Should Aussie Late Starters Invest in Real Estate to Achieve Financial Independence? I ask 2 Aussie FIRE experts

Should I invest in shares or real estate?

It seems that you must choose between the two asset classes. Australians are very passionate and have definite views about investing in property.

But what if you are a late starter? As in you only started your journey to Financial Independence (FI) at the ripe old age of 47, like me. Typically, your timeline is shorter. And you don’t have the luxury to be able to correct your mistakes and re chart your course of action.

On my Late Starter to FI series, I share other late starters’ stories and the strategies they used or are using to achieve FI and maybe retire early(ish).

I notice that many US late starters either already or aspire to invest in real estate, establishing a portfolio of short term or long term rentals to help them achieve enough income to be financially independent.

In particular, check out the following stories – House of FI, Contrarian Saver, What The FI, and Costa Rica FIRE

This is not the case among the Australian contingent, myself included.

I wonder why. Are we missing something?

Should Aussie late starters invest in real estate as a strategy to reach financial independence
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Some Australian real estate facts and figures

The median house price in a capital city in Australia, its year on year growth, together with median house rents and rental yield* as per Domain for the June 2020 quarter are as follows:

Capital City

Median House Price

Year on Year Growth

Median House Rent Price

Median House Rental Yield

Sydney

$1143012

10.5%

$530

3.04%

Melbourne

$881 369

6.9%

$430

3.17%

Canberra

$819 090

9.3%

$575

4.24%

Brisbane

$582 847

2.4%

$400

4.60%

Adelaide

$553 036

3.0%

$395

4.46%

Hobart

$529 388

10.0%

$450

4.63%

Perth

$522 414

-1.4%

$370

4.65%

Darwin

$516 213

-0.1%

$480

4.85%

 *rental yield = annual rental income divided by property value, expressed in percentage
 
Also, as per Domain, the rental vacancy rates in capital cities in August 2020 - note Melbourne's rate (where I live) compared to a year ago:
 

Capital city rental vacancy rates – August 2020
August 2020July 2020August 2019MoM ∆YoY ∆
Sydney3.5%3.5%3%
Melbourne3.8%3.2%1.6%
Brisbane2.2%2.3%2.2%
Perth1%1.3%2.7%
Adelaide0.9%0.9%0.8%
Hobart0.6%0.7%0.4%
Canberra1%1.1%1.1%
Darwin1.3%1.7%3.4%
National2.1%2.1%1.9%
Source: Domain
Note: The vacancy rate represents the portion of available, empty rental properties relative to the total stock of rental property. The rental vacancy rate is based on adjusted Domain rental listings and will be subject to slight revisions over time.

Source: Domain

There is no doubt that Australian properties, especially in Sydney and Melbourne are expensive! The rental yields as shown above are the gross yields ie operating costs of a rental property has not been taken into account. Net yields will be much lower as a result.

One has to work hard to find properties that are reasonably priced, with good prospects of capital growth and/or better than average rental yield in an area of low vacancy rate.

How about the US market?

According to the National Association of Realtors (NAR), America’s national median single family home price in June 2020 quarter was $291 300.

The top five most expensive cities are San Jose, California ($1.38m), San Francisco, California ($1.05m), Anaheim, California ($859 000), Urban Honolulu, Hawaii ($815 700) and San Diego, California ($670 000)

What I found interesting too was the breakdown in existing home sales by price range in July 2020

$0 – $100k         6%

$100k – $250k  33%

$250k – $500k  41%

$500k – $750k  12%

$750k – $1M      4%

$1M+                  4%

In other words, 80% of homes sold in July 2020 was under $500k

One of my favourite podcasts is Afford Anything, where Paula Pant regularly teaches her listeners the ins and outs of real estate investing. She often talks about the 1% rule – ie the monthly rent should equal 1% of property purchase price (including all costs and renovations). For example, a $200 000 house should be able to rent for $2000 a month otherwise it is not worth your while. This translates to a 12% gross rental yield!

These are very different numbers to the Australian market.

