Here are three reasons why as a multi-millionaire, I still rent
instead of owning my home. Number one, you got this wonderful home,
you got a big personal mortgage and you cannot breathe financially. That
is not the whole idea of making money work for you and that's not how you
make money by your happiness. Just make sure that you know
the details of what it's going to cost you to get into a mortgage before you
sign the loan contract. The questions people don't ask themselves before signing
on for their mortgage. One, what's your 30-year commitment to
the mortgage? Meaning, what is the amount you're gonna have to pay each week
or each month for the next 30 years to keep this property?
Number two, I'm Lloyd James Ross, seven-figure investor and entrepreneur,
and I've helped thousands of business owners and professionals turn financial
stress into success. If you're stuck in old money habits, overwhelmed
by investing, or unsure where to start, this is for you. I'll
give you the mindset and strategies to take control, grow
your wealth and achieve financial freedom. It's time to make your
money work for you. So in this episode, we're going to get into whether
you should buy a house and why society tells you to and whether that's a
good idea or not. So most people are told,
buy a property. They were told that from their parents and their grandparents. Sure,
since the 1980s, as interest rates have fallen from 17% down
to zero, it's been a great place to have your money. But that
doesn't mean real estate is going to continue to go up at the same rate. There's been certain
things in Australia, certainly here, that have changed the real estate landscape. They
deregulated the banking industry. They dropped interest rates to zero. And
the other spouse started working. Those three big moves financially is what
propped up prices. But they're done now. That means going forward, we're probably
not going to see the same gains. So just be careful of taking advice from
30, 40 years ago, because the entire macroeconomic landscape has absolutely
shifted. And it doesn't mean it's going to work in the future. But what will work
is cash flow, investing in yourself, and having flexibility. You
definitely want to minimize your downside. And in Australia, if you
get a mortgage you can't afford, and you have to foreclose on it, and
you default on it, your credit rating will drop and potentially you
can go bankrupt. You want to avoid the downside. You want to maximize
the upside. And if renting is a way to do that, then you'll be renting. But
what it means is you don't have to buy into what society tells you.
Of course, they're going to tell you to buy out. They want you to join the mortgage club with them because
it's flipping hard, right? It doesn't mean you've got to sign up for that. Just buy
your property when you're ready for the reasons you want to and
you absolutely understand the numbers, which we're going to get to in this episode. Let's
dive into the numbers so you understand exactly when to get a mortgage, why, and
you understand in the detail where it can become cumbersome for
you. You've done everything right. You've
saved for a deposit, got pre-approved, and
finally secured your home loan. The bank
hands you a 30-year mortgage contract and you sign
because that's just what everyone else does. Months
later, the reality sets in. Your repayments barely
touch the principal and you check your loan statement and most of your hard-earned money
is going straight to interest. It feels like
you're paying for a house you don't even own yet. You start
doing the math. Over the life of the loan, you'll end up paying
the bank two, maybe three times the actual
price of your house. And if you miss a payment, more
fees, more interest. The bank always wins.
You look around, see others caught in the same trap, locked
into massive loans, working longer hours, stuck in
financial prison for decades. You begin to
wonder, is this a scam? Not
in the legal sense, but in the way the entire system is designed to
keep you paying for life. Banks push 30-year
loans, knowing you'll pay hundreds of thousands of dollars, if not
millions of dollars, in interest before ever owning your
home outright. Meanwhile, they'll tell you it's
good debt. They'll tell you stay in the system, refinance, stretch
your loan term. Every move you make, every dollar you repay, feeds
into their profits. And here's the kicker. Most
people never question it. They accept it as just the
way things are. They work harder, stretch their
budgets, keep handing their money to the banks without realizing they
could escape the cycle sooner. Mortgage
equals death pledge. That's
an old French term, which actually means you've got to pay this loan back until
the day you die, or we'll foreclose on the asset and we'll take it from you.
