David speaks with Rob Dix, a co-founder of Property Hub, co-host of The Property Podcast, which is one of the biggest business podcasts in the UK, and author of 3 popular books about property and investing including The Price of Money which was a Sunday Times Bestseller.
They talked about:
📈 Why the cost of living is rising
👩💼 Why economists see things differently to regular people
💰 Income and wealth inequality
🏠 Renting vs home-owning
💡 How to invest in your financial future
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🎧 Listen on Spotify:
📹 Watch on Youtube:
👤 Connect with Rob:
Twitter: @robdix | https://twitter.com/robdix
LinkedIn: https://www.linkedin.com/in/rob-dix/
Books: How To Be A Landlord | https://amzn.eu/d/eQWISE6
The Complete Guide to Property Investment | https://amzn.eu/d/4LNvmcd
The Price of Money | https://amzn.eu/d/4rVBuHw
Website: https://propertyhub.net/
📄 Show notes:
00:00 | Intro
01:47 | Understanding inflation and its impact on the economy
02:22 | Why economists see things differently to regular people
03:10 | Role of GDP and productivity in economic growth
06:42 | Issue of inequality in wealth distribution
08:39 | Importance of asset ownership in financial freedom
09:50 | Role of housing in economic growth and stability
13:26 | The impact of wage growth and home building on home ownership
20:17 | How to invest in your financial future
33:20 | Understanding bonds and fixed-income investments
35:49 | How to learn from experiences in investments and property development
🗣 Mentioned in the show:
Jeff Bezos | https://en.wikipedia.org/wiki/Jeff_Bezos
Tory | https://en.wikipedia.org/wiki/Tory
Chilango | https://en.wikipedia.org/wiki/Chilango
Silicon Valley Bank | https://en.wikipedia.org/wiki/Silicon_Valley_Bank
👨🏾💻 About David Elikwu:
David Elikwu FRSA is a serial entrepreneur, strategist, and writer. David is the founder of The Knowledge, a platform helping people think deeper and work smarter.
🐣 Twitter: @Delikwu / @itstheknowledge
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📜Full transcript:
Rob Dix: [00:00:00] The thing about banks that no one ever thinks about is like, you think when you put your money in the bank, it's there. It's just sitting there waiting for you. It's not, it's gonna be, they've gone and done something else with, with it. And it's all fun and games until everyone comes back on the same day wanting their money back at the same time.
This week I'm sharing part of my conversation with Rob Dix. Rob is a co founder of Property Hub, which is a property investment company. He's also the co host of the Property Podcast, which happens to be one of the biggest business podcasts in the UK. And Rob is also the author of three popular business books, including The Price of Money, which was a Sunday Times bestseller.
Now in this episode, you're gonna hear Rob and I talking all about why the cost of living is rising, why economists see things differently to everyday people. We talk about income and wealth inequality. We talk about renting versus homeowning.
And finally, we talk about how to invest in your [00:01:00] financial future, including some of the advice that Rob gives in his book.
So, all in all, this was a fantastic episode and don't forget to tune in to the second part of this because there's going to be a lot more that Rob shares.
So you can get the full show notes, the transcripts and read my newsletter at theknowledge.io and you can find Rob on Twitter and LinkedIn @RobDix and his website at propertyhub.net.
Now if you love this episode, please do share it with a friend and don't forget to leave a review wherever you listen to podcasts because it helps us tremendously to find other listeners just like you.
David Elikwu: Where I thought we might start is around the financial market, 'cause it's a big worry for people at the moment.
Every day there seems to be new news that prices are going up again, which seems insane. I go to the store, everything's expensive. It's more expensive than it was before. Then the council tax goes up every year by a tremendous amount. And then I think even just yesterday I heard more news, the council [00:02:00] tax is going up again. All kinds of things are going up. Like, why are we in this position? Do you have any, any thoughts?
Rob Dix: Well, yeah, this is the big question of the last two years really, isn't it? Like why is everything going up so much and there's, I think, a couple of distinct things going on. One is obviously the inflation that we've been living with that seems to be coming back under control, although who knows how long that is for? And we can get into that if you want to, I'll cover that in my book. And that's a whole, that's a whole big thing. And the other is, like you referenced council tax, which is another thing with that. The tax burden is higher than it's ever been like in this country and yet, I don't think many of us feel like we're getting better for that than we've ever had before.
It doesn't feel like, you know, if taxes went up, you're like, oh, well now we're getting these incredible services, that'd be one thing, but it's, it feels like you are paying more and more and more and getting the same thing at best. And that is another [00:03:00] fairly significant problem. It's a bit beyond my pay grade to kind of talk about why that's the case or what to do about it. But it is something that I think it's almost been overshadowed by more general inflation for the last couple of years. But with an election coming up, I can see it becoming more and more of a topic. 'Cause people are going, well, I'm paying more tax. Whoever comes to power next, they're probably gonna expect me to pay even more again.
And what am I actually getting?
David Elikwu: Yeah, exactly. And you've touched on this idea of inflation. You talk about it in your book, this idea that the financial market is essentially rigged against the average person largely due to inflation. And the fact that you are almost guaranteed to lose money if you save it and hold onto it in cash.