Should Aussie late starters invest in real estate as a strategy to reach financial independence
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Why I chose not to invest in real estate as a strategy to achieve FI

In part, it is to do with the above figures. But to be honest, as I wrote in my previous post, My Biggest Money Mistakes, I was in a financial inertia after purchasing my home.

I was so happy and content I achieved this goal that I stopped investing altogether. In particular, I  was tired of spending my weekends going to open houses and attending auctions. And I was nervous about taking on more debt. I was already working 60  hours a week – I really didn’t want the added responsibility of two or more mortgages. Plus the idea of being a landlord was terrifying.

So, with all those excuses, I basically missed the boat as property prices continue to hike upwards. Sixteen years later when I paid off my home, I made an appointment to see the loans assessor at my bank. I was 47 at this stage.

Banks had started to tighten their lending practices to investors – he wasn’t very interested in me. And to be honest, I really wasn’t comfortable with going back into debt again. But I thought I should enquire nonetheless as that’s what smart people do – invest in property.

When I discovered FIRE concepts, I was relieved that there was another way – investing in index funds or ETFs. As I learned about diversification of assets, I was glad that I did not go down the property investment route – so much of my net worth is already tied up in my house.

Don’t get me wrong – I am grateful that capital growth has seen my home appreciate in value – 2.4 times what I paid for it according to various home valuation websites.

But for me, it is time to invest in another asset class, and one that I don’t have to outlay a lot of money in the beginning.

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Since I do not have any personal experience in property investing, I reached out to two Aussie FIRE experts who are also real estate investors, for their views on investing in property for late starters.

Serina, The Joyful Frugalista and Dave from Strong Money Australia very kindly replied to my questions. They are giants in the Aussie FIRE and personal finance community, whose opinions I value greatly.

What are the advantages and pitfalls of real estate investing (both short term and long term rentals)?

Serina:

ADVANTAGES:

1. People prioritise property investing

A key advantage is that real estate investing is something that
people are more likely to make a priority as an investment. In other
words, many people are likely to make sacrifices to meet a mortgage
repayment but might not make the same commitment to making regular investments in other assets such as superannuation, direct shares or ETFs. That’s changing a bit with the FIRE movement, which has a focus on ETFs, but in general, owning property is a huge motivating factor!

2. You can negotiate

Good property investors are usually good negotiators. This doesn’t mean that you are like a vicious guard dog, snarling at real estate agents, yelling ‘take it or leave it’ and being generally arrogant. Far from it! It’s about having the courage to make offers lower than the real estate agent would like you to, having your finances in order before you look at property, impressing a real estate agent as credible and if sold at auction, reading the mood of the crowd. With property, it’s important to be prepared to walk away if it doesn’t suit your budget. There’s always a better one!

3. You can time the market

All investment classes go in circles, but property is often more predictable. When the economy is going well, when interest rates are low, prices are generally going up.

4. You can make improvements

Some people have natural design flare and talent, and love the challenge of a fixer upper. If this is you, then you may do well with property. The challenge is to avoid over capitalising. Another challenge is to recognise that while you might like red walls and pink fluffy carpet, not everyone will. Aim for middle of the road and conservative. (I once had an investment property with a mirror on the bedroom ceiling – purchased that way – and we struggled to rent it until it was removed. Yes, people noticed AND commented!)

5. Your tenant helps you pay your mortgage

Your tenant is contributing to paying down your mortgage

6. You can negatively gear

It’s easy to negatively gear – just buy something that is overpriced and don’t negotiate your mortgage! That said, for high income earners, this is a good way to buy property that is likely to appreciate in value over the long term. Yes, it is often best to buy positively geared property but for most people, these properties are hard to find. (Not impossible, we purchased one 2 1/2 years ago but that’s another story.)

7. You can leverage Other People’s Money (OPM)

Yes, you can borrow to buy shares but property is where loaning money really becomes advantageous. The careful use of debt is a good way to make gains with property.

8. You can park your emergency funds in your mortgage

Having a mortgage, and making additional repayments, is a great way to have an emergency fund AND pay down debt.

