30
Speaker 2: the podcast quite a few times before, cracking the property
0:34
Speaker 2: market in Australia is no easy feat and it does
0:37
Speaker 2: seem especially hard at the moment as house prizes climb
0:41
Speaker 2: higher and higher in certain pockets of the country. While
0:45
Speaker 2: there are, of course plenty of benefits to buying your
0:48
Speaker 2: own home, the many young Australians, the prospect of doing
0:51
Speaker 2: so just isn't feasible. So what are the benefits to
0:55
Speaker 2: renting forever? Can we still achieve a future of financial
0:59
Speaker 2: freedom without attaining the old school Australian dream of home ownership.
1:03
Speaker 2: My name is Georgia King, and joining me to answer
1:06
Speaker 2: these questions and more is financial advisor Victoria Divine Foo.
1:11
Speaker 3: Hello. Hello all.
1:13
Speaker 2: That was a long.
1:14
Speaker 3: Intro, my proper serious and I didn't did interrupt you,
1:20
Speaker 3: So I'm proud of you. Thanks, I love it.
1:21
Speaker 2: Thanks do Can you tell us straight off the top,
1:25
Speaker 2: what is happening with the Australian housing market right now?
1:28
Speaker 3: What is going on? It seems like it's exploding and
1:31
Speaker 3: it's just overwhelming and hard, and to be honest, it's
1:35
Speaker 3: one of those things where we're just going through a
1:37
Speaker 3: property boom and that's okay. It doesn't mean that property
1:40
Speaker 3: is always going to be unaffordable, but it's one of
1:42
Speaker 3: those things that I think it makes us feel a
1:45
Speaker 3: lot of pressure because you go, I'm never going to
1:47
Speaker 3: achieve this, and this is really scary and just looking
1:50
Speaker 3: at the start. Since the start of twenty twenty one,
1:53
Speaker 3: in Sydney the average dwelling price has gone up by
1:58
Speaker 3: seventeen point seven percent and in Melbourne it's up eleven
2:03
Speaker 3: point one percent. That is a lot of money. Like,
2:06
Speaker 3: that's some pretty good investment returns if you already own
2:09
Speaker 3: an investment property. Though nice for you if you're already there.
2:13
Speaker 3: We are not those people. Georgia, though. The price of
2:16
Speaker 3: property in Australia is actually rising at the fastest rate
2:20
Speaker 3: in over seventeen years, which is crazy, and there are
2:24
Speaker 3: a few reasons for this. One is historically low interest
2:27
Speaker 3: rates and increased borrowing capacity. So as you know, Georgia,
2:31
Speaker 3: in our community, a lot of people are complaining about
2:33
Speaker 3: their savings accounts having less interest payable and remember how
2:38
Speaker 3: sexy it was like literally twelve months ago, maybe a
2:40
Speaker 3: little over twelve months ago, we were talking about how
2:43
Speaker 3: good it was that, like up Bank had two point
2:46
Speaker 3: five percent interest rates, and I know that that was
2:49
Speaker 3: really sexy. But those things never last because if bank
2:53
Speaker 3: interest rates are decreasing on how much they're willing to
2:55
Speaker 3: pay you on your savings account, it means that the
2:58
Speaker 3: same is actually going to be truth for mortgages. So
3:01
Speaker 3: it's a good thing and a bad thing. I mean,
3:03
Speaker 3: our savings aren't performing as well as they could, but
3:07
Speaker 3: our property is more accessible. In saying that, given property
3:11
Speaker 3: prices are growing at the fastest rate that they have
3:14
Speaker 3: in the last seventeen years, I would argue that they're
3:17
Speaker 3: may be not as accessible as they used to be.
3:20
Speaker 3: On top of that, government incentives like the first home
3:23
Speaker 3: buy ideals that are around a negative gearing. Those are
3:26
Speaker 3: all things that we are really seeing impact the really
3:28
Speaker 3: strong sturges in property price. I think added to that,
3:32
Speaker 3: we've got all of the lockdowns we've been going through,
3:34
Speaker 3: people wanting to upgrade their homes to make them more
3:37
Speaker 3: comfortable because of the uncertainty that exists around You know,
3:41
Speaker 3: how long am I going to be stuck in a home. Okay,
3:43
Speaker 3: now I can work remotely, maybe we should actually buy
3:46
Speaker 3: a house, but we can afford to buy something a
3:48
Speaker 3: little bit further out because we're no longer traveling to
3:50
Speaker 3: work every day, because we get to work from home.
3:52
Speaker 3: I think there are a lot of reasons playing into
3:54
Speaker 3: it as well as and this is just my opinion, fomo.
3:58
Speaker 3: So people knowing that during lockdowns we can't purchase, so
4:02
Speaker 3: there seems to be a strong surge straight after lockdowns
4:05
Speaker 3: of property being sold, which I think is really interesting.
4:09
Speaker 3: But I think the most important thing to remember here
4:12
Speaker 3: is completely unsustainable.
4:15
Speaker 2: Like which means it won't last forever.
4:17
Speaker 3: No, it won't last forever because it can't like it
4:20
Speaker 3: can't like Georgia. At the moment, it's obviously unobtainable for
4:24
Speaker 3: so many of us, and we are now being asked
4:27
Speaker 3: to save ridiculous amounts for home deposits. And I think
4:30
Speaker 3: if we look at historically what homes used to cost,
4:33
Speaker 3: and you know, you can argue with me about inflation,
4:36
Speaker 3: and you know the rising costs of wages, but to
4:38
Speaker 3: put this in perspective, historically a property might have cost
4:42
Speaker 3: you like two times your annual salary, and now properties
4:47
Speaker 3: are costing between ten and fifteen times our annual salary,
4:51
Speaker 3: which obviously makes it harder to obtain, but also harder
4:55
Speaker 3: to pay off, harder to create wealth with, and harder
4:58
Speaker 3: to access. It's not as though these things are comparable.