I'd love if maybe, first of all, you could give a definition of inflation and expand on that idea, but then also just going to this last part that you were touching on, right, this idea that, okay, if we were to have an election, there's a high chance that people might increase the taxes.
And also during the last few years, you see, okay, the Bank of England raises the rates, the Bank of England does this, economists say that.
I'm really [00:04:00] interested in why there seems to be such a massive difference in the experience of the economy for the average person, the average person on the street will say, look, this is how much things cost, this is what's happening to my house, this is how I see the economy. And then the people that are in charge, these people that are part of large organizations, I mean, they're, they are smart people, objectively speaking. But the decisions that they make for the economy that, I mean, they want to get elected, they want to do a good job. They have some wealth wrapped up in this as well. They seem to be making the opposite decisions to what the, the person on the street might decide.
Rob Dix: Yeah, there's a lot there. So maybe I'll take the last bit first, and then we can work back to the more like technical inflation bit. 'Cause I think it's a really important point that you make. And for me there's a few things going on.
One is that a lot of the time I feel like the wrong thing is being measured.
So you always hear about GDP like, so that GDP is basically the total amount of stuff produced in the country. And if everything's, if it's going up, then [00:05:00] politicians are shouting about it, and that's great news. And if it's going down, like the definition of recession, which everyone's scared of is of that falling for two quarters in a row. But GDP, that is just like the total of everything produced. That is not meaningful to the average person because what if more stuff is being produced, but where the people who get the benefit of that, it's spread unequally.
So it could be that your average person ends up, no, no, better or worse off than they were before, but someone else is getting most of the benefit. And so GDP has gone up, but for the, your average person who cares. And then also you're looking at GDP like as one big number, not GDP per capita, per person. So if you've got more people, then GDP goes up. Okay, cool. But that doesn't help the individuals.
So I think measuring, measuring the wrong thing is a big part of it.
Another thing is like, well, what if the number goes up, but it's because everyone has to work much harder. Well, maybe you want more, you want more lifestyle. you can make the number go up by [00:06:00] everyone working 20 hours a day, but they don't want to do that. So that's, that's one.
Then the other I think is, there's a real disconnect between theory and practice and economics is terrible for this. Like if the economists have got a model and if reality doesn't match the model, then there must be something wrong with reality, not something wrong with their model. Economics has got a serious problem with this.
And so they're very, very slow to recognize that the world isn't playing out as it should according to them and what they learned at university. And then you've also got like a real group think problem as well. And for me it's an argument against having a small number of people in charge of something really important. It's like as a, as a general principle, the economy, all the economy is people choosing to make transactions to each other. So like everything that happens, everything that gets measured in GDP, all it is, is you choose to go to work because you think it's the most money you can make so you voluntarily take that job. You then go and [00:07:00] choose to spend your money in certain places. Just everyone making millions of these transactions between each other to try and further basically saying that, well, I'm just making the best decisions I can to maximize whatever I want in life and everyone wants something slightly different.
So the purest form of the things you can do, which is not perfect, is just leave everyone to get on with it because everyone individually has got a far better chance of working out what's gonna be best for them than a few people sitting in a room somewhere deciding what happens. Now the pure form of that isn't necessarily gonna work, 'cause all kinds of things can go wrong, you need to intervene in some places to even things out or whatever. But I feel like a lot of the time things have gone too far the other way, and you've got a very, very small group of people at the Bank of England doing things like sitting the rates of interest, which is such a blunt measure and they can't possibly know, it is literally impossible for them to know if it's the right thing to do, because how is it gonna [00:08:00] affect every individual? And there is so much going on, it's so complex that they can't possibly reason through every link in the chain.
So I think that's another reason that they might be very smart. They might be doing the best that they can with the tools at their disposal, but the economy is far too complicated for anyone to actually do a good job of managing it.
David Elikwu: Sure. That makes a lot of sense. You mentioned the word inequality there and it's funny, I think actually in the process you did a really good job of giving what I think is a useful explanation of why that's important, even though typically, 'cause I hear people mention the issue of inequality all the time. And I'd love if maybe you could give an explanation of like the extent to which that is a factor here and, and why that's useful.
But I think the lens through which you put it just now was super important to me because usually people say, oh, inequality's a problem. I don't always think so, or that wouldn't always be my first priority only because when people usually refer to the inequality, what they're talking about is okay. There is maybe a very few [00:09:00] people that make lots of money and then everyone else doesn't make as much. But I think like our focus should primarily be on trying to raise the bottom rung of what life is like for the average person. I don't really care about, you know, some, some rich oligarchs that I never even get to see. They probably don't even live in this country. Even though they might be domiciled here.
Whatever is going on there, I don't actually care 'cause I don't see them. It doesn't actually interfere with my Day-to-Day life. They can make as much money as they like, frankly. But how much money do I get to make? That's I care a lot more about that.
Rob Dix: Yeah. I've, I'm glad he said that. And I don't hear that said too often, but I completely agree. You often see people almost trying to get you worked up about some billionaire and how much they've got, but you're right, like they're such outliers. It just doesn't matter.
