Transcription
I'm going to share something that literally shocks several members of my family. I am a multimillionaire. I succeeded in my field, which is trading, in my twenties. I manage a fund with several million dollars, and yet I own no property in my name. Zero houses, zero apartments. And before, precisely, several members of my family looked at me like, "But Elliot, when are you going to solidify your success and finally buy your first apartment?" Now, obviously, they have understood my situation, but at the time, I always explained the same thing to them, which is that buying now would literally be one of the worst financial decisions I could make. So today, I'm going to show you exactly why, with figures to back it up, renting is mathematically smarter than buying. Especially when you are young, mobile, and know how to invest your money. And by the way, if you don't know how to invest your money, it might be time to start following me here on YouTube. In this video, I will also debunk the myth that real estate is the best investment. We will talk about opportunity cost, we will talk about return, i.e., yield. And why tying up your capital in four walls is probably financial suicide in the current macroeconomic situation. So stay tuned until the end of this video because I will also share with you exactly when and how I plan to buy my first properties.
Okay, so quick context. I've been living here in Panama for over 5 years in an apartment I love, super well located, incredible view, and I feel great here. I could buy the apartment I'm currently in with cash, and many times over, but yet I don't. So why? Well, if you know me, you know I'm a numbers guy who tracks absolutely everything on Excel, and buying today makes no sense. It's not just an opinion, it's pure math. Now, culturally, we've always been told, "Buy your house, it's security, it's building wealth. Stop throwing your money away renting from a landlord." But this mentality comes from a time when real estate was accessible, when interest rates were lower, when prices were rising steadily. Today, right now, we are living in the most expensive real estate market in modern history, and I will prove it to you.
So, let's start by setting the macro scene. Today, real estate prices relative to income are historically super high. When I say relative to income, it's the price-to-income ratio that is exploding in most developed countries I'm looking at, in terms of investment, namely Canada, Portugal, France, the United Kingdom, the United States. We are talking about multiples of 10 to 13 years of income to buy an average home. This means that an average household, if you will, must tie up the equivalent of 10 to 13 years of salary to buy a single property. Without even mentioning credit interest and everything that comes after. We'll get to that later. Okay? But to give you a comparison, our grandparents bought for a ratio of three to four times their annual income. We're talking about 10 to 12, sometimes 13 years. Okay? So objectively, it's literally madness, and we are not in our grandparents' situation. And what I'm telling you here is not something I'm making up or saying; it's OECD statistics that you can also find on Numbeo. All serious studies reach the same conclusion. But wait, because it gets even more interesting. We can also study the cost of being a homeowner versus the cost of being a renter. And this has never been so high. If you look at historical ratios of purchase price versus rent, we are truly in a market anomaly. Basically, today, if you want to rent, it's relatively cheap compared to buying the same property. So not only are purchase prices ultra-high, but on top of that, the delta between the cost of renting and the cost of buying is literally enormous. This means that mathematically, renting has never been so advantageous compared to buying. But again, this ratio has historically changed and evolves. Okay. But so, at the macro level, we are not in a normal market. We are in a completely inflated market, disconnected from salaries, where the risk of buying at the worst time is, well, actually very real. Okay? So you have to realize one thing: buying today means buying expensively, potentially at a historical peak, and in a rent-to-buy ratio that is historically much more favorable to the renter.