5:02
Speaker 3: And I know so many people will go, oh, yeah,
5:04
Speaker 3: that they used to have lower wages. Yes, they also
5:06
Speaker 3: had increased interest rates, like interest rates on property where
5:10
Speaker 3: my parents first bought were up in the twenties, and
5:13
Speaker 3: we are now at a point where it's two percent,
5:16
Speaker 3: which means it should be more affordable. But the comparison
5:19
Speaker 3: between how much it costs us relative to our incomes
5:22
Speaker 3: is so significantly higher these days that I don't think
5:26
Speaker 3: it's sustainable going forward. Like it's already ten times our
5:29
Speaker 3: salary Georgia to buy in Melbourne. Imagine if it was
5:32
Speaker 3: twenty we genuinely couldn't afford it, like most people can't
5:37
Speaker 3: at this point in time afford to get into the
5:39
Speaker 3: property market. And I think it's fair, and that's why
5:41
Speaker 3: we are now talking about what renting forever actually means.
5:46
Speaker 2: So just on that v are you are you saying
5:51
Speaker 2: that it's not sustainable because people literally can't enter the
5:56
Speaker 2: home buyers market anymore, So the prices will just have
5:58
Speaker 2: to come down because they won't be that demand because
6:01
Speaker 2: we just can't do it.
6:02
Speaker 3: Is that I think that they'll cap out. So what
6:04
Speaker 3: I'm saying is they absolutely cannot continue to grow at
6:08
Speaker 3: the same rate that they have for the last year
6:10
Speaker 3: and even for the last thirty years, because it becomes unaccessible,
6:15
Speaker 3: like we aren't actually going to have people to buy
6:18
Speaker 3: the properties. And property is based on supply versus demand.
6:22
Speaker 3: So if there's a supply and a demand, it is
6:24
Speaker 3: going to increase the property prices. But how much supply
6:29
Speaker 3: isn't going to matter if the demand isn't there because
6:31
Speaker 3: we can't afford the property. Yeah, Like if I said
6:34
Speaker 3: to you, Georgia, all right, well we want to buy
6:36
Speaker 3: a property, and you've got a really normal salary, and
6:39
Speaker 3: you want to buy a property with your partner, you
6:41
Speaker 3: both have really normal salaries, how much is that going
6:44
Speaker 3: to cost? And I said it's going to be three
6:46
Speaker 3: million dollars as a start point. You go cool. I
6:49
Speaker 3: can't afford that. I'll never be able to mount that,
6:51
Speaker 3: especially as a first home. So I think that we
6:54
Speaker 3: need to remember that at some point it will tap out.
6:56
Speaker 3: But also what if we didn't want to buy property
7:00
Speaker 3: in the first place.
7:01
Speaker 2: Exactly, And that's kind of what we're talking about today
7:04
Speaker 2: because we do often assume that having property is the
7:07
Speaker 2: Great Australian dream, but technically.
7:10
Speaker 3: Is the great Australian dream because that's historically what we've
7:13
Speaker 3: been fed and what we've been told is really important
7:16
Speaker 3: and what we should.
7:17
Speaker 2: Value exactly, But it's not necessarily what we all actually want,
7:22
Speaker 2: which leads me to my next question. V. Because you recently,
7:26
Speaker 2: relatively recently bought a home I did. You've said on
7:30
Speaker 2: the podcast before that property wasn't a priority for you. You
7:33
Speaker 2: didn't see it necessarily as the bill and end all
7:36
Speaker 2: from an investment or financial perspective. So can you talk
7:40
Speaker 2: to us about why that is and why property isn't
7:43
Speaker 2: necessarily the best investment out there.
7:46
Speaker 3: Yeah, I am just going to preface this because I
7:48
Speaker 3: know I'm incredibly privileged to be able to do that,
7:51
Speaker 3: and the way you explained that makes it sound like
7:54
Speaker 3: I was like, oh my gosh, like, oh, just buy
7:55
Speaker 3: a property, because they can't know that absolutely wasn't the case.
7:59
Speaker 3: I bought a property with my partner Steve because it
8:03
Speaker 3: was a really big value set of his. I had
8:06
Speaker 3: always thought of property as something that was a really
8:08
Speaker 3: large commitment that I wasn't necessarily sure I wanted to
8:12
Speaker 3: commit to. As you know, I am a financial advisor,
8:15
Speaker 3: so I have done all of the stats and maths
8:17
Speaker 3: behind it. So I'd worked out that, you know, if
8:19
Speaker 3: I invested my money in the shares that I was
8:22
Speaker 3: investing in instead of purchasing property for me financially, that
8:25
Speaker 3: was going to work out better long term. And it
8:28
Speaker 3: also to me felt like less of a commitment. And
8:31
Speaker 3: I could, you know, at that point in time live
8:34
Speaker 3: the life that I wanted. I had a boyfriend, Steve,
8:38
Speaker 3: and we were renting together. We lived in a really
8:40
Speaker 3: nice townhouse. To me, there was actually just no reason
8:43
Speaker 3: to purchase. But one of his core values and one
8:47
Speaker 3: of his biggest money goals was to purchase a home.
8:50
Speaker 3: And when you get into a relationship, you need to
8:53
Speaker 3: make sure that you're on the same page and share
8:55
Speaker 3: your money goals and share your aspirations. And because I
8:59
Speaker 3: knew that it was such a big factor for him,
9:02
Speaker 3: I also took on that and was like, yep, okay,
9:04
Speaker 3: no problems, Like, let's make that a money goal because
9:07
Speaker 3: in all honesty. His happiness is also my happiness, and
9:10
Speaker 3: I know that's really sappy. But we started saving really
9:13
Speaker 3: aggressively to achieve that goal, So you're right, I see
9:16
Speaker 3: on both sides of the fence. As a homeowner, yep, great,
9:20
Speaker 3: But did you know I also got my rates bill
9:22
Speaker 3: recently and it's close to three and a half thousand
9:24
Speaker 3: dollars and that is a lot of money to have
9:27
Speaker 3: to pay for rates. Like, I don't want to be
9:28
Speaker 3: somebody else's landlord, so to me, property wasn't the sexiest
9:34
Speaker 3: of options because I also didn't like the idea of debt.