 

Should Aussie late starters invest in real estate as a strategy to reach financial independence
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DISADVANTAGES:

1. Lack of liquidity

If something unexpected happens (say, a marital separation or sudden illness), it can be hard to sell up quickly. Yes, you can withdraw funds from an offset and yes, you can refinance. But if that’s not enough then it takes time to sell up and move on. Sadly, I know about the pitfalls of liquidity in property from personal experience.

2. Bad tenants

It’s easy to joke that your investment property would be so much better without tenants – and some people do buy and hold as a strategy – but anyone who has had a disagreeable tenant knows how upsetting it can be. I feel blessed that in 15 years of property investing, I have only had a few difficult tenants – and only two who I sought to remove due to failure to pay rent (only one successfully). Most things can be worked through.

3. Repairs and maintenance

If you are the sort of person who don’t have any money in your budget for unexpected expenses then property is not for you. Just this month, I had to pay $1300+ for a new hot water system. I was actually happy to pay this as my husband once tried to fix a leaking tap only to flood an apartment where the hot water system had rusted from within! Best to get onto those problems early.

4. The money pit

In 1986, Tom Hanks and Shelly Long starred in a classic comedy called The Money Pit about their efforts to fix a renovator’s nightmare. It’s easy to laugh, but I’m sure the owners of apartments in Sydney’s Opal Towers (and others affected by structural building problems) won’t see the humour! Some places are structurally unsound and, even if there is a property report, the cracks can appear later.

5. Some people shouldn’t climb ladders

 

Two older males  in my family have suffered falls while fixing problems in a property on a ladder, and while their injuries healed, I’ve heard stories of people who have suffered much more serious problems. The moral here is that if you aren’t sure that you can safely DIY things on an investment property, then don’t. If you are usually a humble accountant during the week, don’t become a weekend warrior on a ladder on a fixer upper if you don’t know what you are doing. You might hate to pay a painter or a gutter cleaner, but it’s much cheaper than taking months off work to recuperate.

6. Taxes, insurances and other costs

Rates, land tax, capital gains tax and insurances – these all go up and often go up more than CPI. And strata/body corporate is in a class of its own.

7. Poor body corporate management

If you purchase an apartment or town house, chances are you will have a body corporate. There will be a company engaged to carry out repairs etc (body corporate management company), and a committee of owners (executive committee). Earlier this year, I attended a body corporate AGM that was like WWIII. I was shell shocked for hours afterwards at the yelling on each side! Conflict aside, poor management led to a water leak in common property not being rectified, costing thousands more than usual. Poor management is a key risk.

8. Time

Even if you have a property manager, there is a greater time commitment involved in property than in other investments. For me, that includes body corporate AGMs, emails to strata managers, emails to property managers and sometimes even contact directly from tenants.

9. You can’t always choose your neighbours

Two years ago, the building next to mine was purchased by the government and converted to public housing. We know when it’s social security payday because there’s usually a party – a loud one. One day, I was walking my kids to school past three cop cars. You might ask – why don’t we move? Well, we like it here and we like having a small mortgage. But the neighbours have resulted in tenants moving out and owners selling, putting a downwards trend on prices.

10. Low rental vacancies

Rental markets go up and down, and this affects the price you can generally charge and the time in between tenants. When I first started residential property investing in 2005, we struggled for weeks to find tenants. It tends to go in waves. Just because rental vacancy rates might currently be low in your area, don’t assume it will always be the case.

11. People love to hate landlords

Sometimes, I’m hesitant to admit that I have investment properties. Many people, especially younger people, are upset about high property prices and like to vent against landlords. A common complaint is that open homes are full of cashed up older people, squeezing younger people out of the market. I’m not a fan of intergenerational generalisations. I’m proud that I am able to provide housing to people who need it. But be prepared to be a social pariah in some circles if you decide to invest in property.

Should Aussie late starters invest in real estate as a strategy to reach financial independence
Perth - Image by Sam Curry from Pixabay

Dave:

In Australia, the main advantage is the ability to use leverage (debt) to multiply your return. If you take debt away, residential property here is actually a pretty crappy asset. The net yields (after ALL costs) are relatively low, and the growth outlook isn’t great. But when you can borrow at low interest rates, even modest capital growth can be magnified into a decent return.