Now, so you understand better, let's take my personal situation as an example, and so you understand the math behind it. Okay? The apartment where I live most of the year costs $7,300 to buy. I rent it personally, not because I don't have the money to buy it, but because, again, the math behind it makes sense. But so, I rent it personally for $3,600 per month, which is $43,200 per year. So now, the calculation to make is that if I buy my apartment with cash, and I'm not even talking about interest yet. So I have the money to buy it with cash. Let's say I buy it with cash. My implicit return, if you will, is the rent savings divided by the purchase price. So $43,200, which is what the rent costs me, divided by the purchase price, which is $7,300, giving me a return of 5.9%. Okay, but the problem is that we're forgetting something crucial: the condo fees, which are $850 per month, paid by the owner. Uh, so that's already $10,200 per year. Then we have property taxes. Uh, he pays like $150 to $200 per month. So that's an additional $1,800. Then there's maintenance. Okay, generally we estimate that at between 0.5% to 1% of the property price. Let's take 0.75%. So that's an additional $5,500 per year. So my real return, okay, is rather $43,200 - $10,200 - $1,800 - $5,500 divided by $730,000. And right away, the return is much lower. Well yes, the return is only 3.5% per year. Meanwhile, literally, the banks here in Panama, or even in Singapore, or even in other countries, pay me an average net return of 5% per year. And I'm just talking about bank accounts that do nothing. Okay? My long-term investment strategies, my personal trading, my investment fund generate much more than that every year. So for me, to tie up $7,300 or €7,300 to earn roughly 3.5% when I can earn more than 10% elsewhere, is literally idiotic. It's throwing money out the window. Okay? And that's still 3.5% before even considering all the other transaction costs when you buy a property: the notary fees, the purchase taxes, the agency fees, which are generally 5% to 10% of the property price. Okay? So that means that for an apartment like this, it would cost me about $50,000 more, which is burned, which goes directly into the purchase. And on top of that, I end up with an illiquid asset. It's not like a stock on the stock market where I can just click sell. No, if I want to sell it, it will take months and months and months. It will incur fees, it's illiquid, I have to deal with it. Now, if the toilet has a problem, I can't just call the landlord and the landlord sends someone. No, no, I have to deal with it and fix it. I personally have more important things to do than to lose money on currency exchange.
Now, in addition to everything I've just told you, let's talk about opportunity cost because it's literally the concept that most people don't understand or don't calculate. Okay? Your opportunity cost means the money you lose by not making the best possible choice. Okay? So, for example, if I buy this apartment for $7,300, that money is tied up in this apartment, and that money therefore doesn't work. It's not invested, I'm not trading with it. Okay? It doesn't generate any return. It's just there, tied up in walls, in bricks that are slowly decaying and that I have to maintain. Okay? And yet, during that time, if I remain a renter, which is my decision, as you've understood, well, that $7,300, that €7,300, I can go and invest it with much higher returns, and that will allow me to have $1.5 million, $2.5 million in a few years, and thus build myself an even greater fortune, wealth, and riches. So yes, on paper, let's say I saved rent for 10 years, but I lost hundreds of thousands of dollars, even millions of dollars in potential gains because of this opportunity cost. Okay? It's literally silent financial suicide because most people don't realize it. And if you want to understand it a little more, I invite you to click right here. I made a video for you on how I bought myself a Ferrari FF with a V12 engine, an incredible car. And in fact, the math behind how I calculated this purchase, how I "financed" it, and especially how I think about it in terms of opportunity cost, because it's the same for me to go and buy this vehicle to leave in a country I visit two months a year. Yes, it's a pleasure, and I love it, but it's also an opportunity cost. Okay, the money I'm going to tie up in this vehicle is money that isn't elsewhere working. But so, I've done this calculation. So again, I invite you to watch this video. And by the way, if you want to understand how to make your money work intelligently, how to calculate your opportunity costs to make the best decisions, how to build a real long-term investment strategy, a wealth-building strategy, invest in different asset classes, and also place your money with a banking portfolio around the world in different jurisdictions, protect yourself, manage your lifestyle, etc. It's literally all that I teach you in my program called Smart Finance Pro. I'll put the link in the description. It's by application only because we are looking for very specific people.