9:37
Speaker 3: But it was his and we've done that, and I'm
9:40
Speaker 3: really happy and I'm really grateful, and you know, as
9:43
Speaker 3: I said before, we both really privileged to have been
9:45
Speaker 3: able to save and actually purchase a property. I mean,
9:48
Speaker 3: it's definitely within our means. As you've seen Georgia. We
9:51
Speaker 3: have a delightful broken red kitchen and some very unattractive bathrooms.
9:56
Speaker 3: But we'll work on that as we start saving and
9:59
Speaker 3: actually put it that into the budget. So that's not
10:01
Speaker 3: the priority for right now. But you're right. I've always
10:04
Speaker 3: said I would prefer to rent, and the reason I
10:08
Speaker 3: would prefer to rent is because I see better returns
10:10
Speaker 3: in another place. For myself personally, I think that there
10:14
Speaker 3: might be a little bit of difference around this episode
10:17
Speaker 3: and what people are expecting from it because we're talking
10:20
Speaker 3: about renting forever as a choice, not renting forever because
10:24
Speaker 3: you have to. Because I think that the important thing
10:26
Speaker 3: here is in Georgia, I know you're going to get
10:28
Speaker 3: into the stats before, is that if you look at
10:31
Speaker 3: the research, people who own homes are financially better off.
10:37
Speaker 3: But the reason for that is because we've never historically
10:40
Speaker 3: been in a position where renting forever has been an
10:43
Speaker 3: option while also investing. We've always just seen renting forever
10:49
Speaker 3: as not being able to afford to invest or buy
10:52
Speaker 3: a home or whatever that means to you. But now you're.
10:56
Speaker 2: Starting to see people who are turning away from the
10:59
Speaker 2: idea of buying proper and renting forever and choosing the
11:02
Speaker 2: share investment.
11:04
Speaker 3: Yeah, and you're seeing the property markets start to catch
11:07
Speaker 3: up with that too. So historically it's always been twelve
11:10
Speaker 3: month leases, and people are now one being more flexible
11:14
Speaker 3: in the terms and conditions in those leases, allowing things
11:17
Speaker 3: like minor modifications of the house and painting, but also pets.
11:21
Speaker 3: And also a lot of landlords are now offering longer
11:24
Speaker 3: leases because they want tenants in their property for long
11:28
Speaker 3: periods of time. But on the flip side, as a renter,
11:32
Speaker 3: you probably want the stability as well to say, Okay,
11:34
Speaker 3: well I don't have to review this every twelve months
11:37
Speaker 3: because I actually signed a five year lease. And it's
11:40
Speaker 3: one of those things that I think the real estate
11:42
Speaker 3: market is starting to catch up with what the priorities
11:45
Speaker 3: of millennials are.
11:47
Speaker 2: Yeah, right, that's interesting. So if we are choosing this option,
11:53
Speaker 2: then is it true that someone who rents could end
11:58
Speaker 2: up as financially well off as someone who has a
12:02
Speaker 2: home at the time of retirement.
12:04
Speaker 3: Yeah. Absolutely. And again this is not comparing people who
12:08
Speaker 3: are quote forced to rent forever because they can't afford
12:11
Speaker 3: to invest and they can't afford to buy property. We
12:14
Speaker 3: are talking about actively choosing to just rent forever while
12:18
Speaker 3: investing in other assets to create wealth. So yes, they
12:22
Speaker 3: absolutely could. And if we look at the performance of
12:25
Speaker 3: property versus shares over the long term, and we never
12:28
Speaker 3: want to just look at what performs better, because there's
12:31
Speaker 3: actually a lot that plays into it, like our actual
12:34
Speaker 3: values and making sure that we are choosing things that
12:36
Speaker 3: make sense for us. But when you look at it,
12:39
Speaker 3: shares outperform property by a very significant percentage. That is
12:44
Speaker 3: no opinion, it is just fact. If you invested in
12:47
Speaker 3: property and you invested in shares, your shares are very
12:50
Speaker 3: likely to perform higher than property. And that's not even
12:54
Speaker 3: taking into consideration the fact that you'll have rates and
12:57
Speaker 3: maintenance on that property of the long term and the
13:00
Speaker 3: commitment to a mortgage, which you know, I love the
13:02
Speaker 3: idea of investing in shares because I'd like flexibility. If
13:05
Speaker 3: I don't want to invest one month, I don't have to,
13:08
Speaker 3: whereas if you have a mortgage, you have to pay
13:10
Speaker 3: that regardless. So that's not opinion, that is just fact.
13:14
Speaker 3: So yes, absolutely, someone who rents forever can actually retire
13:17
Speaker 3: with the same, if not more than somebody who is
13:20
Speaker 3: a homeowner. But that is assuming that you don't just go, okay,
13:24
Speaker 3: I can't afford property. I'm not going to prioritize wealth creation.
13:28
Speaker 3: Like the expectation to prioritize your wealth creation still exists.
13:32
Speaker 3: You are just actively choosing another asset class, okay.
13:38
Speaker 2: And I feel like you've said before the something about
13:42
Speaker 2: like your primary residence isn't necessarily an investment because you're
13:47
Speaker 2: living in it and you can't just like click your
13:49
Speaker 2: fingers and then have the cash that it might be worth. Like,
13:52
Speaker 2: can you talk us through that a little bit more?
13:54
Speaker 3: Yeah, absolutely, So let's use you as an example again,
13:57
Speaker 3: because I love just throwing you under a bush. I
14:00
Speaker 3: don't mean that literally. It just makes sense to the example.
