Making Money Models

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The Question

My grandfather passed a year ago last month, and my grandmother passed two years ago this week. I could not have asked for more loving grandparents, and I miss them dearly.

A transaction credited my account labelled “Legacy”. Since, I have been thinking how legacy encompasses inheriting values as well as financial gifts.

My grandparents arrived from Europe following World War II. They worked hard, loved their family, and found their Great Australian Dream.

I want this legacy money to build upon their foundations. But does the Great Australian Dream mean purchasing a principal place of residence (PPOR)?

The Situation

As of June 2026, the Reserve Bank of Australia’s (RBA) cash rate target is set at 4.35%, whilst the CBA forecasts property growth to be widely flat to weak. If long run property growth remains at or below the cost of borrowing, leverage may contribute less to wealth creation than it has historically. Leverage is affected by many variables, including borrowing cost, capital growth, and holding period. So, when does a dividend-reinvesting ETF portfolio become the better option?

Let’s say I stay put for ten years. Am I better off using this money as a deposit for a PPOR (in regional NSW; only my name on the property title and mortgage), or do I buy ETFs and continue to pay rent (in the same regional NSW location; split 50/50 with partner)?

The Prompt

Enter AI, several hours spent iteratively refining dependencies/assumptions, re/writing prompts, and re/reading outputs…¹

Investigate buying property (PPOR) v ETFs. Ultimate question to answer: over ten years does leveraged PPOR > unleveraged ETFs?

Cotality report for property location:

* Median house prices 2020-2025 (trimmed average of the annual percentage change of median prices for the past 5 years): Location 9.80%, State 8.64%, National 7.99%
* Median house prices 12 months to Dec 2025 vs previous 12 months (middle price when all prices are sorted from lowest to highest): Location 5.28%, State 8.57%, National 9.70%
* Auction clearance rate (percentage of properties put to auction that sold 'under the hammer' or prior to auction): Location statistically not reliable, State 85.71%, National 83.55%

Assumptions: PPOR and ETFs

* start date: 1 Jan 2027
* holding period: 10 years

Assumptions: PPOR

* property purchase: price $X
* upfront cash: deposit $X, buying costs $X
* loan: $X
* rate: OO P+I no LMI variable interest rate X%
* holding costs year 1 (increases 2.5% p.a.): rates $X p.a., water $X p.a., insurance $X p.a., maintenance $X p.a.
* selling costs: $X
* net proceeds at exit = sale price - selling costs - loan payout
* no capital gain tax on PPOR (main residence exemption)
* no first home owner benefits
* annual capital growth rate: low 2%, mid 4%, high 6%

Assumptions: ETFs

* shares purchase: price $X (equal to PPOR deposit $X plus buying costs $X)
* monthly DCA investments: $? (equal to property costs minus rent)
* rent year 1 (increases ?% p.a.): currently $X per week
* brokerage: $X per trade
* selling costs: ?% capital gains tax, sell in parcels to smooth/lower assessable income
* dividends: reinvested (calculate low $?, mid $?, high $? for weighted conservative low/mid/high for portfolio containing ASX ETFs 60% IWLD + 30% A200 + 10% VEU)
* annual capital growth rate: low ?%, mid ?%, high ?% (calculate weighted conservative low/mid/high for portfolio containing ASX ETFs 60% IWLD + 30% A200 + 10% VEU)

Let's work step by step...

* double check assumptions and projections are accurate
* outline cashflow yearly for PPOR and ETFs
* compute annual mortgage schedule (principal reduces each year, variable rate will change over ten years)
* calculate totals
* include recurring and one-off costs (e.g. mortgage interest rates, insurance, maintenance, stamp duty, etc for property, and brokerage, etc for shares)
* sensitivity analysis (produce low/median/high scenarios for property and ETFs)
* present outputs
* present decision metrics
* include opportunity cost analysis

Provide report .doc and spreadsheet .xlsx with assumptions as editable values.

Veracity over verbosity. Ask questions to clarify at each step as needed. Use and provide references \<5 years old.

The Assumptions

Both strategies spend identical total cash by construction. The ETF plan follows an “invest the difference” rule whereby monthly investments are equal to whatever the property scenario would have spent on mortgage plus holding costs, less the rent paid. This means that ETF contributions shrink over time as rent rises each year while the mortgage payment falls (equity increases plus rates normalising from 6.34% to 5.4%; rates calculated by the LLM), i.e. the “difference” being invested narrows.

All modelling is performed in nominal dollars. Inflation affects both strategies and is therefore not modelled separately.

