The IP vs PPOR Reality Sets In...

I would like to share a recent experience that cuts to the heart of the IP vs PPOR debate.

I think this is the right Forum area as it revolves around one's own investment psychology.

I have known for some years that it is often financially better to rent & buy IPs than to buy a PPOR, IF you need to have a 'sizeable' mortgage. But knowing, understanding and truly being conscious of this fact can set off a reality 'light bulb'. I had a pleasant experience this week at an investment related luncheon with a work colleague and financial professional.

Please picture this: A rather informal, planned luncheon, of 4 people.
1. One financial professional,
2. One client (youngest + lowest income), rents + 3 IPs + share portfolio
3. One soon to be client (middle by age & income), own home + 1 CIP
4. One interested party (eldest + highest income). own home + share portfolio

My pleasant experience came about when my work colleague (the interested party) asked a relatively straight forward question "How much money do I need up front to buy one of these properties?" (these = the proposed property assets being discussed)

Well, I couldn't help myself.... I just had to jump in and explain to my work colleague (the interested party) that he was living in his deposit(s) as he owns his PPOR. (circa $500K) I went onto explain that his lazy equity was as financially irresponsible as my relatively large mortgage........

mmmm.... my work colleague immediately had an investment psychology shift and even stated "I think I am having a light bulb moment here!" The financial professional was just smiling and I was feeling oddly awkward as I concurrently moved from knowing & understanding through to being truly conscious of the reality of this fact.

I am able to take comfort in the fact that plans had already been put in place for my predicament to change, hence why I was at the luncheon in the first place!

So there I am, looking at my colleague who has that sunken look of despair masking the joy and elation of a brighter future, which just fighting to burst through, and the financial professional just :D beaming as all the ducks align without so much as single word uttered, and then me, with a new sense of determination and confidence to do what must be done!

So what was the "client" doing through all this? Grinning like the Cheshire Cat in Alice of Wonderland! He knew exactly what he was doing and why!

I now realise what I aready knew. Age & income are not necessarily = wealth creation or investor psychology.

It both pains me and brings great joy to add that this really is a TRUE story...

:eek::(:eek::D And this is just how I felt!!!
 
According to the PhDs who wrote Millionaire Next Door series, apparently its supposedly like this :


Net Wealth = 0.112 * Age * Income


When the wife and I are 560, this formula will be spot on for us. :cool:
 
why is this such a revelation?

I never said it was a revelation. I was trying to draw out the distinction between truly realising and knowing. It is perhaps a philosophical subtlety, but I think an important one.

I am sure there are many things in this world that some know about, because they have been told. You might even believe you truly understand. Then one day, something happens and you realise what you already knew. It is merely a 'finer distinction', not a revelation in the true sense of the word. ;)
 
According to the PhDs who wrote Millionaire Next Door series, apparently its supposedly like this :


Net Wealth = 0.112 * Age * Income


When the wife and I are 560, this formula will be spot on for us. :cool:

When I read that book, I never bothered to work out the formula. I'm ahead! :D
 
I never said it was a revelation. I was trying to draw out the distinction between truly realising and knowing. It is perhaps a philosophical subtlety, but I think an important one.

I am sure there are many things in this world that some know about, because they have been told. You might even believe you truly understand. Then one day, something happens and you realise what you already knew. It is merely a 'finer distinction', not a revelation in the true sense of the word. ;)

This is really important.

I call it the difference between abstract and real knowledge. Theory is great, but until you see and feel it applied it isn't necessarily "real" to you.
 
The trouble with the formula, I thought, was that it doesn't take into account situations like mine, where my wife and I started out 12 years ago on VERY modest incomes, but had those incomes grow into quite substantial numbers over a 10 year period. If you take an 'average' of income, though, it seems to work ok.
 
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