14:03
Speaker 3: Imagine if it was literally, I just loved so for buses,
14:07
Speaker 3: but I don't. I love you ging. But when we
14:11
Speaker 3: talk about your primary residence or your family home not
14:14
Speaker 3: being an asset that I think is a wealth asset,
14:17
Speaker 3: it's because to actually get that wealth working for you,
14:20
Speaker 3: you have to extinguish that asset and sell it. You
14:22
Speaker 3: need to liquidate it. You need to actually turn that
14:25
Speaker 3: into cash or an investment that makes you money. And
14:28
Speaker 3: the home that you live in does not make you
14:31
Speaker 3: money because you're not renting it out. I mean, there
14:33
Speaker 3: are lots of ways to do that. You might have
14:34
Speaker 3: a housemate and that might give you an income source,
14:37
Speaker 3: but we're just talking about a base. George King goes
14:39
Speaker 3: and buys a house and lives in it. Let's say
14:42
Speaker 3: that you go and buy a house Georgia for five
14:44
Speaker 3: hundred thousand dollars, and by the time you retire, that
14:47
Speaker 3: property is worth one point five million dollars, which is
14:50
Speaker 3: actually the reality of a lot of people who are
14:53
Speaker 3: retiring at this point in time, and they say things like,
14:56
Speaker 3: oh my gosh, I'm fine. Our house is worth so
14:59
Speaker 3: much more than what I originally paid for it. You go, okay, cool,
15:03
Speaker 3: But that's only helpful to us in our wealth creation
15:06
Speaker 3: journey and the journey to actually creating an income in
15:10
Speaker 3: retirement if you go and sell that house and go
15:13
Speaker 3: back and invest that one million dollar difference and go
15:16
Speaker 3: on buy another five hundred thousand dollar house and live
15:18
Speaker 3: in that. And they go, oh, no, I don't want
15:20
Speaker 3: to do that. I don't want to move. This is
15:21
Speaker 3: the home that I've lived in. You go, okay, cool.
15:23
Speaker 3: So regardless of whether it's worth five hundred thousand dollars
15:26
Speaker 3: or one point five million dollars, it doesn't actually matter
15:29
Speaker 3: because that is not going to be playing into your
15:33
Speaker 3: wealth creation. That is not going to play into you
15:36
Speaker 3: having a safe and comfortable retirement, because no matter how
15:39
Speaker 3: nice your house is, you need income to be able
15:41
Speaker 3: to pay for that house and have the electricity be
15:44
Speaker 3: turned on and put food on the table and potentially
15:47
Speaker 3: send your kids to school. So the important thing there
15:50
Speaker 3: is not seeing your primary residence or your home as
15:54
Speaker 3: an investment, because it is not one. And I say
15:57
Speaker 3: that kindly, and I know that a lot of first
16:00
Speaker 3: home owners are gonna be like, yeah, but like, I'm
16:02
Speaker 3: so proud of this, and I am too, I really am.
16:05
Speaker 3: But when it comes to saving for retirement, that's not
16:08
Speaker 3: what we're talking about. Like, having a fancy family home
16:12
Speaker 3: just means you have a fancy family home. It doesn't
16:15
Speaker 3: mean that you have more income coming in in retirement,
16:18
Speaker 3: which is ideally what we are working towards. And I
16:21
Speaker 3: think that this is one of the fallacies that exists
16:24
Speaker 3: in Australia, and that is people going, yeah, but like
16:27
Speaker 3: I bought a really fancy family home and paid it
16:29
Speaker 3: off and now I'm retiring, But they haven't prioritized another
16:33
Speaker 3: form of investment or their superanuation, and they end up
16:36
Speaker 3: with these really expensive homes that they are forced to
16:40
Speaker 3: sell so that they can then afford to retire. And
16:43
Speaker 3: if I'm getting you g you are in your twenties.
16:46
Speaker 3: If I'm getting you now, and I can educate you
16:49
Speaker 3: on this right now. You're not going to be in
16:51
Speaker 3: that position in the future where you just relied on
16:54
Speaker 3: paying off your mortgage as a form of wealth creation.
16:57
Speaker 3: And I'm not saying that paying off your mortgage is like,
17:00
Speaker 3: definitely do that, but we can't only rely on that
17:04
Speaker 3: unless that was your wealth creation strategy. So to flip
17:07
Speaker 3: everything that I have just told you, some people's wealth
17:10
Speaker 3: creation strategies actually have a big family home, have the kids,
17:14
Speaker 3: have the dog. But when they retire, they downsize and
17:18
Speaker 3: they sell that home because they don't need all of
17:20
Speaker 3: the bedrooms for the kids, and they buy something smaller
17:23
Speaker 3: and then invest the amount of money that they had
17:26
Speaker 3: that was the difference between what the house is worth
17:28
Speaker 3: versus what the house was actually originally bought for, and
17:31
Speaker 3: they create wealth that way. But when I talk about it,
17:36
Speaker 3: I just don't want people to be forced to sell
17:38
Speaker 3: their family homes without having the education that they deserve
17:41
Speaker 3: access to. If that's your plan, I love it. I'm
17:43
Speaker 3: glad you have a plan, but that's just it. We
17:46
Speaker 3: need a plan.
17:48
Speaker 2: Do you find that a lot of home buyers tend
17:51
Speaker 2: to limit themselves to just that investment because they think
17:55
Speaker 2: like that's all they need to worry about that's done
17:57
Speaker 2: and dusted, financially set up and ready to go where
18:01
Speaker 2: they could be maybe making the most of the share
18:03
Speaker 2: market as well.
18:04
Speaker 3: Yeah. Absolutely, And that's where as millennials and I know
18:07
Speaker 3: that not everybody listening to our podcast is a millennial,
18:09
Speaker 3: but gee, you and I are so speaking from experience.
