#326 - I'm a Multi-Millionaire and I Rent

Owning a home in Australia isn't a financial strategy anymore. It's a trap. Most people think buying a house is the ultimate sign of financial success. The reality is millions of Australians are sitting on $1.2 million of home, but zero cashflow. Drowning in mortgage repayments and completely broke in the practical sense. My name's Lloyd J. Ross, and I'm a seven-figure investor

entrepreneur, and I've never owned a home to live in. And in this video, I'm gonna show you why and the number one thing that will change how you look at property forever. Let's go back to the beginning, which is the narrative, the religion of property in Australia. So property ownership in Australia specifically, but also you can apply this to United States, Canada, New Zealand, and some of the Western markets. And in the 80s, it was Japan and Probably up until the

2020, it was China, okay? Every market's been through this and will continue to happen. So property ownership in Australia isn't financial advice. It seems to be a moral identity, right? If you own, it means you are a responsible adult. Rent, and you're a flipping emo teenager pleb. I call it a peasant. I'm a renting peasant, I like to say. Governments, banks, media, real estate industry, everyone's profiting from your purchase. And

they're also the ones telling you to buy. If you look at this, the government's in on it, 5% deposit scheme, immigration, lead boom, the banks are in on it, for sure, it's how they make money. They don't even lend to businesses that much, they just pretty much go, do you have a mortgage? Or do you have a house? And then a lot of industry runs off it. Construction, of course, real estate, marketing, etc. There's just a lot of people that are affected by whether this

wins or loses. And I'm talking like the big players, okay? So there's a lot of conflict going on there. They're profiting from your purchasing, okay? They've got to let this machine continue. They can't let it stop. There's a huge incentive to keep going. So, it's not really financial education for you, it's more of a conflict of interest dressed up as common sense, right? So, property, without a

doubt, if you look back, property has worked, of course. I mean, you don't need to be a genius to work that out. But a 30-year bull run doesn't make it the only path and it doesn't make it repeat, okay? So just because it worked in the past doesn't dictate it's going to work in the future. That's what you have to understand about cycles, whether it's asset cycles, market cycles, business cycles, whatever it might be. So where the wheels fall off for people with houses or homes is

that they're buying a home to live in. and they're doing it in a way that positions them as being house poor. That's the saying, house poor. I'm house poor. I have a house, but I'm poor. When they say poor, they mean I feel poor because I don't have the free cash flow or disposable income to live the life I want to live, which I find fascinating that you compromise your ability to live a cool life for what? To say that you maybe got

bricks and mortar and have a mortgage? To go through right of passage? That's ridiculous. What a terrible life philosophy and I haven't signed up for it if you haven't noticed. You may have signed up for it but you don't have to, right? You don't have to. So here's what it looks like. If you're someone who bought a house, house poor denotes

that you have no investment portfolio, you have no emergency fund, you have no real holidays and both of you as partners have to work and put your kids in daycare. It's just like passing ships in the night. That's the reality for most people. Just because you have to buy a house to be an adult, you can't leave your job, right? And your mortgage doesn't care for your burnout. And every interest rate rise feels like a threat almost, right?

So there's high asset value you've purchased. There's no cash flow from it because you're living in it. There's no freedom and no options. Whilst people put up on Instagram, whatever it might be, we bought it like this. It'd be like, we bought a play site. It's weird because it's, well, it's not weird. It's a rite of passage. So they're saying to you and I, I have gone through one of the, there's a three rites of passage, marriage, maternity, mortgage. Okay. And

then there's fourth one's misery, but that's a joke. Mortgage, maternity, marriage, maternity, mortgage. So they're saying to you, this is what you see, we're getting married, boom, rite of passage. We had a baby, bang, rite of passage. And then we have a mortgage, rite of passage. So they're showing you we are moving through the rite of passage within our tribe to say to you, we are now responsible, we've gone through this. Accept us into your family. value system. That's what's

