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
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make sure to check out the links in the show notes and follow me on all
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