Where I live in Australia, most people are obsessive about property investment. There is an assumption that you must buy a house otherwise you will fail financially. As a millennial who doesn’t own a home, people always ask me when I will plan to buy a house or whether I have made any progress in saving up for a deposit on a house. People are either pressuring me to buy a house or to get married.
My response is that I will never ever buy a house. There is simply no need to buy a house when there are investments available that are far better. For example, BetaShares (a brilliant organization, in my opinion) has recently issued the BetaShares Global Banks ETF. This ETF tracks an index that invests in big multinational too-big-to-fail banks. The top 10 holdings are disclosed on the BetaShares website and is reproduced below:
Investing money in large too-big-to-fail banks, in my opinion, is a wise strategy. For years now, Australians have only had access to Australian banks on the ASX via ETFs such as QFN and MVB. Banks are an excellent investment because typically they pay very high dividends.
The more dividend income you have, the more freedom you have in your life. Dividend income is true passive income because you don’t have to do anything to earn it. Even if you own property and rent it out, you must still find tenants, fix broken showers, and unless you own the property outright you have to slave away at work in order to meet monthly mortgage repayments. Then you pay outrageous taxes such as stamp duty, and every year you must pay bills and council rates, as well as land tax. If you own the BetaShares global bank ETF, you pay virtually nothing other than a minuscule 0.47% management fee. You can literally sit back, relax, do nothing, and watch the dividends enter your bank account.
When you own property, you typically need to borrow money from a bank. If you’re borrowing money from a bank, you’re not generating dividends. Rather, you’re paying for someone else’s dividend income. If you borrow money from a bank, you make the bank rich, which effectively means you’re making bank shareholders rich.
What happens if there is a GFC 2 and bank shares collapse?
This is a fair argument. One could make a strong argument that the financial system is more precarious now than ever. However, even if we are nearing a massive recession (which I suspect we are), I don’t think that is a reason to not invest in bank stocks (or stocks in general) because we don’t know when the bubble will pop, and bubbles can perpetuate for decades or centuries.
When I see a bubble forming, I rush in to buy, adding fuel to the fire. That is not irrational.
Furthermore, if you own a property and the global economy collapses, how will owning a house help you? Property prices can go down just like stock prices can go down.
One of the benefits of owning bank stocks is that, even if these banks fail, many of them are too big to fail. They are so integrated into the economy that in the event of an economic crisis they can hold society as hostage and demand ransom (or bailout money) from the government. The government will typically give money to these banks, either from existing funds or from simply by printing new money to hand to the banks. Once banks receive bailout money, they can use it to repair their balance sheet, and stock prices should go back up again.
Below is a passage from the Financial Systems Inquiry report in Australia:
Global history records governments of all political persuasions using taxpayer funds to support distressed institutions. As undesirable as it may be to put taxpayer funds at risk to support financial institutions, in the midst of a crisis it is often the fastest and most certain option to stabilise the system and avoid widespread economic damage.
Investors can rationally surmise that the government is likely to rescue systemically important institutions if no other options exist, as their collapse would cause the most damage to the financial system and broader economy. This leads to a belief that some institutions are too-big-to-fail — that they receive an implicit government guarantee.
In a world characterized by wage slavery, big banks are basically the apparatuses of wage slavery. Whips and chains have been replaced with mortgages and credit cards, and banks are the institutions responsible for distributing these instruments of oppression to the masses in order to enslave them.
If the big banks are in trouble, the entire system of wage slavery is under threat, and for this reason I don’t think the government will allow the banks to collapse. They might make one bank fail just to make an example of them (e.g. Bear Stearns) but if you buy a broad-based index fund, you’ll be investing in the entire banking sector, so it’s not a problem.
How can you live without a house?
Of course you need to live somewhere. Shelter is a necessity. However, shelter is not expensive. I currently live with my parents and pay some of their bills. Other people can easily lower costs by sharing a house with others. They can rent (or even buy) a place and then rent out spare rooms. I recommend buying or renting a place far away from the city in order to get the cheapest price or rent possible and then simply use public transport to travel into the city if you need to work.
Living with others can be problematic because it can be difficult to get along with other people, but there are easy ways to fix this problem. Try to find people who are kind and who will not cause drama. Also try not to interact with people you live with too much. Personally I am always out of the house, either at work or at the local library. If I am at home I usually stay in my room. I have food cooked for me, but even if there is no food, I have a large supply of Australian Soylent (Aussielent Body) that I can drink should I need to eat. This ensures I never have to bother with cooking or cleaning, and arguments over who should clean the dishes are common when people share accommodation.