And for the most part, if you take like someone like Jeff Bezos or something, you can have your issues with Amazon and people do, and I'm sure it's not perfect, but it's created a hell of a lot of value for a lot of people.
Life is better and more convenient and cheaper in so many ways 'cause it exists. And so [00:10:00] if he just takes a fraction of that, well it's gonna be billions, isn't it? So it's just, I don't, have an issue there.
But yeah, I think something, a problem that we've had is that. Inequalities become more pervasive. And so it's not just the case of like, oh yeah, there's a few billionaires, but it's almost drawn. The big one that's often talked about is like around like age. So you've got like the boomers who've done really well and like, and no one else is. And I think it's not necessarily about age, it's about asset ownership. Something that we've seen over the last 15 years or so is that wages have stood still at best after accounting for inflation. But asset prices have really increased. And something I talk about in the book, that was a deliberate, that was a deliberate measure. Like the part of the recovery from the 2008 financial crisis was the Bank of England and others taking deliberate measures to pump up asset prices to make people feel wealthier.
So they'd go out and start spending again. So that's great, like for the economy as a whole and [00:11:00] better than having everything collapsing and everything. But it does mean that if you happened to be in a position to own assets at that point in time, then you've done really well ever since then. Like everyone knows our people whose houses have gone up massively in value. But if you weren't in a position to own assets back then, then you're really struggling. And so it's not so much like the 1% and the 99%, it's maybe like the 20% and the 80%, I don't know what the percentage are, but you know what I mean.
David Elikwu: Yeah. Yeah, exactly. And funnily enough, I think you touched on something that's really important there, which is the idea that it's almost a bit of a psyop, right? The idea that, okay, the government took these steps to make you feel wealthier.
And funnily enough, I mean, this is something I've talked about in the past, and I'd love to, to get your view on this, there is a big issue right now with home ownership, people being able to own their own homes.
But I do think there's perhaps two different sides to it, or two ways to think about it. One is that there is a legitimate problem, but the other is that there's a lot of people that just want to own homes and, and they will do almost anything to get on the housing ladder. [00:12:00] And right now there are people that are miserable, right? With everything going on in their lives simply because they aren't able to own a home.
But if you look at the history of home ownership, I'm thinking of the UK in particular, but I think this also applies to a lot of other economies. I think it goes back to like the 1920s. It was the Tory ion at the time, they did a similar thing. They were telling people, Hey, we want you to feel invested in the economy. Home ownership is a way for you to be invested in the economy. You can own a piece of our nation's wealth. Before that point, people weren't really owning homes, at least not in, in massive amounts, but there was a government push to get people to own homes. They created plans so that people could own homes, and then suddenly home ownership becomes something to aspire to.
And now we're kind of trapped in the, the repercussions of that, where people still see home ownership as something to aspire to. And if you can't have that, then you are, you are miserable.
Rob Dix: There's, there's so much to say about this. I don't even know where to start, but I agree. And so one thing is that, as I've already said, like there's a generation for home ownership has worked out like ridiculously well. And [00:13:00] so they of course are passing on the message to their children that, you know, you have to have a home, you've gotta get on a ladder. Like, because they see what it's done for them. And that's not necessarily normal. And I don't think that's necessarily going to be in the case in the future. I think we've had a fairly anomalous phase of history, which is kind of what you were referring to just then.
I think there's also the part around like I choose to rent my own home and this is like weird as an investor and no one can really understand why I do it. Like I invest in property, but I don't own my own home. But I don't think, I don't think home ownership should be the default choice for everyone because there are lots of circumstances where it's actually, you don't wanna be tied down in that way. So if you're in your twenties, like people in their twenties aspire to own a house for reasons including the one I just mentioned, but often what you really want to in that age is the freedom to move somewhere else to pursue a job opportunity. You want to be able to move in with a partner or expand your family or stuff [00:14:00] without having to sell your own home. I know so many people who own small flats in London who've been forced to rent them out and go and rent somewhere themselves out in the suburbs because their family's grown and they weren't able to sell.
So there are lots of reasons why renting is a perfectly good choice, and I think part of that is just like the cultural norms that we're given. And part of it is that the experience of renting in this country is really crap. And so this is a reason that I'm now unpopular with the property investor crowd is that I'm pro in like rental reforms in principle, I think that it needs to be done right and I probably won't be, but in principle, I think that lots of people have a bad experience renting and therefore they feel like, well, I don't particularly want to own a home, but I need to because it's better than being kicked out in a minute's notice, blah, blah, blah.
So I think if you could make renting like in reality and in perception, like a valid choice, like you're not failing. If you are renting, then it would [00:15:00] be better for a lot of people.
David Elikwu: Okay, that makes a lot of sense. Before I wanna ask you some more questions on that and dive into that, but I thought I'd probably just ask one more question in terms of setting the stage in terms of like the general macro economy.
Touching on something you mentioned before, which is this idea that essentially we have a problem with wage growth in the UK and I think probably in some other economies, particularly in Europe. But the UK seems to have it so much worse, and I can't really understand why. When the economy, at least if you look slightly longer term, it's not like the economy has gone down on the whole, it just seems like the additional value that's been created hasn't been captured by the ordinary working people. So it's gone somewhere else.