That's where the term mortgage comes from. And I'm not suggesting it's
the worst thing, but done under the wrong circumstances, it absolutely is.
And how do I know this? Because other pundits in the industry, other major
financial commentators like Morgan Housel, Dave Ramsey
and Ramit Sethi have all said the exact same thing. Under
the circumstances that people are buying properties, it does not
make sense. You don't want to become house poor,
meaning you've got this wonderful home, you've got a big personal mortgage, and
you cannot breathe financially. That is not the whole
idea of making money work for you, and that's not how you make money by
your happiness. To prove what I'm talking
about, I want to go through some numbers. So stay to the end so you can see exactly
how much is going to be coming out of your account if you go into this
death pledge. All right, so let's get into it. Before I move
into the data, I want to caveat this. I'm not suggesting that
having a mortgage is the worst thing ever. And I'm certainly not suggesting not buying
a home. What I'm suggesting is buying it under the right circumstances and
you actually understanding what you're getting involved in. Because if
you don't understand your mortgage contract, you don't understand the numbers, The
devil's in the detail. You're gonna put yourself in a financial bind, in
financial prison for the rest of your life. And that's what I
don't want for you. So pay close attention as I go through the numbers so
you know exactly what you're getting yourself into and you know
exactly when the right time, when the right numbers stack up for you to
absolutely get a mortgage and live in your home with your family and enjoy
that experience. All right, let's jump into the numbers. So I
live in Australia right now and the median or the average house price right
here is around a million dollars, okay? It used to be a lot less,
but now it's a million bucks. It might be different in your country, but a
million dollars with a 10% deposit for a 30-year loan
term means you've got to actually fork out 100,000 for the deposit. And
at 6.5%, your monthly principal
and interest payments every month are $5,688.61. But $5,688 every single
month. So
if we look at that over the course or the duration of the loan of
30 years, it means you're going to pay in interest
$1.147 million just in interest. That's more
than the price of the home. So your total repayments in that time are going
to be over $2 million. And this
is why it gets tricky to own a mortgage with a
very high priced home. Okay, this means over the course of the
loan, you're paying more in interest than the homes costing. Okay, so that
works out to be about $1,400 a week, $1,400 a
week of after tax dollars, meaning you've got to go and probably earn 2000 a
week just to pay the 1400. That's someone's entire income
into the mortgage. Now, if we add in their operating costs, like
council rates, which is about $36 a week, we
add in home insurance, which is about $28 a week, and we
add in maintenance, what people don't see you have to do with your house, and
we add in about $190 a week. That means we're adding a whole nother $256 a week to the $1,400. So there we have $1,656 a week just
to live in your mortgage house, and it's only worth a million bucks. $1,650 a
week of after-tax dollars. So you can see how much
you have to actually put in to just buying a million dollar home after
you put in $100,000 deposit. On the flip side, let's
look at this from a personal experience from myself. 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. My wife and I live in a million dollar
apartment on the river. It's a great apartment, right? But we pay $850 a
week for that apartment, 4.4%. And
so the balance of what we don't pay, we invest into shares. So
here's an example. We pay $850 a week. So
by contrast, we save about $800 a week not
having the mortgage. That's about $40,000 a year. I
take the $40,000 we invested in shares that grow roughly
at 14% per annum. So we're actually saving money
and then putting it to work harder than the 6.5% that you're paying in
interest. And that's how we're getting ahead. But most importantly for us, here's
what we've done. Instead of putting out the 100K as a deposit, we
invested it in growing and scaling for businesses that are
now producing money back to us. We're taking the cash flow and
we're investing it in shares that are producing a lot more than the 6.5% in
interest that the bank is charging. In fact, we have been
known to buy a lot of bank stocks because we know that it's better to
be the bank than owe the bank. And that's how we've got ahead
financially to become financially independent. In fact, we got financially independent in our 30s
because we didn't rush out and get a big house with a big mortgage
like everybody else. We weren't trying to keep up with the Joneses because the Joneses are
broke, right? So don't try and keep up the
Joneses, just go at your own pace. But make sure if you're going to get a mortgage, you've
got enough for a deposit and you understand, you truly
understand the principal interest payments on a weekly basis that
you're going to be committed to for 30 years. Now, I understood this because
my whole background is property and finance, and I'm a lawyer. So I looked
in the details. I'm like, why are all these people buying houses? What are they, crazy? Right?