happening. That's what they put, but they don't put in there, oh, by the way, we bought the price at 13 to 1 income ratio and we have no money left for holiday. We have no money left to raise our kid. We're cooked. Our marriage might be destroyed because we literally cannot rub two cents together. That's not what they talk about, but that's what happens behind closed doors. You never know what's happening in someone's bank account or bedroom. You

never know. And you'd be just mesmerized and shocked as to what can and does happen. But that's not what is put on social media. It's like, we got a house, right? What would be really interesting is if someone said, boom, we got a $1.2 million mortgage at 7% rates. And after tax, we have to make $100K. So one of us has to put that. And now because of that, we can't go on holidays. We've got to put our kids in daycare. And we're scratching

ourselves to find a dollar. And we can't live our life. That's kind of what, that's the reality for most people. Not all people, not all people. I know, right? Some of you are like, no, no, no, I bought a house and put a lot of big deposit, we're good. This is not for you then, right? But it's a lesson for those who are just throwing themselves through this rite of passage, okay? So if you haven't checked out our episode, on what happened in Australia in 1890s, do it. There was a huge bubble. It

burst for various reasons that are happening now too. I'm not suggesting it's not gonna recover for 70 years like it did back then, but it's possible. If you look at 1989, I've spoken about this before. I just got back from Tokyo, right? One of the best cities ever. But in Tokyo in 1989, people were buying houses for 18 to one times earnings. So they

were buying houses for prices that were 18 times the annual earnings of a typical salary. And that hasn't recovered yet. So what's that? 95, 35 years and it still hasn't recovered. So we could be on track for a 70 year recovery there, right? And so this is, this can happen, right? I don't know to what extent, but you can see very clearly. And I've said this before that in Canada, prices are down 30%. USA prices are down the most since the GFC.

And in New Zealand, it's very obvious that they're falling. Okay. If you don't believe me, ask someone from New Zealand, they'll tell you. You can see that China has fallen a long way since 2020. We know that Japan has fallen a long way. In fact, you can buy a place in Japan an hour from the city in Tokyo. The biggest thing about this, Tokyo

is the biggest city in the world, 38 million people in the wider Tokyo area. And you can see that if you go and you can buy houses there for 150 grand USD and the same house in Parramatta, which is the same distance from the city of a city that's much smaller, Sydney, it's 1.5 million. Like, you kidding me? Like that's the difference. Yeah. So what drove those real estate markets in New Zealand, Canada, USA, Australia, China, all of them is cheap credit. Cheap credit, rising prices

and a narrative that is going to continue and a cultural obsession. Yeah. Banks were maxed out, property always goes up, that type of stuff. And you hear that today, right? And so Australia's got every single one of those ingredients, all of them. A cultural obsession, banks are maxed out, limited land supply, and they talk about not making any more, cheap credit, more immigration, like it's just all there. Like every single thing you can imagine has driven this,

has driven it. Which means there's nothing left to drive it. And so as those things start to come off the ball, of course we're gonna see an adjustment, we will. What's really cool about doing this podcast too and doing this channel on our YouTube, sound like a boomer, at this channel on our YouTube channel is I get to go back and check this out. Now, what was really cool recently is I went back and did an

episode on oil, and then three months later, oil's cranking. That's fun. So it will be interesting to see, and I've done many on crypto, so it's gonna be fun to come back in the future and see how accurate this was. So, so far, we're one up on the oil. I've been fighting crypto for a long time. It's 50% down, so we'll see. But I'm also thinking that property's

gonna come off the ball too. And I think progressively more people in the comments are agreeing with me because they're now starting to see where the wheels can fall off it because rates are going up, like it's starting to happen. And I think it's pretty crazy now to run out and buy a house for 13 times earnings. I just see lots of things changing, right? So it's got every single one of those ingredients. As I said, history doesn't repeat,

but it's, it's kind of rhyming now. Okay. So if you're skinning it down as to what causes someone to become house, but what's the real cost of ownership. Okay. So, uh, most people don't stop to think what a house actually costs. Cause they see a house in Brisbane. Oh, it's 900 grand. Oh, it's not. It's not the 900 grand, right? It's 900,000 of which 90% or more, you got to borrow to get it because you don't have $900,000 cash, right?

