Australians are obsessed with real estate and there is a near universal acceptance that buying property is the best—and some would argue only—pathway to build wealth. I have chosen a different approach.

My name is Mark LaMonica. I am 44 years old. And I am a renter. And I am not ashamed at all saying that. I am lucky enough to have the means to purchase a home. I choose not to because I think my financial assets can better support the life I want to lead in different ways.

Mark LaMonica

Mark LaMonica is Morningstar Australia's director of product management. Picture: Morningstar

Investing is personal and there are no universal pathways to follow. Each of our decisions are based on our personal circumstances and following the consensus can be the wrong choice for some people. This is an article about me. It doesn’t mean that purchasing a home is the wrong decision for anyone reading it. But I hope to challenge some of the conventional wisdom around purchasing a primary residence.

It is worth noting a couple key personal details before I get into the financial components of my decision. I do not have children which introduces more flexibility in decision making around renting as I’m not tied to a school or a particular area. Not having children also means that I can spend less of my salary on housing as I don’t require as much space.

In this article I'll explore why buying a house isn't the only way to build wealth in Australia.

What's your investment approach? Cash flow vs. net worth


How do you define your financial success? In a recent podcast episode I used financial statements as a metaphorical way to classify my investing philosophy.

A balance sheet lists assets or liabilities. Your house is an asset. Your mortgage is a liability.

A cash flow statement lists all the cash that comes in the door and all the cash that goes out the door.

I am a cash flow statement. Like many people I started investing to gain financial independence. And financial independence is a popular goal of investors but the definition of what financial independence means is highly personalised.

In my case what I am seeking is the freedom and flexibility to take advantage of the opportunities that life presents, and this flexibility requires cash flow and liquidity.

My focus on enabling flexibility also shaped my view of my personal balance sheet or net worth. It led to a visceral reaction to the idea of going into any debt. Debt is an obligation against future cash flows. The exact thing I’m trying to maximise.

It has also led to decisions on my personal budget. I try and minimise the amount of my pay check that goes to things that are fixed costs that I need to stay alive. Largely shelter and food. That lets me dedicate more of my spending to wants that I can scale as my financial situation dictates.

In saying this I need to acknowledge that this was not always the case. At the start of my career my comparatively low salary barely covered these bare necessities. I am fortunate enough to be in a position now where I can make those choices, but part and parcel of that was to not let fixed expense lifestyle creep overwhelm my budget.

How a house fits into your personal financial statement


A house is an asset that goes onto your personal balance sheet. But if you take out a mortgage it is also a liability, and any liability will also negatively impact your cash flow into the future. Since your primary residence is an asset that generates no inflow of cash there is no offset.

But a house also meets a basic human need since you live there. And while I don’t have a 30-year mortgage I do need a place to live for the next 30 years. I have an implied liability with negative cash flow built into my life if I continue to be a renter.

We can call this a wash from a cash flow perspective. But like many real assets a house also depreciates. And that depreciation has a real cost. Repairs and general upkeep are a constant drain, and many homeowners choose to undergo periodic renovations to enhance the value of their home. In many cases these renovations simply maintain the value of the house rather than enhance it. The consensus seems to be that you spend at least 1% of the purchase price a year just to maintain your home. I have none of these expenses as a renter.

I get told constantly that renting is throwing away money. I have some objections to this characterisation because I am simply paying for something I need. Under this definition spending any money is throwing it away even if it is spent on a necessity.

Semantics aside you are obviously building up your equity with each mortgage payment. But I have a feeling that most people don’t run the numbers.

Running the numbers: House vs. shares


According to Corelogic the average length of home ownership in Australia is 11.3 years.

We can explore a scenario where I buy a home at the $1 million Sydney median price and put 20% down at a 5% interest rate that remains constant. If I sell it in 11 years I will have made a total of $572,000 in mortgage payments. The portion of those payments that go to interest are $401,386 which leaves $171,066 for principal payments.

That is an annual return of 5.78% through your principal repayments. That is decent. But on this $1m home you are likely to spend at least 1% or $10,000 a year on maintenance costs. Now we are talking about a 2.45% return each year. Not so good. When I look at a situation where I trade negative cash flow of $10,000 each year to grow my net worth by 2.45% a year I cringe.