A good example of that, at least something that people will ask is, in the last year or so, utility bills were sky high, and the explanation for that was, well, you know, the energy costs have risen, there's a war in Ukraine, all these things are going on, and you say, okay, fine, right? The prices are higher, so everyone's gonna pay more. But then the energy companies are [00:16:00] making 10 times the profits that they were making the year before. So it's like, which is it? Is it the fact that we actually all had to pay more, or were you just looking for an opportunity to money grab?
So first of all, I wanted to ask that question about the wage growth issue. And then I guess a follow on question for that, which ties to what you were mentioning is, is that the primary blocker for people being able to own their own homes? Because I had this argument with someone on Twitter the other day, just randomly. And at least the point that I was making is that wage growth is a massive issue in the UK, but also so is home building. And it seems like we don't have enough homes and we're not building enough homes in the first place. And so if you still have the supply problem, but you fixed everyone's wages and everyone's wages suddenly went up to me, and I'm not an economist, it seems like the prices would go up even more like because their demand would go up more, but their supply would stay the same.
Rob Dix: Yeah, it's really, really complicated to tease out all the different factors. I think the wage growth thing, so it's a problem of [00:17:00] productivity for the most part. So UK, Europe in general, but UK in particular has got particularly poor productivity growth. 'Cause the way to ultimately get wage growth is for people to be producing more.
And productivity is just like the amount produced per hour or per some kind of unit of measurement. So obviously if you want to get paid more, you could either force companies to pay more, but better would be like, we'll get everyone producing more. So each worker is like more valuable. And so it is possible for them to pay more.
So productivity comes down to a lot, it comes down to education, it comes down to technology and all sorts of stuff. So like, we've got this AI revolution at the moment, and the best version of that is it means that everyone can do twice the work in the same amount of time, productivity goes up. Something that we've had over the last 20 years or so in the UK is like, productivity is just not been growing, it's hard to get wages to grow without productivity growing. And I think a lot of that comes down to lack of investment, there's been no particular [00:18:00] motivation, no driver for companies to invest in technology and things that are going to allow people to be more productive. So you're seeing like productivity hasn't really grown, therefore wages haven't really grown.
Coming to the property side of things yes, I think like that they're obviously linked, but there's, there's loads going on with this. Part of it is on the lending side. So if you couldn't borrow 90% of the amount that you needed to buy a house, then house prices wouldn't be as high. They couldn't be as high 'cause no one would be able to afford to pay them, so lending is a big part of that. And the fact that borrowing has been so cheap over the last 15 years, not so much now, but it wasn't until last year. That has allowed people to, if you've got the deposit, then it allows you to afford, afford more. Because there is a lack of supply, it means that people can price their homes for sale however much people can afford. And so as people could afford more house prices go up, the [00:19:00] only way to break that is sort of have a glut of supply.
But obviously, like there are plenty of reasons why that's not gonna happen, including planning laws, including just like how hard it is to go and build on mass. So it's really complicated. That's just touching on a few of the factors, but there's loads of them.
And when you've also got this issue that now a third of all homes are owned without a mortgage, that comes back to the issue I mentioned earlier about like the divide between people who've got assets and people who haven't. So like now, a third of all homes are completely unaffected by what's happening within interest rates because you just own it. And people tend not to sell homes, tend not to downsize or whatever unless they have to. Which means that those properties are now basically sitting there. And you don't have the same forces, the same mobility in the market that you did before.
So we could talk for another hour at least about all this 'cause there's so much going on and like when you're developing, when you're developing a policy around any of this, like, well, what do you [00:20:00] do to change it? And it's just so hard, 'cause like you'd have to change about 20 different things at once. I can't think of like, one intervention where you go, oh well, you know, just fix this and everything else falls into place.
David Elikwu: Yeah, sure. On that [00:21:00] last part that you were mentioning, do you think that, 'cause people say the same thing with like small or medium sized businesses as well, where they are disproportionately, at least now kind of owned by maybe older people or there's a, a generation of these types of businesses, the same with properties that are owned by older people and we have the aging population.
So it seems like there might eventually be some tipping point where suddenly a lot of those properties then are passed down to the next generation. Do you think that will have some big knock on effects all of a sudden on house prices?
Rob Dix: I don't know. I'm not convinced that it'll all happen in a close enough period of time that you'll be able to measure it. This is something that's gonna play out over like 20, 30 years. So if it all happened in the same year, obviously it would, but I don't think you'll be enough that you'll be able to look at it and go, oh yeah, that's happening and therefore we're seeing it in the numbers.
But it does come back to the inequality point, which is like, you've got a whole group of people who are going to inherit a house worth half a million quid or more, and a whole group [00:22:00] of people who aren't, and that makes a big difference. People get very upset about inheritance tax and there's lots to not like about it. But this, I think this is like a becoming, it's got the potential to become like a really important generational thing in terms of like how people get on a life, it's like, did you have, were you smart enough to choose parents who are gonna leave you a load of money?