18:13
Speaker 3: A lot of us will go down to the bank
18:15
Speaker 3: and say, okay, bank, I have been saving my butt
18:18
Speaker 3: off and they have a home deposit, how much money
18:20
Speaker 3: can I borrow? And they say, gee, you can borrow
18:23
Speaker 3: a million dollars, and you go, great, well, I guess
18:25
Speaker 3: I'll spend a million dollars then, but you don't comprehend
18:29
Speaker 3: what that million dollars actually means when in reality, if
18:32
Speaker 3: you've done your budget and your cash flow and actually
18:34
Speaker 3: paid attention to what you wanted to create when it
18:38
Speaker 3: comes to wealth, maybe you would have worked out that
18:41
Speaker 3: you didn't actually want to spend more than six hundred
18:43
Speaker 3: thousand dollars. Just because you can borrow it doesn't mean
18:46
Speaker 3: you should spend it. You need to make sure that
18:49
Speaker 3: it makes sense for your financial situation. And you're still
18:51
Speaker 3: putting future you first, Whereas if you put yourself in
18:55
Speaker 3: a position for the next thirty years, because that's how
18:57
Speaker 3: long a mortgage is, where every single spare dollar that
19:01
Speaker 3: you have has to go towards paying off that mortgage. One, gee,
19:05
Speaker 3: sorry to tell you you're not going overseas again because
19:07
Speaker 3: you can't afford it. But two, for thirty years you
19:11
Speaker 3: haven't been prioritizing wealth creation. This isn't something that you
19:15
Speaker 3: can just put to the side and be like, oh yeah,
19:17
Speaker 3: once the mortgage just gone, A'll care about it because
19:19
Speaker 3: you've missed out on thirty years of compounding interest. That
19:23
Speaker 3: is why we need to care about it. And getting
19:25
Speaker 3: back to the point of this episode, that is also
19:28
Speaker 3: why some people. I really just don't want to own property.
19:31
Speaker 3: I don't want the commitment, I don't want the long
19:33
Speaker 3: term debt. I don't actually want this as a responsibility.
19:37
Speaker 3: So I'm going to create wealth in another way and
19:40
Speaker 3: maybe invest it in a different asset class and choose
19:44
Speaker 3: to rent. And I think that that is a very
19:46
Speaker 3: viable option if it makes sense for you.
19:50
Speaker 2: Definitely. The other thing that we've spoken about on the
19:53
Speaker 2: pod before is rent vesting. So that's the idea that
19:57
Speaker 2: you rent in maybe a suburb that you can't afford
20:01
Speaker 2: to buy in and then have tenants in a property
20:03
Speaker 2: that's located somewhere that is affordable to buy in. What
20:07
Speaker 2: are the main perks of doing that?
20:09
Speaker 3: So there are a few. Obviously, you get to maintain
20:11
Speaker 3: living in this suburb that you want to live in.
20:13
Speaker 3: Maybe you want to live in in a city Richmond,
20:16
Speaker 3: and you definitely couldn't have afforded to purchase the townhouse
20:18
Speaker 3: that you live in, so maybe you purchase a little
20:21
Speaker 3: bit further out and rent that out. That is you
20:24
Speaker 3: creating wealth for the long term by choosing property as
20:27
Speaker 3: your asset class. Essentially, it's similar to saying, Okay, well
20:32
Speaker 3: I'm still going to invest in something, it's just I'm
20:35
Speaker 3: going to rent, whereas renting forever would assume that you're
20:39
Speaker 3: investing in another asset, so you're investing in shares instead
20:43
Speaker 3: of in another property. And again that comes with a
20:47
Speaker 3: number of hurdles. Like we did a whole episode on
20:49
Speaker 3: rent vesting, But rent vesting means you still have to
20:52
Speaker 3: come up with a deposit. You're still stuck with a
20:54
Speaker 3: thirty year mortgage, and if you don't pay it one month,
20:57
Speaker 3: that's actually not an option, and you've got the added
21:00
Speaker 3: bonus of having to manage tenants and what happens on
21:03
Speaker 3: the months when maybe the house isn't least out, Like,
21:06
Speaker 3: can you afford that difference? It's all just about working
21:09
Speaker 3: out what strategy works for you. And I've got clients
21:13
Speaker 3: on both sides of offense. I've got clients who are
21:15
Speaker 3: rent vestors. I've got clients who are homeowners and live
21:18
Speaker 3: in the home. And I've also got clients who have
21:20
Speaker 3: really great salaries, they have really high combined incomes, and
21:24
Speaker 3: they're choosing to rent because they're just like, I don't
21:26
Speaker 3: want property. I just want to invest in shares and
21:29
Speaker 3: have financial freedom sooner rather than later. And I respect
21:32
Speaker 3: all of those options. The point of this episode is
21:36
Speaker 3: talking about what that option means, because I think that
21:39
Speaker 3: there's this massive misconception that renting forever means that you
21:43
Speaker 3: can't afford to retire, that you can't afford to invest,
21:47
Speaker 3: that you can't afford to do things, when in reality,
21:50
Speaker 3: renting forever could actually give you freedom to retire early.
21:54
Speaker 2: Definitely, all right, we are going to leave it here
21:57
Speaker 2: for now, but we'll be back after the break to
22:00
Speaker 2: debunk exactly why rent money is not dead money as
22:03
Speaker 2: well as all of the perks that come with renting forever.
22:06
Speaker 2: So stick around friends, Okay.
22:13
Speaker 3: They back into it.
22:15
Speaker 2: People often say that rent money is dead money. You
22:19
Speaker 2: and I do not agree with that, But can you
22:22
Speaker 2: give us like a really juicy, like one or two
22:26
Speaker 2: line answer for when the next for the next time
22:28
Speaker 2: when someone says that to us? Did that make sense grammatically?
22:31
Speaker 2: I don't know, but you know what I'm trying to say,
22:33
Speaker 2: it's too dumb. That's just saying dumb.
22:36
Speaker 3: You just tell that person that is dumb, and then
22:38
Speaker 3: you don't talk to them again. No why though? Yeah,
22:42
Speaker 3: actual answer that money is not dead money, because I'm sorry,
22:45
Speaker 3: what are you doing if you're not paying rent or
22:48
Speaker 3: putting a roof over your head?
22:49
Speaker 2: Like?