The pitfalls are numerous! Capital growth is notoriously hard to predict, as there are so many factors at play and things can and do change all the time. Costs are painfully high – both the purchase and overall running costs (council rates, water rates, insurance, strata fees, management fees, repairs, upgrades, vacancies etc)

These costs have added up to around 40% of the rent across our properties over the years. This means a 4% rental yield becomes 2.4% after costs. For an income stream which only grow with wages / inflation, this is a poor cash flow asset, which makes it very hard to retire on.

And then we have other areas in Oz which are better for cash flow like regional areas, but these tend to have worse demographics. You may be able to get a 7-8% yield, which will be about 4-5% after costs. A pretty decent starting point. But the population doesn’t grow in many of these areas which means there is little pressure for rents or prices to rise.

Short term rentals come with their own list of headaches and become more of a job than a passive investment asset. Because of that, even a high level of cash flow needs to be discounted by some type of ‘hourly rate’ that you pay yourself. I can’t really speak to this type of arrangement as we’ve never followed the AirBnB type strategy.

What does it take to invest in real estate?

Serina:

Both my parents are keen real estate investors. I grew up being part of buy and sell discussions. My Dad even used a bit of child labour for renos when we visited him on school holidays! (And no, we didn’t mind too much)
 
The key quality with real estate investing is courage.
 
It takes a lot of courage to bid successfully for a property or negotiate a purchase. It can be scary for some people – especially the first time! I purchased my first property in 2001 for $229 000. It was four bedrooms, two bathrooms and I remember thinking, OMG, I’m nearly a quarter of a million dollars in debt!
 
People who do well in real estate are generally the ones who have a good savings history, good credit rating, and stable full time jobs. This might sound boring, but boring is good to a loans assessor. Not only are you likely to get a loan with this good track record, but you are likely to get an optimum low fee and low interest rate product.
 
Another key quality is the ability to walk away. Do not, ever, become so attached to your dream castle that you can’t walk away. An agent will see it glowing in your eyes. “But don’t I deserve it, or want to make my partner happy?” you might think. “It’s so hard to find a dream home!”
 
The problem is this. Say you find your dream property, and then you get convinced to bid $20 000 more than you think a property is worth. How much more would you have to work in your job to pay for that?
 
The average weekly earning in Australia is $1 634 ($84 968 per year) – and that doesn’t include taxes, commuting, clothing and other costs. But assuming no taxes, you would have to work 12 weeks – three months straight – to make up for that cost. And depending on the amount borrowed, it could add years to your mortgage.
 
Eighteen months ago, hubby and I decided to bid for a property in another suburb. This was prompted by another big party next door, but also a desire to create a conventional home together after our marriage. We wanted fruit trees and a veggie patch!
 
We found an ideal deceased estate in need of extensive TLC. But the reserve price was already $100 000 more than what we thought it was worth. Walk away? We ran.
 
I’m so glad we did because within a year, my workplace turned toxic and I decided to quit. If I’d bought at that price, I would have been locked into my work for years.
 
 

Dave:

What it takes to invest in real estate in Australia is hugely different compared to the US. In the US, I’m aware that there are many cities where you can achieve a high cash flow from day one – in the region of 7-10% or so after costs. Not only that, but you can purchase in half decent cities for $100k.

These numbers are incredible – it couldn’t be more different to Australia! Our cities are highly priced with very poor income. Aussie property is mostly a bet on growth. And because of that, it requires patience!

As I said, there can be many, many years of no growth or falling prices. Even a decade of no price / rental growth is not unheard of. (I own property in Perth so sadly I know this all too well).

So if your time frame is anything less than 20 years, it’s probably not worth it. Especially when you account for the large buy/sell costs like stamp duty, agents fees etc.

Should Aussie late starters invest in real estate as a strategy to reach financial independence
Photo by Nicolas Gonzalez on Unsplash

Should late starters invest in real estate?