And you're seeing it now in terms of like the number of people who are buying houses, like first time buyers who are using the, the support of parents and family. It's like, it's way more than 40%. I can't remember the exact number. So then again, it's just like, well, that's a factor that is keeping property prices high because it's enabling people to pay more, but only certain people.
David Elikwu: Yeah, I think this is actually a perfect segue to talking about this on a more individual level, which is what you were leading to before, which is that I have personally changed my mind quite recently, not just because I bought a house, but changed my mind on this, the idea of home ownership being important, and I think it's because, I can't remember if there was a specific thing that triggered it.
One [00:23:00] factor is I remember seeing the savings rates of a bunch of different economically developed countries, you look at the UK, you look at a lot of Europe, you look at the U.S, you look at China and a lot of these other countries.
David Elikwu: UK is one of the worst saving countries in the world, which first of all by itself is pretty astounding. And it's like, wow, like we are terrible at saving. But then when I think about that in the context of what we were just talking about now, which is this idea that, okay, a bunch of people are about to pass down these homes, when you remember that people also not only are they terrible at saving, they're also terrible at putting money into their pension. So you have a lot of people that have zero pensions. And so actually when I think about it, maybe home ownership is a great idea because there are so many people that if they were not putting their money into a home, they wouldn't be putting it into anything.
So it's not easy to say that. Okay, the alternative to, because that's the way I was thinking before. Why do I need to put my money into a house when I could just put it in the stock market? I had all my money invested, and the amount you make from your investments every year could be more than what you make from property. But the reality is, the average [00:24:00] person was never gonna invest in stocks in the first place. They probably weren't gonna do much with their money in the first place. And so if they didn't put it into this property, they weren't gonna do anything. So it's actually a great benefit. So the house almost becomes the pension and so the generational wealth becomes a good thing in a sense.
Rob Dix: Yeah, I'll go with that. I said that I choose to rent. And so, and something that I talk about when, I'm talking about this is like, you need to own assets. You've gotta own assets, but you don't have to live in your assets. So like, there's no reason why you have to you need to be building up equity in your home. You could be building up equity in something else, but you are exactly right. Like the, your home is like a, it's a forced savings plan effectively. And so it is a benefit of home ownership at large is that, yeah, it forces people to do it and property's got loads of drawbacks. But all the drawbacks have kind of hidden advantages and so like it forces you to save. It's really, really hard to sell. So, which is like, it's a drawback, but it's also a good thing 'cause it means you can't do anything stupid. Like you can't just go and sell your house one day 'cause [00:25:00] you're panicking about house prices falling, but you can like go on your, on your trading app and sell everything.
So actually there is a lot to be said for it. I don't think it, I think it'd be better if it wasn't the default choice or the only choice. But if it was between owning a home and doing nothing and having nothing left to show for it, then I'd do that. But of course you do end up in a situation where you can end up with all your wealth tied up in your home. So you might have loads and loads of equity in your home, but not much in the way of anything else, which means the only way to access that equity is to sell and move somewhere smaller or cheaper, which is a totally valid thing to do, is just that people tend not to do it. So I personally like this separation between like my home is one thing and my investments are another thing, and they're totally disconnected so I can make financial decisions and I can make personal lifestyle decisions. And I like having that separation.
I think I see it in a more black and white way than most. It's probably like, should be more in the middle. But the problem is that they get so intertwined. [00:26:00] So it's like, I don't really want to move, but I have to because I need the cash or do I do want to move? But I can't because of this. And so they, they get It gets very messy.
David Elikwu: Yeah, that makes a lot of sense. So I mentioned when we were chatting before we started recording properly, that I recently bought a home and I'd been in the exact same boat as you and I still pretty much do have the same opinion as you that for the average person, if you are good at saving, if you can learn to save and you can manage to save and to invest, I think there's much better things to do, at least for your, yeah. If investing and growing your money is your primary goal in terms of whether you live in the house that you own is a separate thing. I don't think owning your house, like the house that you own. I don't even think people should call it an investment. That's not an investment, that's a house that you live in. If you buy a different house and you are maybe like renting out or doing something with it, I think that's an investment that you can call that an investment property. If you're living in the house, it can become a worthwhile investment. But I don't think the primary way people should think about it is as an [00:27:00] investment.
So using my example as an example, and actually I think this is a good opportunity for you to let me know if I've done something daft here. 'Cause I can talk you through the, the process of how I ended up buying this place.
So really it's because I've been living here, I've been living here for like four years already. I was renting it. So similar to what you were saying, like, you know, I just found somewhere that was nice to rent. When I first moved here, I probably couldn't have afforded to buy it, and it was really expensive, but it was a nice house and I wanted to live here. So I've been living here for about four years, or probably at the time it was about three years. And then one day the landlord decided that they wanted to sell. And so then I had to think about it. Do I want to keep living in this house for a long time going forward? And so that's kind of how I came to the decision.
Funnily enough, the year before that, I think I got a mortgage in principal, but it's because originally I was gonna buy an investment property and I was looking around and seeing, okay, is there something else that I want to buy?