Because we want to have flexibility to be able to build businesses, get out
of our jobs, and build freedom. You can't do that if your hands are tied with
a golden handcuff, as they call it, to either a job you don't like, and
most importantly, to pay a mortgage that you don't really need. And
that's what I saw. I never wanted to put myself in a position where I couldn't
move. And that's what happens if you get into these death pledges where
you don't understand the details, all right? So. For
11 years, we've lived in our apartment. We started renting there for about 500 bucks
a week. And from there, the rent has
gone up to about $850 a week, which is about a 6% annual growth
rate. Stay with me here, because what I'm trying to explain to you is how this
works from a cashflow standpoint. So for the last 11 years,
our rent's gone from 500 a week to 850. That's 6% a year. Inflation is between 3% and 4%. So the reality,
is our rent has only gone up 2% a year. I really hope
my landlord doesn't watch this because I don't want him to put the rent up even more. And I can
see my wife over there saying, why are you recording this episode? But
I'm trying to explain to you why I rent instead of own when
it comes to a mortgage. Now, it's different when you buy a property investment, you've
got a tenant paying it, that makes a bit more sense. Okay, and it's more tax
effective. I'm talking about buying a home that you live in, you pay
a very hefty price to buy a house with debt that
you then live in, there's no tax deductibility, the debt, you've got to
service all yourself. And if the market falls, you're stuck in
negative equity. I've seen people stuck in negative equity where they actually owe
more than what the house is worth. You want to avoid that at all costs. But
most importantly, the reason why we've made these decisions to rent instead of own
is because it allows us the flexibility to take the cash flow
we're saving, invest into more productive assets, but
also invest in our own businesses, and most importantly, invest
in ourselves. So here's the bottom line. Just
make sure that you know the details of what it's going to cost you
to get into a mortgage before you sign the loan contract. Understand the
numbers, do the numbers with your broker and absolutely under all circumstances,
know that even if one of you loses their job, that you can easily
afford the mortgage. And if that's not the case, don't do it. Nothing
wrong with renting, it's okay. I know you're gonna be a peasant like
us if you rent, but it's okay to be a peasant if you're happy,
all right? You don't wanna be rich and unhappy, all right? You gotta make sure
that money buys happiness, not sadness. So
make sure you understand the numbers before you rush out to
buy a house with a mortgage and become house poor.
What I want you to be is cashflow rich and happy, not
cashflow poor and sad. Now that I've covered that, you're
probably thinking, yeah, but Lloyd, rent money's dead money. And Lloyd,
the value of my house has gone up massively and it's built wealth. I get it.
But what I'm saying is that you don't want to blind yourself
just to get this capital gain that you can't even realize. So for example, when
people say rent money's dead money, I say interest money is
dead money. Whether you're paying rent or interest, it's not your money. It's
going to someone else. It's either going to your landlord in rent or it's going to the bank in
profits. So rent money and interest money is dead money,
okay? But then you might be thinking, yes, but the value of the house
goes up and I understand that But most people don't
realize the value of that house until they sell it So if they were to
sell it, then what? Then what are you going to do, right? You're
going to downsize and get something smaller? Unlikely You're going to sell it
at the age of 65? Sure, but how much life do you got left? So
yes, the value of the house does go up under certain circumstances, not
always. In Japan, real estate's gone down for 35 years. In
the US, it's pretty much gone down since 2008 and then plateaued. And
in China right now, it's falling drastically. They all went through property booms. Property
doesn't always go up. So if you've got to own this thing for 30 years, you
can't just bet that it's gonna keep going up and keep going up and keep going up because it doesn't. In
2008, here where I live, property fell by half. Okay,
so just be aware of that, it does happen. Sure, the value of
the house goes up and that's why I like property. That's why, yes, under
the certain circumstances, it's effective to buy a house. I'm not suggesting don't
do it because you wanna capture those non-taxable gains in
your principal place of residence. Yes, but don't do
it if it's gonna bind you to a prison sentence and put you in
a job you hate for the next 40 years. Why would you compromise that for
what? Some capital gains in the future? That's a big price to
pay, 40 years in a job you don't like to get some capital gains in the future. What,
so you can start living your life after the age of 65? I like living my life now.