22:50
Speaker 3: Rent is an essential cost, Yes, a level of luxury
22:53
Speaker 3: comes into it. You might choose to live in a
22:56
Speaker 3: city in a fancy apartment and that's completely up to you.
23:00
Speaker 3: That's where lifestyle comes into it. But I genuinely believe
23:03
Speaker 3: that rent is a lifestyle cost. So yes, to a
23:07
Speaker 3: certain extent, it's a hygiene factor. We need to put
23:10
Speaker 3: a roof over our heads, we need to actually have
23:12
Speaker 3: a home, we need to live somewhere. But when it
23:14
Speaker 3: comes to spending more money on rent, that is a
23:17
Speaker 3: lifestyle decision, and you're investing in that lifestyle that that
23:20
Speaker 3: rent and living in that location can afford you. So
23:24
Speaker 3: for me, I think it is an essential cost and
23:26
Speaker 3: people need to stop saying like, oh, rent money is
23:29
Speaker 3: dead money. I'd much prefer to put it towards a
23:31
Speaker 3: mortgage instead of paying somebody else's mortgage. And you go, okay,
23:36
Speaker 3: But even if you were putting it into your own mortgage,
23:39
Speaker 3: you're actually creating wealth or you're financially crippling yourself for
23:42
Speaker 3: the long term, because too many times do people prioritize
23:46
Speaker 3: having a mortgage that financially cripples them, gives them a
23:49
Speaker 3: life that they don't love because they are not financially
23:52
Speaker 3: able to afford anything more outside of that, Like maybe
23:56
Speaker 3: renting in a city Richmond, and I keep using this
23:58
Speaker 3: as an example, it's just because it's close to it.
24:00
Speaker 3: We both leave g But maybe you're renting there and
24:03
Speaker 3: enjoying the lifestyle. If you'd purchased, you actually wouldn't be
24:07
Speaker 3: able to enjoy the lifestyle, even if you were in
24:09
Speaker 3: a great location, because you don't have the free cash flow.
24:12
Speaker 3: So I think it's far from dead money, and I
24:14
Speaker 3: think it's some of the most important money you'll ever
24:16
Speaker 3: spend in your life. But not every dollar that you
24:19
Speaker 3: earn is actually savable, and I think that that's really
24:22
Speaker 3: important to remember as well. Regardless of what you are doing,
24:25
Speaker 3: you have to pay money to put a roof over
24:27
Speaker 3: your head. And I'm just not going to be swallowing
24:30
Speaker 3: the argument of yeah, but you could be putting it
24:32
Speaker 3: towards a mortgage, Okay, cool, but like you could also
24:36
Speaker 3: be renting somewhere relatively cheap and investing and creating more
24:39
Speaker 3: wealth than a mortgage would ever create for you, So
24:43
Speaker 3: please stop arguing with me.
24:44
Speaker 2: Do you think it is almost a bit like it
24:46
Speaker 2: has a bit of boomer energy about it, you know
24:48
Speaker 2: what I mean?
24:49
Speaker 3: Like, yeah, very you want to just feel no problem.
24:54
Speaker 3: I get that. And maybe it was back then, maybe
24:57
Speaker 3: back in their day g when they had really high
25:00
Speaker 3: interest rates but property was quite accessible because it was
25:03
Speaker 3: only one or two times their annual salary, then maybe
25:07
Speaker 3: it was like, yeah, you're right, it just makes more
25:09
Speaker 3: sense to purchase. But given property now is between ten
25:13
Speaker 3: and fifteen times our annual salaries, that's actually not that feasible,
25:19
Speaker 3: Like that argument doesn't stand up in the same way
25:21
Speaker 3: that it used to. So I think that for us,
25:24
Speaker 3: we need to remember that it is not just a
25:26
Speaker 3: lifestyle cost, it's actually a necessity. And rent money is
25:29
Speaker 3: absolutely not dead money. And I would like to cancel
25:32
Speaker 3: that phrase.
25:33
Speaker 2: Yes, okay, cancel it. That was the answer I wanted,
25:36
Speaker 2: Thank you very much. Okay, So let's talk through the
25:39
Speaker 2: benefits of renting forever.
25:42
Speaker 3: You can do what you want. G. Literally, you could
25:45
Speaker 3: have a tree change one year, and then you could
25:47
Speaker 3: have a beach change the next. I'm not, by no
25:49
Speaker 3: means saying that that is exactly what you want to do,
25:52
Speaker 3: but there's obviously more freedom and more flexibility to live
25:55
Speaker 3: the life that you want. And obviously this means you've
25:58
Speaker 3: got the freedom to rent in certain school zones, which
26:01
Speaker 3: could be really helpful for you, and also renting locations
26:04
Speaker 3: that you otherwise wouldn't have been able to afford anyway,
26:07
Speaker 3: Like how good would it be to go live in
26:10
Speaker 3: Turak G I mean, fancy doll. I'm not gonna go
26:13
Speaker 3: live in Tuak. I obviously don't want to live there,
26:15
Speaker 3: but like I definitely couldn't afford to purchase there, but
26:19
Speaker 3: you know what, I can afford a lease there. So
26:22
Speaker 3: if that's the lifestyle you want to live, you can
26:24
Speaker 3: still live it, and I think that that is really cool. Also,
26:28
Speaker 3: save a huge fee for a deposit and the stamp
26:31
Speaker 3: duty on purchasing a property. You don't have that financial
26:34
Speaker 3: burden of having to save up for ten plus years
26:37
Speaker 3: in some circumstances to purchase. And you don't have to
26:40
Speaker 3: pay off a mortgage, which is a non negotiable, very
26:43
Speaker 3: high cost, which can be extremely stressful for so many people.