Funnily enough, at that time it felt like, so this is just coming off the back of the Covid period. The prices were insane and I think prices are still high now, but [00:28:00] compared to like I was going and viewing places, first of all, they wouldn't even let you view a place if you didn't have the mortgage in principle, I couldn't even go inside the house and take a look, so you had to get that and it was just tough. I went to view one place, it was probably one of the worst designed houses that I've seen It had, I think there was a toilet downstairs. The main bathroom was upstairs, but you had to go through one of the rooms to get to it. So if it was not like a one family house, there's no bathroom basically, because you have to go through someone's bedroom to get to the bathroom. And the downstairs toilet, I should have mentioned, was on the other side of the kitchen. And they said, okay, you are not allowed to extend. So I was looking around and I was like, is there any possibility of extending to the back or at the top They said, you can't do any of that. So that just really put me off, 'cause at the time I was thinking, okay, let me invest in something. And all the options seemed terrible. That place went, I think I viewed it on a Saturday. I went at around 11 o'clock. I was over 10 people had been there before me and it was gone by Monday, which is insane. So that just told me, I don't want this.[00:29:00]
So I didn't buy anything. And then when the opportunity came up to, to buy the house, I was already living. And I said, okay, fine. That's a great decision.
The other reason I think it would be a good decision is, we didn't end up valuing the house. The owner wanted a quick sale and she just made up a number and I negotiated based on that number, and I'm pretty certain that that number is less than what the actual value of the property would be. So it seemed like a good deal to me. But this is where now we will see. So I got the mortgage offer, everything was okay. But since then, obviously mortgage rates have gone up tremendously. Luckily I still got a pretty decent rate, like under 5%, but I only did it for two years. And that was because I wanted to revalue to finally get a proper value of the property in two years and then can remortgage based on that, but the interest rate might go up. So, you know, lots of factors to consider there.
So I say all of that to say, some of these are the kinds of decisions that people will have to think about. If they're going to buy their first property, [00:30:00] and I wanted to know from your perspective, like what you think people should be considering, because there's some things that people maybe place too much emphasis on, and there's some things that people perhaps don't think enough about.
Rob Dix: Yeah, I think your story, hearing that is really useful because it really emphasizes that it's so personal and, and like random things happen. So like you had the opportunity to buy the home you're already living in, that opportunity came up and it forced you to make a decision like that never come when you're trying to do like a rent versus buy spreadsheet and stuff like that, that never comes up in it. But that's what life is actually like, and it's always, you're always responding to events in some kind of way. You can't just be like a hundred percent like rational and clinical about it.
But I think in terms of the factors. The biggest one for me is how long you are gonna want to stay there, because as you'll know, the costs of transacting in property are massive. So you've got stamp duty less if you are a first time buyer. But in general it's huge, in London it's ridiculous, and you've got all your [00:31:00] legal costs and mortgage costs and everything. And so like, you need to split those costs out over quite a few years for it to actually work out better than renting.
So I would say at least five years staying in the same place, like probably more like 10 for it to really work itself out. Which is why, going back to what we were talking about earlier, if you're in your early twenties, you're not necessarily want gonna know that you want to be there in five years, 'cause you might, move in with someone, you might move for work. So, that would be the first thing that I would look at.
And then the other is that in your case, it's great because you already knew that you liked living there, so that was amazing. And you also had an opportunity to not get sucked into the market along with everyone else, because, like that, what you're talking about in terms of like, it being possible to get a viewing and stuff like that, like that is like a classic sign of, I probably shouldn't be in the market right now. When that's the behavior, it's just like, that feels like, it's not necessarily gonna be a crash afterwards, but that [00:32:00] can't sustain itself for that long. So that's probably the peak. And if you're gonna get involved in that, you're gonna end up paying over the odds because you're gonna be trying to outbid other people. And at that point, it has nothing to do with the fundamental value of the home. If you are buying, you in the dream situation because you weren't going up against anyone else, so you were never gonna end up overpaying unless you just like said yes to whatever their random number was.
So I think that's the dream situation. But if you're buying in a market when it's quieter, then that is, then you kind of get the same effect. You're less likely to get sucked into a bidding war. But this is where like the investment and the life crossover, because you can't choose when you're gonna be ready to buy your home. If you need to move the market's doing what it's doing, you can't influence that.
So yeah, I think that's how I'd sum it up. And it seems like you had the right situation come up at the right time, which is lucky. But then you took, you capitalized on that luck and took advantage of it.
David Elikwu: Yeah, exactly. I mean, it was also, it was a terrible [00:33:00] process overall. In fact funnily enough, I'll give you one story for your podcast. So you happen to be a co-host of one of the, the biggest, I would say, entrepreneurship podcasts in general in, in the UK actually. So I ran afoul of, and then, so this is something you can warn your, your listeners of the LISA penalty for property value 'cause I bought in London, which is insane. And they, they need to change the cap on the property prices 'cause it makes zero sense. And I just completely forgot, I've been paying money into this thing for years. Every year, just because I think they introduced it in 2017 and so I'd already put money in my LISA because at the time it seemed like a smart decision. And context for anyone listening to this that maybe is not based in the UK.