Briefly, we can also ask ourselves the question, but the thing is, if we stay, let's say, in the same apartment or the same house, buying at some point should be profitable, right? Because we have developed wealth instead of just burning money on rent. And the answer is yes, indeed, but if and only if you stay in the same apartment for a very long time. Okay? When I say a very long time, based on all the calculations I've been able to do, when you include literally all the associated costs, we're generally talking about a break-even point between 5 to 8 years, sometimes even up to 10 years depending on the property. So, in short, you have to live in the same apartment or the same house for more than 8 years for buying that property to become more profitable than renting. And again, the logic behind it is that if you take into account the transaction costs of buying, selling, maintenance, etc., if you sell this property before the first 8 years, you are generally losing money. Period. And honestly, today, I absolutely don't see myself living in this same apartment for the next 8 years because my lifestyle is evolving, my income is also evolving, my wealth continues to grow, my desires are changing. So in 3 or 4 years, I will very likely want to upgrade or even live elsewhere in something bigger, more luxurious, in another country, in another city. So literally chaining myself now to a property for a minimum of 8 years for it to be profitable is literally shooting myself in the foot. Okay? And where it becomes even more important, I would say especially for young people watching this video who are, so to speak, in my situation, is that buying your primary residence in your twenties or early thirties, for me, is literally buying a tomb. Because again, if you have to stay there for more than 8 years. Why? Because, let's say, at the beginning of your career, at the beginning of your life, your income should increase drastically, or at least I wish you so, and in my case, certainly. But so, indirectly, your lifestyle should also evolve. Your needs will start to change. Okay? You might want to start a family, you might want to have children, you might want to move to a better neighborhood or a better city, or at some point you might want to expatriate because your income will allow it. Okay? Whereas if you buy when you're 28 years old to really live in this same apartment all the time, you're locking yourself into the same address for 10 years. So, indirectly, you're betting that the home at 28 will be just as good as the home at 35. Like, basically, you'll have no evolution, and your lifestyle won't evolve. And I don't know about you, but I find it quite idiotic, even quite sad, to ultimately lock yourself into a lifestyle that will potentially be obsolete in 3 to 4 years. And even more so, if we just look at the statistics, young people, entrepreneurs, etc., tend to move every 3 to 5 years on average. So even if you look at the average person, and I hope you who are watching this video are not part of the average and are part of the top 5% of people, then literally buying is a bet against yourself.
Now that I've really shared my point of view, I'm willing to nuance it a bit, okay? Because there are certain cases where buying your property could potentially be justified. And again, in this video, I'm not talking about active real estate at all. That is to say, someone who will go and buy an apartment to renovate it and then resell it and do real estate operations like that. I'm not talking about that. But here, I think we're entering another category; it's not passive investment. Here, we're entering active income. Okay? You are actively creating value because you are adding value to the apartment with renovations, etc. But that's something that will take you time. Time is money. But so, we're moving into another category, if you will. But I'm mainly talking to people who want to buy where they live. But so, it can be justified, yes, but generally, if we're honest, where it's justified, it's not a financial decision; it's more of a lifestyle decision. Okay? If you really want your own home where you know you'll stay for 10 to 15 years, where you'll start a family, and you want stability for your children, you want to live near your parents, etc. Okay. In that case, it's different. And in that case, why not? Buy. But call a spade a spade. Okay. It's not an optimal investment. What you're doing isn't investing in real estate, I don't know what. No, it's literally a huge expense for your lifestyle. Like buying a supercar because it makes you happy; it's a lifestyle choice, not necessarily an investment. Like buying a yacht, like buying a jet. In fact, any purchase that brings pleasure. Okay, it's something that makes you happy, but it's not something that makes your money work in the best way. Okay? And if you accept that and understand it, perfect. But I just want people to stop lying to themselves by saying, "No, it's a good investment, and at worst, if I move before, I'll rent it out." No, you didn't buy it with that intention. You didn't buy it with a mathematical perspective; you bought it purely out of emotion because you loved the kitchen. You saw your wife in the kitchen cutting tomatoes. You see what I mean? It's a purely lifestyle choice.