Serina:

Late starters are often on a higher salary and in more stable jobs than millenials. This gives them an advantage as their earning capacity looks good when applying for a loan – and even better if they don’t have dependents. They can also reap the benefits of negative gearing.
 
A key disadvantage, however, is that loan assessors generally prefer younger people as there is less likelihood that they will die before repaying the mortgage. A looming retirement is also something that assessors consider.
 
Mortgage criteria is becoming stricter; the last time we refinanced, we were asked detailed questions about how my husband (four years older than me, aged 52) would be able to service a loan in retirement.
 
I’ve noticed many people plan to invest in property as part of their retirement strategy. The idea that rents will help bolster your retirement income is appealing, and the prospect of a bit of renovating is also something that can be a fun hobby. But it’s worth considering that many retiree landlords are badly hit during COVID due to reduced rental income as affected tenants sought rent relief.

Dave:

I’d say no, they probably shouldn’t. I see some people thinking that property will solve their problems because they can sit back and have this magical asset compounding for them so they don’t need to worry about saving. This is lazy, wishful thinking.

I’m not saying it can’t work or that property is a bad choice. But if you’re starting later in life, you want to take control, and the best way to do that is to get a handle on your finances and build a strong savings habit. After that, it’s about finding a simple investment process to follow, while you spend the rest of your time focusing on your job, family, hobbies etc.

Not only that, but taking on large amounts of debt later in life is the opposite direction you want to be heading! Ideally, you want to be making your life less stressful and opening up more freedom over time.

This is best achieved with debt free investments which produce income for you with no headaches. As you save and your portfolio grows bigger, so will your passive income and level of freedom. Taking leveraged bets on property growth doesn’t strike me as the best match for this group of people!

So, late starters, will you use real estate investment as a way to achieve FI?

Thank you very much for your in depth and thoughtful responses, Serina and Dave. Your experience and insight in the rental real estate market is invaluable to us late starters.

There is a lot to digest here. Key messages are:

1. Our market is very different to the US – our numbers are nowhere as attractive as theirs – our purchase prices are high and our rental yields are low.

2. As late starters, although we may have higher salaries and stable jobs, banks do not favour lending to us, with our reduced timeline to produce income to service the loan.

3. Having a portfolio of investment properties is a LOT of work – make sure it’s something you enjoy doing. Consider the negotiating, managing tenants, property managers, real estate agents … not to mention the DIY part of fixing renovator’s dreams or counting the cost of paying others to do it.

4. How comfortable are you with debt? In good times when vacancy rates are low, your tenants will help you pay your mortgage. But what happens if there is a drought of tenants? Do you have the means to pay the mortgages anyway? Will you be forced to sell some properties to cover others?

Please do your own research – our circumstances are different and your risk profile may be very different to mine. Explore your market, consider venturing outside it (I haven’t presented any regional data here) and make an informed decision.

Aussie late starters, now that you have read Serina’s and Dave’s opinions and advice on real estate investing in Australia, will you explore this avenue to help you get to FI faster?

I know for myself, this has further convinced me to stay out of the rental property market and continue investing in my LICs and ETFs. I know myself – I have neither the stamina nor courage to enter the fray!

What about you?

My Biggest Money Mistakes

Big Red Cross on blue green background | My biggest money mistakes

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As I approach the final year of my 40s, I am in a reflective mood.

And being immersed in this coronavirus pandemic with night curfews and carrying a work permit in case I am stopped by the police for travelling outside 5km of my home … well, let’s just say the present is bizarre. The future is uncertain. So let’s look at my past instead. My financial past, to be exact.

I have made many money mistakes in the past, the most obvious one being that I left proper money management to my late 40s. Duh!

Let me set the scene for you.

The Roaring Twenties

All through university, I longed to be working. I could not wait to earn money for myself and be independent, no longer dependent on my parents.

Unfortunately, I graduated from university in the early 90s where jobs in my field were scarce.  I remember dropping resumes to various establishments and not hearing anything back at all. Eventually, I landed a weekend job and worked as a locum during the weekdays. One of my locum jobs turned into a full time job.

More than twenty five years later, I am with the same employer.