The LISA is just an investment vehicle that you could use to invest either for retirement or in a first time purchase of a property. So I think you can put in up to 4,000 pounds a year and the government will give you a 25% bonus. However, if you were to purchase a [00:34:00] property that's over a cap, so I think the cap at this point in time was 450,000. Then you have to pay a 25% penalty on the entire amount. And funnily enough, because I'm an investor, my LISA was not a cash LISA it was a stocks and shares LISA. So the value of what that had grown through over the last few years was much more than the actual amount that I put in, plus the government bonus. And so it was an insane and unfathomable amount that I would have to pay. I ended up not paying it, I just didn't even use it in the end because there's no way, I just thought as I was doing the mass, it would actually be easier to borrow this amount of money and the interest amortized over however many years that you can always just pay upfront at whatever point is less than a 25% penalty, that's 25% interest guaranteed that you pay upfront. So I would much rather get the money from elsewhere and pay that off, and I would still pay off less in, in total.
Rob Dix: Didn't even know that was a thing.
David Elikwu: I did not, no one knew [00:35:00] until closing. We were getting towards closing. I was withdrawing all of my funds and everything, and we sent a letter to the, the LISA company and we're like, okay, trying to get this back now. And they said, yeah, sure. But you have to sign this declaration that says that the property value is gonna be under this and it was not. So yeah, there you go.
Rob Dix: That's crazy. That's another no more symptom of a more general thing is that they're like, everything's so complicated. There are so many different schemes. We've had help to buy, you've got all these various, is there's all, all this stuff and it's just all, it's all like trying to patch over the problem by like building another thing and another thing and another thing. It just gets so complex that no one understands what the hell's going on.
David Elikwu: Exactly. So you mentioned the fact that, okay, so you might not think of your own home as a primary investment. So let's talk about other investments. You talk about this in your book. You mentioned, for example, that you would not recommend people to invest in fixed income products. So tell me more about that.
Rob Dix: Yeah. So fixed income is the clue is in the name. So it's like you put an amount in, and then you [00:36:00] are, you are guaranteed to get a certain return every year. And so, like bonds is the typical example of this. So a bond is just like loaning money to someone effectively. So there's government bonds where you loan money to the government because, and they need it because they're spending more than they bring in every year or you can lend money to companies. But government bonds is what people tend to think of. And the problem with that in an inflationary world is that you are, let's say that you got put in a hundred pounds. And you are guaranteed to get 4% every year, well then you know that you're gonna get in fact, it's not 4%, you get four pounds every year based on that. So it's based on the starting amount. So you get four pounds every year, great, that's 4%. But that four pounds with every passing year is gonna buy you less. So the real buying power of your four pounds is going down and down and down over time. And then after however many years when the, the bond matures, you get [00:37:00] your original a hundred pounds back. But at that point that a hundred pounds is gonna have less buying power than it did at the start as well. So it's that's different from like, compare it that to a rental property, say, so when you buy that property. You get some kind of rent, you know what the rent's gonna be on day one, but it's not going to stay at that level.
Generally speaking, rents go up in line with inflation over the long term. So it's like in the first example that four pounds that you get becomes four pound 50, becomes five pounds. So you are not losing out to inflation in the same way. And of course the value of the asset can go up. It tends to go up in line with inflation as well. Not guaranteed, but tends to. So that's the problem with fixed income in an inflationary world. It just so happens that the argument for bonds has got better since I wrote the book. 'Cause at the time, like the, they, you, the returns that you're getting, because similar to the interest rate thing. Like you'd be like signing up to, without put in your hundred pounds and you'd get one pound. It's like, well, [00:38:00] so you are, you are locking in 1% and you know that's gonna get less overtime 'cause of inflation, that's not particularly good.
Now because of everything that's happened, you might be getting more like four or five, which is far more appealing. So it's less cut and dried than it was at the time. But I still find it hard to get too enthusiastic about it given if we are gonna be living in a world that is more inflationary than the last couple of decades have been, which I think is gonna be the case.
David Elikwu: Yeah, funnily enough, just as you were speaking, I just realized, I'm probably gonna have a ton of war stories related to almost every investing form. And I have two that are related to bonds. One is is not real, but it was a potential one. And the question I wanna ask at the end is maybe if you could expand a bit on, like what bonds are and how they functionally work. Just 'cause I think that will be useful.
But to give you two examples, there was one bond offering that, so I used to work in corporate law and so I've worked on bond issuances and I've actually done some of those things before. But there was one bond offering that I saw I was interested in investing in just [00:39:00] because I was a customer, which is Chilango, I'm not sure if you know that brand. It's like Mexican restaurant thing. And so I think it was in 2017, they were doing a, it was either five year or a seven year bond. Which in return for investing in this company, you could get free burritos.
Rob Dix: No, that's a financial instrument I can get behind.
David Elikwu: Yeah, exactly. So you get some yield, you get some money for your investment, but then you also get, you know, some free burritos as well. But obviously the timeline of that runs directly through the pandemic and through a bunch of other things.