Most people don't. And then all of a sudden you got stamp duty. Oh, well, that's 35 grand. That's a tax. It's gone. It doesn't sit in the house in equity. Gone. Tax. Non-recoverable. Then you've got mortgage interest on top of that, which is about 46,000. Now it's probably more than that. It's at 908c borrower, 808,756. So it's 56,000 now interest, not including the principal repayments, gone. Like rent money, gone. Just

the same. And the only thing you're banking on at that point is capital growth or paying down the principal over time. And then you've got rates and insurance and maintenance. And then if you have to borrow more than 90%, you've got mortgage insurance, which is another 30K or 22K, whatever it might be. That's gone too. It's not your mortgage insurance, it's for the bank. They get paid if you default, right? So yeah, you're down probably, you know, 40 or 50, 60,000 in cash,

non-recoverable when you buy a house. It's just a transaction cost. It's a very heavy duty one too, right? And

then you've got, then, then, It's not just 900, it's a 960. But then the real problem arises and it's this, it's the operating costs of a property. And no one ever contemplates this or very few people contemplate it and think about it. It rates, which are going up all the time, which are actually CPI or actually growing higher than inflation. So actually it's not hedged with inflation rates. Insurance also going up, not hedged against inflation. So they continue

to rise over time. And maintenance, which is also not hedged against inflation because the ability to get higher labor and goods and materials to maintain is going up, which is about 1%, just saying it's 1%. So a $900,000 house is 9,000 a year. So we're at 9,000 plus rates. plus insurance and so forth, we're probably looking at $15,000 or

more a year, $15,000 and $20,000 a year. So now you're at $56,000 in interest, you're at $20,000 in operating costs 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 an emotional attachment to that. Now we're at $76,000 plus we've lost $50,000 or $60,000 in non-recoverable costs in the stamp

duty and the mortgage insurance. If we're at $75,000 plus and we haven't even contemplated the principal repayments, you add on another $50,000 you know, $25,000 of that, you're up at $90,000. Divided by two, so you're up at like $1,800 a week, versus $900 a week you could have rented it for. So,

you know, you do the numbers. It's just simple arithmetic. The true cost is $8,200 a year to run it, and I know that the principal falls over time, so I know that the interest cost doesn't stay there, but for the first, I don't know if you know this, but for the first 15 years, most of it's interest. 20 years, you

don't start paying down principal till later, right? So it's very cumbersome to get into, which is why if you have the ability to put a higher deposit in there, for sure, if you have no other better uses for it, it makes some sense to protect yourself from rising rates, of course. So that's the numbers in a bit more detail that people don't do. But then there's the other thing we call opportunity cost. And it's probably one

of the most important concepts that people just completely miss in conversations. Just quickly, if you're ready to take control of your finances, but feel stuck on where to start, I have a solution. My book, Money Buys Happiness, simplifies investing and wealth building with practical steps to help you achieve financial peace. get your copy via the link in the show notes and let's get your money working for

you. Now back to the episode. If you were to put down that 100k deposit and the stamp duty and the mortgage insurance, we're at 160 to 180k of deployed money that are some of it, most of it sitting in the bricks and mortar in equity, but the rest of it is unrecoverable, gone as a tax. So let's say you took that 100 and $60,000, $180,000 odd dollars, and you invest it in global equities, for example, at 9% or 10% over the next 20 years, it turns into $1.1 million. No

extra contributions, by the way. If you've just taken the $180,000, invest it, don't touch it for 20 years at that prevailing interest rate. Now, will it continue to grow that way? Time will tell, but since 1957, the S&P 500 has compounded on average at that rate, so there's a likelihood it will continue. No extra contributions. You're not putting anything else. You're just putting in what you put into the house. Yeah, of your cash.