I happily worked 12 to 15 hour days, weekends if necessary. It was an exciting time – and after the instability of working as a locum, never knowing if income was guaranteed for more than a few weeks ahead, it was fantastic.

I was living at home with my parents. I had little expenses. And a lot of disposable income to spend.

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Early Goal - Purchasing a Home

My first big money goal was to buy a property. This was really important to me – I wanted security and stability.

I wanted a place to call my own and I didn’t want to live with my parents forever.

I craved freedom and independence.

But I was also hugely influenced by my mother for whom home ownership signified financial security. Read more about it – My Money Story

And in Australia in the 1990s, buying property is seen to be a good investment – the prevailing wisdom then is that property prices will always rise.

I knew about saving for a deposit. Buying a house was a common topic of conversation among friends and colleagues. Banks then were happy to lend 90% of purchase price. I was brought up to view debt as BAD so I aimed for a 20% deposit.

It took me 9 years from university graduation to save up a deposit and purchase my home.

In those 9 years, I was often discouraged by the slow process of saving my deposit. And at times, I was disheartened, watching property prices increase rapidly.

In the meantime, to cheer myself up, I went on overseas holidays and alternated between being frugal (bringing lunch to work) and mindlessly buying books, clothes and shoes. A girl has to live – was my motto – she can’t just focus on saving endlessly for a house deposit and not have a life.

Some Good Money Decisions in My 20s

During this time, l bought shares as state owned companies such as Commonwealth Bank, Telstra and Qantas were privatised and floated on the share market. To be honest, I only bought them at the urging of my father.

My accountant explained about reinvesting the dividends as he observed that I hardly needed the cash from dividends. So I did that too.

A family friend was an agent for AMP and convinced me to start a superannuation fund (retirement account) which was separate to the one provided by my employer. At the time, I was working as a locum and did not qualify for any superannuation anyway. Once a year, I would deposit $2000 to $3000 after tax into this account.

In addition, I started salary sacrificing a very small amount from my full time job towards the superannuation fund associated with my employer.

So it seems that I made some good financial choices in my 20s … what happened next?

The biggest money mistakes started after I bought my house – in my 30s and most of my 40s.

Money Mistake 1 - I Sold the Majority of My Shares to Fund My Home Deposit

I was aiming to save 20% of home purchase price as a deposit but ended up having 30% in cash by the time I bid successfully for my home at the auction.

But because I was debt averse, I sold the majority of my shares to make up another 10% of the deposit. So in the end, I had 40% and borrowed the other 60%.

Would I be in a better position today had I held on to those shares? Most likely, yes. The number of shares would have increased simply due to dividends being re invested. However, they were individual company shares and besides CBA, the others may not have done as well.

Money Mistake 2 - Lifestyle Creep

I LOVE my house. Full stop.

Once I bought my house, I wanted to create a home that reflected who I was and a space that was comfortable and inviting. And so I bought home furnishings, kitchen appliances, and just … stuff.

I bought most of them on sale. Remember Boxing Day sales? I would be there at 7am, ready to shop till 9pm. But the irony is that now I am struggling with decluttering.

I love my comfort and not having to economise. I didn’t go over the top but I never really worried if I was spending too much. After all, I could afford it. And I needed to reward myself for working so hard.

Money Mistake 3 - I Got Used to Debt

Oops.

My loan was for 30 years and it was always my aim to pay if off well before the 30 years was up.

Everyone (except my parents) told me that I would get used to it, that everyone has debt and having a mortgage was the cheapest debt available. Don’t worry about it so much , they said – live a little, enjoy your house and of course, you must still go on holidays. You work too hard.

I deposited my weekly wage directly into my loan account. And as long as I was $2000 ahead of the loan repayment schedule, I could redraw as much as I liked. So every time I looked at my loan, I could see a massive amount (over time) that I could redraw whenever I wanted.

I never felt I was struggling or that I needed to repay the debt as fast as possible. I forgot that the money wasn’t mine, that it belonged to the bank.

Frankly, I was comfortable and complacent. While my parents urged me to repay the loan as quickly as possible, I was happy cruising along, enjoying using the bank’s money, travelling overseas every two years or so.