I think they ended up shutting down a bunch of branches. I'm not sure exactly how well they're doing financially now, but that's part of the risk, right? You are, you are effectively lending money to a company and you don't know if they are going to survive, to be able to pay you that back in the first place.
The other example is Silicon Valley Bank. Funnily enough as fate would have it. So I am a co-founder of a startup and we were a client of Silicon Valley Bank. That's where we had some of our money. Luckily because we're in the UK that was just bought [00:40:00] up by, I think it was like a branch of HSBC. So we ended up becoming HSBC customers. But in the US I don't think it was as smooth a process as that.
But a similar thing, and I dunno if you know the full story of that, if you could explain it, that would be great, 'cause I don't remember all the details. But that was again, a situation where I'm pretty sure part of what triggered it was the fact that they had invested a lot of their deposits in US bonds.
Rob Dix: Yeah, that's right. So they're both really good stories to emphasize different elements of like how bonds work. So the primary reason for investing in bonds is that in general, compared to other investments, they're relatively safe. So if say you lend money to a company, they have to pay their bond holders back before their shareholders get anything.
So it's like the debt on your house. Like you have to pay the mortgage on your house. If you pay the mortgage on your house, then the equity on top is yours. But if you stop paying the debt, you've got problems. And so it is exactly the same for companies. So if you're a bond holder in a company, you are safer than an equity [00:41:00] holder in that same company. And the reason for lending money to governments is that governments in theory are like the safest entity that you can lend money to. So it's super safe, like, depends on the country, but if you are lending to the US or the UK. If they have problems repaying their debt, then you've got big problems and they've got the advantage that they can print money to pay you back if they need to, which is quite handy. So you're, so the US Treasury is referred to as risk free. It's not actually risk free, but it's close enough that that's what everything else is measured against.
So if you are investing in bonds, it's like people talk about bonds in the same as people talk about the stock market. It can be so many different things. Like the type of thing you invest in really matters. And so if you are using bonds as the safe part of your portfolio, you wanna make sure it's really safe. So you are lending to major governments to massive, massive companies like sort of like banks and multinationals and stuff like that. Not a burrito chain, but you could, you could end up getting into trouble. So yeah, if you want it to be safe, then make [00:42:00] sure it is safe.
The part about Silicon Valley Bank. There is really interesting because that was one of the many weird things that happened as a result of interest rates going from almost nothing to like four or 5%, whatever they end up being. And that was, they'd been practically nothing for best part of 15 years. And then they jumped all the way back up and like the 4, 5% of whatever we're at now is like historically normal, but it's not normal for that change to happen so quickly. And lots of things broke as a result of this. There was a whole thing with pensions in the UK. Lots of things came to light. It's actually surprising in a way that more things didn't break as a result of that happening. And there might be more to come out. We'll see. But the Silicon Valley Bank is an example of that.
And the key thing was that, I said previously that when you buy a bond. You're guaranteed to get your starting capital back at the end in some number of years. So it might be 10 [00:43:00] years, it could be 30 years, but you know, you'll get it back then. But what generally happens is people will invest in bond funds. So you're not gonna hold one for all that length of time. You're in a fund and the, the fund is always buying and selling and doing everything else. So if you can hold all the way to the end, then that's great, but if you can't hold all the way to the end, then the value of that bond can change. Or like during that period, it can end up being worth more, it can end up being worth less.
The problem that they had was that they invested in bonds when they were getting like, maybe 1%. The price of those bonds fell and the yield went up. And so maybe it was like 5%, which means the price fell. And at that point, if they could just hold on for the rest of the 10 years, 30 years, whatever it was, no problem at all. They'd have like an unrealized loss, like if I sold them today. Then I'd be taking a loss, but I'm not gonna sell them today. So it's all good. It's like if the value of your house goes down, it doesn't matter until you sell it. But they were in a position where [00:44:00] suddenly all the, the startups that they invested in also started running into trouble because they were finding that, they were finding it harder to raise money than they did previously.
So they'll have to draw lots of cash out of their bank account to pay their wage bill and things like that. So that meant that all this money, that the customer money that the bank had gone and put in bonds, it then needed to sell the bonds to pay the customers back. And so that meant that they were suddenly taking, being forced to take this loss. And then they end up in a position where they basically couldn't pay everyone back.
And this is the thing about banks that no one ever thinks about is like, you think when you put your money in the bank, it's there. It's just sitting there waiting for you. It's not, it's gonna be, they've gone and done something else with, with it. And it's all fun and games until everyone comes back on the same day wanting their money back at the same time. And that was another particular problem with that bank because all those people are highly networked. They're all talking to each other. As soon as there are some whispers of trouble, everyone goes and tries to get their money back at the same time. [00:45:00] And so in the end, yeah, like the treasury had to do something to stop further problems happening of this type and basically backstopping the whole thing.
But bank itself went out of business. So it's quite a good lesson in a way in that like, it kind of illustrates lots of points and lots of risks, but no one actually lost out in the end.
David Elikwu: Thank you so much for tuning in. Please do stay tuned for more. Don't forget to rate, review and subscribe. It really helps the podcast and follow me on Twitter feel free to shoot me any thoughts. See you next time.