Now just compound at 1.1 million. Yeah. And you've got to also account for at that point, at that point, you've got to account for interest,

maintenance, interest above the rental rate, maintenance, rates, illiquidity, a hundred percent concentration risk in one asset classic, fall into a sinkhole, get flooded, get white ants, just saying, right? In one specific suburb. And the people in Dubai are starting to realize, holy crap, I never thought this was going to happen. And here we are, concentration risk. It

happens, right? So you've got to contemplate not just is this challenging on our cashflow to own this house, more so than if we just rented for a period of time and got it in a better position, but also what's the opportunity cost of us not deploying it into other assets? And what's the risk of interest rate exposure? What's the risk of single ownership in one asset class? What's the concentration risk? And this is what people don't contemplate or discover. And floating

around the interweb at the minute is a book I wrote called Housepour about this stuff. And what's on one of the meta ads that we're running at the moment is this little screenshot there that's real. This guy said to me, Lloyd, he's a guy I've known for a long time. He said, if you zoom into it, it says, I'm so glad we didn't buy a home. We ended up just buying a property investment

for a lot less. So straight away, less debt, less interest rate exposure, and we're getting tax deductions, and we're getting the tenant to cover the repayments, and we're actually renting. It's rent vesting, and it's been around a long time, and it's what a lot of people do. It's just a more sensible approach if you want to get exposed to the real estate market. It's just so much more sensible. So that is a good example of someone who's just been intelligent about

exposure to real estate. So again, I want to harp this. I'm not vehemently against the asset class like I am with crypto. I am completely vehemently against crypto. Real estate is a wonderful asset if it's invested

in correctly. Perhaps you do the numbers and you have a good rent vest situation. Awesome. Perhaps you have got a home and you have bought it for cash because you've got – great. If the ROI of your lifestyle is going to trump it, also do it. But that's not what we're seeing. I just don't see that. That's what this episode is about. It's about understanding that it's not the bill and end all if you don't do it correctly, right? And it's okay to rent. It's okay to be different

and contrarian. I guess people really worry about other people's opinions a lot, but I find it fascinating and kind of fun that I rent. And a lot of my, in fact, one, two, three, I mean, I reckon a dozen of my multi-millionaire friends, and some of them make millions, like, some of them are making 25 million a year plus, like, they're exiting businesses for 50, whatever. Almost all of them rent.

I'd say, if I think, they rent. A few of them have property investments they've purchased, of course, but they're renting. It's fascinating. That's a very statistically significant thing, right? So,

it's not the be all and end all. What's interesting about those friends too is they've taken their capital and instead of putting it in a home, they've taken the capital and started businesses, which are cash flowing asset that can pay you for a long period of time, that can actually help you buy more than one home, right? That's what they call them on X, hooms. So it's okay to be contrarian, so long as you're doing intelligent things

with the capital. Like if I rented, which I do, and I was like, I'll rent, and then I just blow it all on flipping, I don't know, whatever. then that's dumb. I'm not suggesting to do that. Of course, renting, yes, you're paying the landlord's return, but you're also saving money in

operating costs. You're also saving money in interest costs. You're not exposed. You also have more flexibility and optionality, and you've taken the capital from the deposit and the costs like mortgage insurance and rates and stamp duty, and you've actually deployed it into buying a business. In fact, the amount of money that you would have put into a $900,000 house in Brisbane, you could buy, as one else said the other day, a laundromat. Cash,

done. $35k income, done. There's one in Cooma recently for sale. For the price of the transaction cost, you could buy the prince net income, what the property prince, with no risk. Well, very little risk anyway. You know what I mean? It's just like there's other uses of your capital, right? So capital deployed intelligently is just a good thing to do. Now,

if the tides change or when they change, depending on how much they change, and real estate falls to a point where people don't want to touch it because they've just been burned and scorned by it, which I've seen before in 2009 and 2011 here in my city. I was, at the time, I was offered, you know, to buy places in the middle of South Paris for 56 grand. I mean, we were selling houses in America for $8,000. People were using their credit cards to buy houses. I