So now, if I were to share with you what I personally plan to do. Because for your information, I love beautiful properties. Like, really, I love it. I love architecture. I wanted to be an architect when I was little. I love interior design. I think my internship in third grade was in interior design. And so on. Uh, so honestly, I love it, and at some point, I genuinely plan to build my first, like, "fuck off place," my first. I think it will surely be a penthouse, literally my dream. I've already done literally all the plans. It would be an apartment of over 700 square meters with absolutely everything I need inside. My office, a health room, a cinema room, the pool, this, that, and so on. In short, I already have everything in mind. In addition to that, I also know that I would like to have a secondary property, very likely in Europe, for when I come to travel. Step 1 for me was to buy a car. Well, obviously, I have cars here, but to buy a car in Europe for when I go there. Step 2 is to buy a property in Europe. That way, when I go to Europe, I have my home. So, in short, all these things really motivate me, and they are all literally planned. If you know me, you know that I plan absolutely everything, and that years in advance. In my situation, I also have the money to do everything I've just explained. I have the money to do it today. Pay for all the properties in cash, do all the renovations in cash, and still have millions of euros left over. But personally, being honest and looking at life as it should be viewed, a life that is generally quite long, I still consider myself too young to tie myself down to that right away and, let's say, have a huge opportunity cost because I wanted to have these properties very young instead of waiting and continuing to grow my money and continue to grow my wealth as I've been doing since literally my youngest age, and as you know, I have an Excel where I literally calculate all my wealth, my fortune. Since I was literally 15 years old, I see all the evolution month by month, and this document I'm talking about, this Excel, is also available in Smart Finance Pro, which is the program I was telling you about. I remind you that the link is in the description. So, in short, personally, my plan is to wait another, let's say, 3 to 4 years before buying my first property. And during this time, precisely, my plan, which I have written down again, is to travel the world and test several cities, several countries that interest me, to be really sure of where I want to build my first incredible property. Okay? That way, this decision won't just be based on the fact that, well, personally, I've been living in Panama for over 5 years, so Panama is the most logical choice. No, I want it to be a choice backed by data. That is to say, I've tested all the places there are to test, and I'm building it in Panama because Panama is literally the best option for me. So this year, for example, I'm going to test the lifestyle of living in a small village in Italy. That's the first one. I'm going to test Malaysia, Kuala Lumpur. I'm going to retest the Emirates, even though from experience, I've never really liked Dubai. I'm going to retest Andorra, I'm going to retest Switzerland, and so on and so forth. And by the way, let me know if there are any places you think I might enjoy living. Uh, in short, let me know, I'd be very curious. But so, as I'm telling you, once I've actually chosen this place, I can really make a decision, and moreover, in 3 to 4 years, it could potentially be the time when I decide to start a family, etc. Okay? So that means I will really do it with full knowledge of the facts and especially as a lifestyle expense. Okay? Not as an investment like, "Yes, I'm investing in my apartment." No, I know very well that it's a financially less interesting choice than continuing to do what I'm doing, but I know it will be a purely lifestyle choice and one that will be fully embraced because, again, I have more than enough means to do it. And by the way, again, but let me know in the comments if you'd like me to share a bit about the trips I've told you about, with ultimately the evolution of the different places I'm seeing, testing, and my decision process to really find the place where I feel best and where I think I want to potentially buy my first property. Okay.
So, in short, I hope this video has opened your eyes to the reality of real estate today. Uh, again, I'm not saying real estate is bad in itself, and if we were to see a huge correction, if we saw the ratios reverse, where we are in a market where buying is much cheaper than renting, then in that case, I would be the first to want to make real estate investments. Again, if it's backed by data and mathematics and it makes sense, I'm the first to put money into it. Okay? And that's again why I do what I do. But right now, I'm just saying that for most young people who are mobile and know how to invest their money, buying their primary residence now is mathematically not very intelligent. So with that, I sincerely hope this video pleased you. If so, don't forget to give it a like; it's simple, but it helps a lot. Share it if you liked it. Don't hesitate to subscribe either. And again, if you really want to learn how to manage your money long-term, make it work intelligently, build real wealth, for me the goal is generational wealth, so generational wealth that I can pass on to the next generation. Check out Smart Finance Pro, the link is in the description so we can have a call. And that's where I'll be able to show you exactly how to build this generational wealth, how to manage your expenses, save, invest your money optimally. So, in short, this was Elliot. I hope the video pleased you. See you very soon. Ciao!