That's why I think renting is more flexible, more fluid, gives you more
cashflow to do things like start a business, buy a business, invest in
other assets and travel the world like what we've done. That's the flip side.
But of course, if you don't want to do those things, and you like the certainty of having a mortgage, go
get it. But make sure when you get it, you understand the numbers. Because
I don't know how many times people have said to me, Lloyd, I'm just stuck here. I'm like, why? Because
they've bitten off more than they can chew. They have to spend $100,000 a
year just in the mortgage to live. I just don't want that to be you. That's
all. All right? So yes, there is a flip side to this. And I believe in
the flip side to an extent, but only under the right circumstances. Just make
sure you're smarter than your bank. Another counter-argument is,
Lloyd, I've got kids. I need steadiness and certainty and so forth
and security. That is just a lie you tell yourself. How do
I know? Because I was a kid, and when we went through lots of
rental properties, I couldn't give two hoots. Could care less
if my parents owned the house or didn't own the house. At one point, they owned a
house, then they didn't own a house. Then they owned a house, then they didn't own. I rented, I
rented. I've been through 20 houses in my life, and look at me. I'm
well-adjusted. I'm not saying don't get it for security,
but we've lived in our rental property for 11 years,
and we've been able to treat it like our own home. So that whole notion that you can't
have security is BS, because in my past, when
we've moved house, it didn't affect my security and safety, okay?
At all. It didn't affect how I grew up, because I like moving houses.
I like new environments. It taught me to actually adapt to new environments, okay?
So this whole thing that, oh, a lot of got kids, I got to say, and people are
saying to me, yeah, but when you have, I'm just saying that I was a kid and
it didn't have an impact on me. In fact, I preferred it. And
if my parents were more financially secure so we
could go on more family holidays because we didn't have a crappy mortgage we had to
pay for, it was way better. So just think about
it. Is it really security or is it pretend security that
you're creating? Because real security is in the love you have with
your kids and your family and having a great relationship with them and the adventures you can go
on. It's not, hey, by the way, in 40 years it'll be worthwhile. I know we can't go
on any holidays. I know we can't buy this. I know we can't do this. But in 40 years
time, we're going to have some capital growth. They're going to be adults by then. They
won't care. So what do you mean when you say it'll
give us stability and security? Not every single renting experience is like, we
have to move every five minutes. You will find a steady one and a long-term one. It's
just better than being in financial prison. So just weigh it
up, okay? If you can get away with getting a mortgage and owning a property and
a house where you can have stability for the children, you can have capital growth,
by all means, absolutely go for it. But right now, buying a million dollar
home is a massive stretch for most families. So just be
careful. Buying a house to keep up with the Joneses is not always the
best strategy. Do it for the reasons you know to do it for, for
understanding the data that's there, blah, blah, blah, blah. If you've
enjoyed this, leave me a comment below. What's the number one learning from this episode
you've had? Hit the subscribe button, follow us on Spotify as well. Leave
us a five-star review, but most importantly, share this with a friend who needs
to hear it because this must really be
understood by you and others before they buy a mortgage. Okay,
see you on the next episode. Thanks for listening to Money Grows on Trees. If
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