In the end, I cleared the debt in 16 years but really, it could have been done a LOT earlier.

Money Mistake 4 - I Stopped Contributing Extra towards My Superannuation

I told myself that I wanted every dollar going towards my mortgage. Therefore I stopped contributing to the AMP superannuation fund and stopped salary sacrificing at work.

But in reality, I would have been able to manage both contributions had I just tightened my belt a little. And changed the AMP payment schedule to monthly instead of annually so it didn’t feel like I was facing a big bill.

Retirement was a long way away – apathy set in – I never reviewed my decision. Until I woke up in a cold sweat at 47, wondering if I could afford to retire at all.

Now, I am playing catch up – salary sacrificing the maximum amount and fingers crossed, it will be adequate by the time I turn 60 and able to withdraw the funds.

Sigh! Early retirement or Coast FI could have been so possible. If only I had understood the magic of compound interest.

Money Mistake 5 - I Did Not Buy an Investment Property or Two or Three

It was such a relief when I bought my house. The weekends of house hunting, rushing from one home inspection to the next, attending auctions, talking to real estate agents can finally end. I have my precious weekends back.

At that time, I was often working part of the weekend. So the thought of losing them again to search for an investment property was very unappealing. I enjoyed spending time in my comfy home (or hanging out at the local shopping centre), unwinding after a long week of stressful work.

Plus I was happy with my debt burden – I really didn’t want more debt and the worry of not being able to repay it should interest rates rise or I lose my job (although my job was quite secure). The idea of being a landlord was also very daunting.

Once again, I became complacent and quite apathetic – and relegated buying an investment property to the too hard basket. Time marched on and now property prices have increased way out of my reach. I did try after paying off my mortgage 2 years ago but by then, banks had tightened their lending criteria and nearing 50, I was not a good candidate.

Money Mistake 6 - I Stopped Buying Shares

Since the initial foray into shares purchasing in my 20s, I did not start again until my late 40s, when I read The Barefoot Investor (affiliate link) and stumbled onto FIRE blogs. This was when I learned about investing in LICs (listed investment company) and ETFs (exchange traded fund).

While I did enjoy receiving dividend cheques or seeing my shares grow ever so slowly in my 20s, I totally lost whatever small interest I had in shares investment the minute I sold the majority to fund my house deposit. 

I was under the impression that I could not invest in anything while I had a mortgage hanging over me. In hindsight, I should have continued to invest even a small amount every month in a LIC (ETF was not widely available then). But I had never heard of an LIC until 2 years ago.

Once again, I lost the chance for compound interest to work its magic.

Can You Spot the Pattern?

Once I bought my house, I was content. And settled.

I was happy with the status quo. I achieved my dream of owning a home. It was time to stop thinking about money stuff and just concentrate on paying back my debt. (What was I thinking???)

What I was really in was … a state of inertia.

Inertia is defined (by Google) as “the tendency to do nothing or remain unchanged” or in physics, “a property of matter by which it continues in its existing state of rest or uniform motion in a straight line, unless that state is changed by an external force.”

All my money mistakes can be attributed to me being in a state of inertia.

I was so busy working, I never had time to think about what I wanted for my future.

Even though my goal was to pay off my mortgage, I wasn’t very focused and did not have a plan or definitive strategy. I didn’t educate myself in personal finance and relegated investing to the too hard basket, be it in rental property or the share market. 

I was happy moving in one direction, not questioning, not striving for more.

Until I was experiencing burnout at work and woke up in a cold sweat, anxious about retiring at all, let alone early.

That was the wake up call – the ‘external force’ required to knock me off my existing state of rest.

Final Thoughts

I don’t regret buying my house.

But I do regret being in a state of inertia afterwards.

And that inertia was the root cause of all my biggest money mistakes, the chief among them was not investing consistently while paying off my debt.

But it is what it is so … time to move on.

I am thankful for my wake up call – I will focus on my plan to retire at 55 and live my best life now and tomorrow.

 

* Image by chenspec from Pixabay

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