mean, I've seen that. Now, I'm not suggesting that's going to happen, but it could. But if you see me going, hey guys, the tide's changed in real estate. You can buy it for three to four times earnings now. The cash return on this is 10% net. It's sensible. It's in a good growing city. We can diversify across multi-doors. It makes some sense. I'm seeing some capital growth. I'm in, but I'm not seeing that. That's all. That's

all. That's all it is. Capital deployed intelligently into businesses, good quality shares that you understand or an index fund that you understand for long periods of time and property that doesn't make you house poor is reasonable and rational because it will give you the psychology freedom that no one talks about. It won't anchor you down, you can move through the opportunity, you can create optionality in your life, right? I

had this student of mine, it's actually in the new book, and he came into one of our programs, he read this book Money Buys Happiness, and he ended up, he did have this property investment, and it was negatively geared, and it was just sucking cash flow from him, and he had equity tied up in it, and he said, you know, I find the equities there, I wanna do this, I'm not pretty, any future cash flow, and It

hadn't served him and so he actually sold it. And he put his money into a portfolio of shares and he's now, I think he's up 20% capital growth since he did that, producing income, but also gave him the optionality to move and rent. It just freed him up and now he's just a different guy. He just changed his focus, right? So it was turning a cash drag into, I'm laying awake at night thinking about this, to from what if something breaks to like, How can I shift this and change this? It's those

questions you ask yourself that start to shift how you deploy your capital. The decision will feel scary. It's going to, but is it serving you now? Don't take me wrong. I'm not saying go and sell your investments, but just think about it. Is it serving your objectives or do you have a better place for the capital? We all get to choose. We all get to make decisions. I had another student of mine in one of our elite programs and he sold his house and bought a gym and

it just changed his life. He's just winning, winning, winning, winning and did it while he was in his job. There are some astute options out there for you to consider. But in Australia, there's a blind spot. It's just where they just focus on property. No portfolio, no passive income, no options. A mortgage with a good It's a good primary residence, fine, but it's not wealth. It's the appearance of wealth. And there's a gap between those where it's fine, but then where lives get destroyed. When

you buy, buy well within your means where you have a serious deposit and it makes sense. And when things change, someone loses their job, whatever it is, you don't get wiped out. Does this serve us in all seasons? Yeah. And so in that way, you really limit your exposure and risk. Okay. So. Buy from the spreadsheet, not from the shame. That's a very important thing to write down. Buy from the spreadsheet, not from the shame. Every investing activity is best done when it's most businesslike. And

that came from Ben Graham to Warren Buffett. And I think of things like that all the time. Is this most businesslike? And most people aren't doing most businesslike. They're doing, this is exciting for me so I can put it on Facebook and tell everyone that I 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 just not real. This is an

interesting stat. The average Australian holds 93% of their net worth in their primary residence. One asset, illiquid, undiversified. It's like holding 93% of your wealth in one stock. It can work, but why? Just a little

bit of diversification. Decide with clear eyes and real numbers, not cultural fog or the shame or someone else's timeline as to whether you buy, right? Someone in your life right now is sitting at a kitchen table at 10.47 PM feeling like they can't say it out loud. So send this episode to them. Hit the subscribe button, but send this episode to someone who you know is housebound and tell them, and I'll tell

them, you've got a choice. No one's holding a gun to your head to say you've got to sit on this thing and cash outflow to yourself and compromise your life, four bricks and more. There are other ways, okay? So hit the subscribe button if you want to get more of this unfiltered, unadulterated financial education in a way that is hopefully entertaining, interesting, and factual for you to make better financial decisions, which is why we're here.

So I'll see you in the next episode. Thanks for listening to Money Grows on Trees. If you enjoyed the episode, leave a five-star review on Apple Podcasts and Spotify and subscribe to us on YouTube so you never miss an episode. And if you're serious about building wealth, make sure to check out the links in the show notes and follow me on all social media platforms, at LloydJamesRoss for