And in reality, I am giving up more. I could invest that initial $200,000 in the sharemarket and earn income. If I conservatively get 3% a year that is another $6,000 which would likely grow over time. By purchasing a home instead, over an 11-year period I am giving up $66,000 in cash flow and spending $110,000 on maintaining my home. That is $176,000 that I could have spent or invested.

In scenario one, investing in the house, I’ve increased the principal of my house by $171,066. But as I said I am less concerned about my net worth. I’m concerned about my cash flow, and in scenario two, investing in shares, it is also likely that my initial $200,000 invested would have grown.

The real cash flow benefit from owning a home comes once you have paid off your mortgage. That comes long after the initial decision to purchase your home and given the length of time most people own their homes, may not occur at all.

Residential real estate has a strong track record of price appreciation which I have not accounted for in my analysis of the cash flow situation. I also have not accounted for transaction costs, such as stamp duty and selling fees, which can be significant.

But everyone says a house is the only way to build wealth?


I can unequivocally tell you this isn’t the case. There are lots of way to build wealth. But there is no denying that buying a home 20 years ago in a capital city was an incredible way to build wealth. Not only did home prices skyrocket but you got the extra kicker from gearing, and benefited from very favourable capital gains tax treatment.

What has happened in the past is not an indication of what will happen in the future. That being said we can explore the past.

Sydney housing prices have appreciated 7.1% over the last 10 years as of January 1 2023. We can rerun this 11 year scenario using that price appreciation and the gearing involved.

My $1 million house is now worth $2.12 million. If I sell it and pay off the remaining balance on my mortgage I would have $1.49 million. And since I only put down $200,000 that is a gain of over 20% a year due to the impact of gearing. That return does not include all the expenses associated with buying the house and any money I’ve put into it. But it would still be shockingly high.

I will state that I see no way those returns can continue in the future. From my point of view it is simply impossible. If wages growth continues as it has and we are in a period of cyclically high inflation interest rates will never again reach the levels we saw during COVID. That will shrink the people that can service a loan of that size let alone a 20% deposit that will reach $424,000 on the median house in Sydney.

What is the purpose of building wealth?


I spent my high school years in a town named Greenwich which is a suburb outside of New York City. It was considered a desirable place to live and had the home prices to match. After I graduated Uni and started working I had to commute in to New York from my parents’ house one day. I found myself standing on the freezing cold train platform at 6am glancing around at my fellow commuters.

They stomped their feet to stay warm and prepared to charge onto the always crowded train in the hopes of finding a seat for the 40-minute ride into the city. I couldn’t help but think that the men and women on that platform had ‘made it’ in every conventional sense. They likely lived in expensive houses and had all the trappings of wealth along with the requisite high paying jobs needed to support that lifestyle.

And without being critical of others' choices I had no interest in following this pathway. I saw the trappings of success simply as traps. These material possessions that denoted success including the big mortgage just seemed to lock me into a life that I didn’t want. Even if I didn’t and still don’t know what I do want.

The real question for each of us is why build wealth in the first place? I am looking for more flexibility in my life. And a house just doesn’t lend itself to my goal for wealth. A house requires an initial large expenditure and continued costs to maintain. Wealth built up in a house is also illiquid and has significant transaction costs. For many people the majority of their wealth is locked within their home.

A house is an asset that dictates life decisions rather than facilitating them. If I owned a home in Boston, I might not have moved to Australia 9 years ago. In short, a house is an anchor. For people searching for stability that is a good thing. For me I see it as a limiter of options.

Buying a house has come to mean so much more than simply acquiring a place to live. It is fraught with emotion. We treat it as a signifier of adulthood. An indication that you’ve made it. Given property prices it often takes superhuman effort and sacrifice unless you get help.

Most people will continue to strive for this milestone. But if what is driving the decision is the near universal view that there is no other way to build wealth there are other options. What worked in the past may not be the best path forward and personal circumstances may dictate a different approach.

My life is fairly conventional. Perhaps my focus on enabling flexibility is a distinction without a difference. But just maybe it will allow me to take advantage of the next great adventure that presents itself. Time will tell.

You can share your thoughts by writing me at [email protected]