Personally, with food technology so advanced nowadays, cooking and cleaning are quaint, archaic and useless activities that must be eliminated from your life. People are always trying to tempt me into a life of slavery by telling me that I must get married because I need a woman to cook for me, but Soylent has now made the housewife’s cooking skills completely redundant.
You don’t have to buy a house. Live with your parents or find good housemates, and then keep interactions with them minimal to prevent drama.
Drug dealers have a saying: “Don’t get high off your own supply.” In other words, drugs dealers make money off their customers’ drug addiction, but if a drug dealer were to consume his own product, it will be to his detriment because the strength of his business depends on the weakness of his customers. The same applies to banking. Everyone in society is addicted to debt. The “drug dealers” who supply this debt to the masses are banks, and anyone smart enough can become a drug dealer by buying bank stocks or bank ETFs, but as a drug dealer you should not “get high off your own supply,” that is, you should be very cautious about going into debt.
The goal of my life is to produce passive income mainly from dividends. This ensures I can obtain income without working, which gives me freedom. I am not dependent on anyone. Even though I live with my mother, I rarely speak to her as I’m out of the house all the time, and even if she wants me out of the house, I can easily rent a small one-bedroom apartment paid for with dividend income. Most people move out of their parents’ home, buy a house, and drown in mortgage debt, which makes them slaves to their managers. Because I live off dividends, I am not dependent on my work. I don’t need a job. If I get fired or even if I dislike my work, I can simply find a different job that I enjoy or I may even fly off to Chiang Mai where US$1000 per month ensures you live like a king, and in Chiang Mai I can spend all my time in coworking spaces where I can work on whatever I want that I am passionate about regardless of whether it makes money or not since I don’t need income to live since I live off dividends. None of this would be possible if I had a massive mortgage over my head that forced me every month to pay a large chunk of my income to the bank so that other people can collect their dividend payments. I’d rather be on the receiving end of a dividend payment.
Typically when someone has a large mortgage over their head, they have more than a mortgage. A house has associated costs such as electricity and gas bills as well as taxes, and people who are desperate to buy a house in order to keep up with the Joneses are usually trying to show off in other ways as well, so they will likely have expensive furniture, massive kitchens, refrigerators, huge couches, and expensive TVs. People always put me down for being a minimalist. Some do it with more subtlety than others, but people always try to put me down for not owning a house or having expensive furniture or having a trophy wife or multiple children in elite private schools. I am usually very honest nowadays. I tell them I am trying to have more freedom in my life so I can do what I want, and I tell them I am trying to build up dividend income. This usually comes as a complete surprise to most people because most people have been conditioned by society to buy things and to go into debt. All the money they earn is eaten up either by debt or by lifestyle expenses whereas all the salary income I earn is invested. My savings rate is 100 percent, and I subsist off dividends of approx $30k per year. I do not live a hand-to-mouth existence. I am not fed with money obtained from my own labor. I am fed with money obtained by other people’s labor. My hands don’t feed me. Other people’s hands feed me.
Living off dividends and escaping slavery is not about showing off, in my opinion. I have no need to show off to people because I am quite detached from people. As such, other people’s opinions don’t matter because I am not close to them. Most people must care about what others think because they’re forced to be around them due to circumstances, and if they’re stuck with these people, they need to get along with them, which means these other people must have a good opinion of you.
But I don’t need to be around anyone. I am not dependent on anyone for anything. I am completely independent. I am not afraid of bullies. Bullies can bully me, but because I live off dividends, I can use dividend income to block them from my life. I don’t need to suck up to anyone because, unlike salary income, dividend income doesn’t impose upon you an obligation to keep someone happy. I am no one’s slave.
But from my position of freedom, I am a witness to all the manipulation, deceit, propaganda, slavery, and oppression in this world, and I personally cannot be willfully ignorant of it. I cannot close my eyes and pretend that atrocity does not exist in this world.
Doing something about it is the difference I can make. I can spread the word and help vulnerable beings escape from oppression. That is my purpose in life: to be free myself and to help others be free as well.
Can we change the world? No, but hell, we can all try.
There is nothing in life more important than freedom. Even if you don’t want freedom, being free will give you the freedom to not be free. Better to be free and have the choice of being a slave or not rather than be a slave and have no freedom to be free.