26:48
Speaker 3: While it is not your home. Also, g it's not
26:51
Speaker 3: your house, so if the hot water system breaks, somebody
26:54
Speaker 3: else has to pay for it. If that's not a
26:56
Speaker 3: money win, I don't know what is. And then obviously
26:59
Speaker 3: get to get more flexibility with your savings. You can
27:02
Speaker 3: invest more in the share market if that's what you
27:05
Speaker 3: want to do, and you don't have to worry about
27:07
Speaker 3: putting all your savings towards the deposit because you're creating
27:11
Speaker 3: wealth somewhere else, and you're creating wealth then and there
27:14
Speaker 3: So lots of people who save for a home and
27:16
Speaker 3: have home buying as their goal just don't consider investing
27:19
Speaker 3: because they have to aggressively save. And I just want
27:22
Speaker 3: to remind everybody that this is an opinion. This is
27:25
Speaker 3: literally me saying, hey, here are some benefits of doing this.
27:28
Speaker 3: If you want to save for a home, like, go
27:30
Speaker 3: get it. I want to hear about it, friend, I
27:31
Speaker 3: want to know what you are doing. We are just
27:34
Speaker 3: talking about normalizing all the different options that are available
27:38
Speaker 3: to all of us to make sure we are picking
27:40
Speaker 3: the right one for our situation. And if you're listening
27:42
Speaker 3: to this podcast and you're like, why is Victoria trying
27:44
Speaker 3: to convince us to rent? I'm not. But a lot
27:48
Speaker 3: of people are going to listen to this episode and
27:50
Speaker 3: resonate and be like, oh my gosh, I'm so glad
27:51
Speaker 3: someone said that was okay because that was my plan, Like,
27:54
Speaker 3: that's what I wanted to do. I don't want to
27:56
Speaker 3: own property. It wasn't my value. And I'm telling you
27:59
Speaker 3: right now, if I hadn't met Steve and property wasn't
28:02
Speaker 3: one of his values, I wouldn't own a property. I
28:05
Speaker 3: just don't want that responsibility. And I love the idea
28:08
Speaker 3: of having the flexibility of a lease and creating wealth
28:12
Speaker 3: outside of that and have said that before, but I
28:14
Speaker 3: think it's just really important to remind you all right
28:16
Speaker 3: then and there.
28:17
Speaker 2: Yeah, And I think it's it's a comforting idea that
28:21
Speaker 2: for people like myself who have felt for years now
28:25
Speaker 2: quite overwhelmed by the housing market and you know, still
28:29
Speaker 2: holding onto this dream but not really sure why I
28:31
Speaker 2: have it. But I'm renting for now, but how will
28:35
Speaker 2: I end up being? Okay? Like, it's comforting to know
28:38
Speaker 2: that we can rent and just create an investment strategy
28:42
Speaker 2: and still end up in a really good place.
28:45
Speaker 3: You are going to be fine, you do not. And
28:48
Speaker 3: I think that this is what I want you to
28:50
Speaker 3: leave this episode with is the knowledge that you do
28:53
Speaker 3: not need to buy a home to be financially stable.
28:57
Speaker 3: You do not need to have a mortgage to be relevant,
29:00
Speaker 3: You do not need to have a mortgage to actually
29:02
Speaker 3: create wealth. You can start creating wealth. You know our
29:05
Speaker 3: friends at shares is you can invest five dollars in
29:08
Speaker 3: start creating wealth. Whereas with a home in Melbourne, you're
29:12
Speaker 3: going to need a minimum of one hundred thousand dollars
29:15
Speaker 3: saved before you're even able to walk into a house.
29:18
Speaker 3: Like it is insane, and those hurdles are only getting higher.
29:22
Speaker 3: And I know at the start of this episode is said,
29:24
Speaker 3: they're not going to keep going as high as they
29:26
Speaker 3: currently are, and the reality is, even if they stop
29:29
Speaker 3: growing at this point, there's still going to be hurdles
29:32
Speaker 3: that are not able to be jumped over by all
29:35
Speaker 3: of us, and they are still things that are getting
29:37
Speaker 3: in our way. And I think that explaining why renting
29:40
Speaker 3: forever is a good idea for some people actually just
29:43
Speaker 3: makes sense. And talking about the fact that I literally
29:46
Speaker 3: have so many people that I would consider wealthy as
29:49
Speaker 3: clients of mine that do not own property. And to
29:52
Speaker 3: be honest, I think there's something really sexy and really
29:54
Speaker 3: kind of like romantic about the idea that they're just
29:58
Speaker 3: financially free human being, Like they.
30:00
Speaker 2: Just totally have flexible.
30:02
Speaker 3: Yeah, they just have this level of flexibility. And once
30:05
Speaker 3: you can come to a conclusion that works for you,
30:07
Speaker 3: it just makes sense because I know it's a massive
30:10
Speaker 3: pressure and I know that, you know, even looking at
30:13
Speaker 3: my own friends circle sorry friends love you by but
30:17
Speaker 3: even looking at them, they all want that too. So
30:20
Speaker 3: it would be really hard to be surrounded by people
30:23
Speaker 3: who all own homes or have that value of owning homes.
30:26
Speaker 3: And I know, Georgia, you've got some friends that have
30:29
Speaker 3: recently purchased, and that's really exciting. But it would be
30:32
Speaker 3: silly of us to say, oh, I don't feel any
30:35
Speaker 3: pressure because they've done it. We all do. We think
30:38
Speaker 3: about it and go wow, like that was a pretty
30:39
Speaker 3: big financial goal they achieved. I feel not as good
30:42
Speaker 3: because they achieved that. But it's one of those things
30:45
Speaker 3: where we need to normalize that different outcomes are good
30:48
Speaker 3: for different types of people, and just because you haven't
30:50
Speaker 3: purchased a home does not make your investment strategy, or
30:54
Speaker 3: your wealth creation strategy, or your money journey any less valid, brilliant.
31:00
Speaker 2: Oh I feel empowered, I feel seen, I feel heard.
31:03
Speaker 3: Are you ready to sign a lease? No? Okay, all right?
31:08
Speaker 3: So JK not good at commitment of any.
31:11
Speaker 2: Form, absolutely not. Before we head off fee, we should
31:16
Speaker 2: probably chat about the potential cons just to.
31:19
Speaker 3: Make it a more yeah likely, so balance it out.