6 thoughts on “Advice to Millennials: Don’t Buy a House”
I agree Calvin, it’s crazy how much debt people are willing to take on. This isn’t made up money, it has to be paid off. Even if we weren’t doing IVF, I still wouldn’t want us to buy a house right now. We are competing with people who are willing to spend all their money on a house, so until we can comfortably afford it – we’ll be avoiding buying.
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Thanks for your comments, Tristan. Good luck on your IVF. Please keep me updated.
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No problem Calvin. We were doing updates on our IVF journey, but it’s a bit quiet on that front at the moment.
Completely agree, thanks for the blog, it’s inspirational and useful at the same time.
I too value freedom, I want to have flexibility to go and work overseas if I want or do volunteering while on long service leave. Renting and sharing is much easier than owning property.
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Thanks for your post, its such an interesting and multi-faceted topic for the financial independence movement. As much as I agree with your argument relating to people in Australia being obsessed with property, I don’t think the rental market in Australia allows for as much freedom as you think. I think there is an argument for buying a property and being financially independent.
In my experience of renting, landlords have an incredible amount of power over tenants in Australia. They aren’t obligated to provide long term leases and can kick you out with only a few weeks notice. We lived in a great location in Brisbane for reasonable price, but had terrible internet and the landlord was ‘mr fixit’ everything was fixed to an extremely low standard. Fast forward a few years, and we purchased a small block outside of Brisbane, designed and had my brother build us a modest house for $380k. We had a large deposit (100k), only needed to borrow 230k and was able to access 20k first home owners grant. We should have it paid back in 4 years. If we invested the same amount in the share market over this 5 year period, I’m very aware that the share market would come out in front. But for me and my partner, the security of having no payments to make except for bills and rates for the rest of our lives (as we don’t intend on moving) is a huge mental relief for us and provides a lot of freedom going forward. We love travelling and intend of doing a 9 month work/3 month travel year when the house is paid off. The thought of having to move every few years, or find a new place every time we want to go travelling is not something I want to do. I think the property argument is the same for many other investment styles and decisions, it relates directly with personal goals and tolerances. You say you can live with your parents, I couldn’t think of anything worse! I say I prefer to build and pay off a house quickly, you think I’m crazy! I think property can be a part of financial independence, but in a controlled and thought out way (low mortgage/pay off quickly). After we pay off the house, we will be 100% ETF focused and hope to fire 8-10 years after that point.
Looking forward to reading more of your blog and hearing your thoughts!
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Thanks for your perspective Kwobr. Rent vs buying is a very interesting topic. I have recently been trying to create a “rentvesting” spreadsheet and have put up a first draft on Reddit so I can refine it over time. See https://www.reddit.com/r/AusFinance/comments/g7sicp/the_mathematics_of_rentvesting/. I plan to refine it further and write a blog post on it. Yes you are right I am living with my parents now and I pay them about $300 per month. This I think is better than buying a house and living in it because a property will be approx 500k and that 500k will produce no income whereas that 500k invested in either shares or even an investment property will generate dividends or rent. There’s more considerations eg franking credits, capital gains tax, etc but I plan to cover all that in my analysis. So if you have 500k invested generation 4% yield then you produce 20k per year in either dividend income or rental income. If I live with parents I spend about 4k per year in “rent” but if I buy I lose 20k in income so renting is better. Now obviously if the rent is higher it is not worth it. Basically I think it depends on your life stage. You want the dwelling you have to suit what you need and what you need changes over time, so right now I am happy to live with parents and pay $300 per month, but maybe in the future post-Covid I might get approval to travel the world while working remotely and then I will spend eg $700 per month on accommodation in south East Asia. And then when I return maybe I might find a girlfriend and move into a one bedroom apartment with her for $1500 per month. Then if we have many children I’d need a bigger property and spend $3000 per month. So at different life stages the dwelling cost changes and renting allows you to now have too much dwelling size therefore you do not have any excess and therefore you don’t overpay whereas of you’re an owner occupier you face massive costs of moving because you have to pay stamp duty when you buy or real estate agent commission when you sell so you are forced to estimate what is the biggest house you may need and you either pay by having far too much dwelling size or if you live far away from the city you pay in terms of commute costs and time. Anyway, I know this was messy but it reflects my thoughts in this area recently. Thanks for your contributions and ideas and comments and hope you get value from my blog.