31:22
Speaker 3: That sounds quite fair. I think that there are a
31:25
Speaker 3: few cons. We need to be honest about this. So
31:28
Speaker 3: in contrast, having a house and needing to meet payments
31:32
Speaker 3: for some people can actually act as forced saving plan.
31:35
Speaker 3: With renting, it can sometimes be a lot harder to
31:38
Speaker 3: save an invest because you just feel like it's free
31:40
Speaker 3: cash flow. Some people actually need the structure of a
31:43
Speaker 3: mortgage to actually be able to save. And I'm not
31:46
Speaker 3: saying that as a suggestion. I literally know that is
31:49
Speaker 3: true because I have seen it. Sometimes having that mortgage
31:53
Speaker 3: there forces people to prioritize saving when they hadn't done
31:57
Speaker 3: that prior. As previously mentioned, it can actually make things
32:00
Speaker 3: a little bit trickier in retirement. But to combat this,
32:03
Speaker 3: we can make additional contributions to superannuation, we can start
32:06
Speaker 3: to invest in the share market, and we can start
32:09
Speaker 3: when we're young, so it's not all doom and gloom like.
32:11
Speaker 3: It's not a bad thing. And at the end of
32:14
Speaker 3: the day, when it does come to leasing, we need
32:17
Speaker 3: to be honest about the fact that you are at
32:19
Speaker 3: the mercy of your landlord. So regardless of the fact
32:22
Speaker 3: that you know you've signed a one year lease or
32:24
Speaker 3: even a five year lease, you really can't know how
32:26
Speaker 3: long you'll be able to live in that home. And
32:29
Speaker 3: if you're a bit of a homebody and you just
32:31
Speaker 3: don't like moving or you don't like change, like, maybe
32:34
Speaker 3: that's not a strategy that is going to work for you.
32:36
Speaker 3: And that's why it's so important to them about our
32:39
Speaker 3: own values around what we want from life, and what
32:43
Speaker 3: I want Georgia might be very different to what you
32:45
Speaker 3: want because I don't mind moving, whereas you might go,
32:48
Speaker 3: oh no, like I hate being uprooted. That is the
32:51
Speaker 3: worst thing ever. Like maybe a part of your money
32:53
Speaker 3: story is that you just want the stability of having
32:56
Speaker 3: your own home. I get it. I'm not saying that
32:59
Speaker 3: this is forever. Like I talk to people all the
33:02
Speaker 3: time who value purchasing a home because that was something
33:05
Speaker 3: that they never had, and I think it is really
33:08
Speaker 3: important to acknowledge that as well. We are not saying
33:11
Speaker 3: that this is an option that is for everybody. We
33:13
Speaker 3: are just saying this is an option that you need
33:15
Speaker 3: to be educated on and you are going to make
33:17
Speaker 3: the right decision based on the values that you hold.
33:21
Speaker 2: Okay, Well, I mean that there weren't as many cons
33:24
Speaker 2: as I expected there a bit.
33:25
Speaker 3: Look, there aren't that many. I mean I tried really
33:28
Speaker 3: hard to scrape those ones together, but I had to
33:30
Speaker 3: be best because clearly I'm a little bit biased and
33:33
Speaker 3: think that it is a really good strategy, especially for millennials.
33:37
Speaker 3: Like looking at the property market, looking at the share market,
33:39
Speaker 3: looking at the numbers behind everything. I do think that
33:43
Speaker 3: renting forever is going to be something that we see
33:45
Speaker 3: a lot more people choosing actively over the next few years.
33:49
Speaker 2: All right, very well, I think that is all we
33:51
Speaker 2: have time for. And yeah, once again, I just feel
33:54
Speaker 2: quite relieved. I guess is the feeling because I know
33:58
Speaker 2: myself and so many of my friends have been feeling
34:01
Speaker 2: that real sense of overwhelm when it comes to the
34:03
Speaker 2: property market and just not really believing that we'll ever
34:07
Speaker 2: be able to get there, and knowing that there is
34:08
Speaker 2: now this other option that no one really speaks about.
34:12
Speaker 2: I don't think we don't really speak about the benefits
34:15
Speaker 2: of using this as a strategy. It's really exciting, no, because.
34:18
Speaker 3: I think people automatically think like you either purchase a
34:21
Speaker 3: home or you rent, and they see renting as a
34:23
Speaker 3: subpar option, like it's the thing you have to do.
34:26
Speaker 3: But you can also actively choose to do that as
34:29
Speaker 3: a part of your wealth creation strategy. And I think
34:32
Speaker 3: it's pretty sexy, if I'm honest, love love that part.
34:35
Speaker 3: All right, let's leave it there. We have we've done
34:37
Speaker 3: my friends. I am sorry, but as always, just before
34:40
Speaker 3: we head off, we'd like to acknowledge and pay respect
34:43
Speaker 3: to Australia's Aboriginal and torrest Right islander people's. They're the
34:46
Speaker 3: traditional custodians of the lands, the waterways and the skies
34:50
Speaker 3: all across Australia. We thank you for sharing and for
34:53
Speaker 3: caring for the land on which we are able to learn.
34:55
Speaker 3: We pay respects to olders past and present, and we
34:58
Speaker 3: share our friendship and our kind.
35:01
Speaker 2: And remember, guys, the advice shared on She's on the
35:04
Speaker 2: Money is general in nature and does not consider your
35:06
Speaker 2: individual circumstances. Sorry, She's on the money if only she
35:11
Speaker 2: is on the money exists purely for educational purposes and
35:14
Speaker 2: should not be relied upon to make an investment or
35:16
Speaker 2: a financial decision. And we promise. Victoria Divine is an
35:20
Speaker 2: authorized representative of Australia Pacific Funds Management Proprietary Limited ABN
35:25
Speaker 2: three four one three two four six three two five
35:28
Speaker 2: seven AFSL three three nine one five one See you
35:32
Speaker 2: next week, yes well, love you all until next week.
35:36
Speaker 2: Bye bye, guys,