The comparison hinges on the model’s assumptions…

Assumption 1: PPOR annual capital growth rates (input: low 2%, mid 4%, high 6%)

Cotality reported Australian house prices grew ~6–7% over recent decades, and the location’s house prices grew 9.8% p.a. across 2020–2025. In both cases, falling interest rates increased borrowing capacity over much of that period, alongside population growth, constrained housing supply in many markets, and rising household incomes. With policy rates already well above their pandemic lows, many forecasters expect less scope for further interest-rate-driven expansion in housing valuations than occurred over the previous four decades.

Today, rates sit at 6.09–6.49% and are not expected to fall much further, meaning long-run housing returns may become more closely linked to income growth, rents, housing supply and local demand conditions, i.e. ~4–5% (represented by the conservative mid case of 4%).

The location’s own 2020–2025 record (9.8%) sits above the low/mid/high band. That trimmed average is dominated by 2021–2023, when the location’s house prices surged 15%+ every year. That was when the record low-rate boom plus a pandemic regional-migration spiked, and amplified locally. The past year suggests growth has already slowed from the pandemic-era boom, with the location growth at ~2.6%. The true sustainable rate is likely to sit well below 9.8% and above 2.6%.

Consequently, using 2%, 4% and 6% nominal growth as low, central and optimistic modelling assumptions appears reasonable for sensitivity analysis, although actual outcomes could fall outside this range. The location can probably clear ~4–5% p.a., and will likely punch through 6% in individual boom years.

Assumption 2: ETF annual capital growth rates (output: low 4.0%, mid 6.5%, high 8.5%)

Equities fluctuate daily. The ETF modelling assumes average annual returns. Actual equity returns are path-dependent, and materially different sequences of returns may produce different outcomes despite similar long-run averages.

The mid case is a weighted blend, not a single guess:

• Capital growth: IWLD 5.5%, A200 4.0%, VEU 4.0% → weighted ~5%.
• Dividend yield: IWLD 1.8%, A200 ~3.3%, VEU ~2.5% → weighted ~2%.

The weighted mid case total return is ~7%. Because dividends are reinvested, that full ~7% compounds, i.e. the ~2% yield buys more units each year, which is where a big chunk of the ten-year figure comes from.

The ~7% is likely, and deliberately below long-run historical returns to reflect valuation uncertainty. Comparable diversified equity portfolios have generally been in the high single digits. Do not plan on the past repeating.

Assumption 3: Rent escalation (output: 5% p.a.)

The location’s median house rent growth was ~59% over the decade (~4.8% p.a. CAGR), with vacancy at 1.5% (well under the healthy 3% benchmark). Whilst paying weekly rent (split 50/50 with partner; below location’s market average rent) is less than PPOR costs (no split; only my name on the property title and mortgage), there is exposure to rent escalation.

However, the escalation rate matters far less than the starting level. The current rental cost is so low (think: old cottage, <100m^2, ugly kitchen, uglier bathroom), even fast percentage growth adds few dollars. This means more funds in to ETFs.

The Output

Claude’s executive summary:

“The question was direct: over ten years, does leveraged property growth beat unleveraged ETF growth? Under the stated assumptions, the leveraged PPOR does not beat unleveraged ETFs over ten years in 7 of 9 growth scenarios — even after the enacted CGT reform taxes the ETF exit at a 30% minimum rate while the PPOR stays CGT-free. But the margin is narrower than it first appears: at 6% property growth the PPOR edges the mid-case ETF (−$7k) and beats the low case by $143k. Breakeven: the property needs ~5.9% p.a. growth to match the mid-case ETF outcome — close to the location’s 20-year average (6.8%).”

TABLE: Head-to-head grid of PPOR × ETF growth scenarios.

The report goes on to emphasise:

• The decisive variable is housing cost while renting. Buying solo means taking on more than x3 $/yr of housing costs alone versus sharing rent; the difference (~$26–35k/yr) compounds in ETFs. Re-modelled at full market rent, the PPOR wins the mid/mid scenario.
• Leverage amplifies investment outcomes. It adds value when asset returns comfortably exceed financing and holding costs, and detracts when they do not. Under the modelled assumptions, leverage contributes little additional wealth because expected property appreciation is similar to, or below, borrowing costs.
• The power of compounding interest is re-confirmed, with most of the ETF result driven by the initial capital compounding, not the monthly top-ups.

Ultimately, net wealth at year 10 after all selling and tax costs leaves a ~$234k gap in favour of ETFs in the central case, and ETFs win at every matched low/mid/high pairing. Property only pulls ahead in two of nine squares of the grid: if property manages high (6%) growth while shares simultaneously deliver only their low (4.0%) or mid (6.5%) return.

CHART: Modelling PPOR vs ETFs over ten years

The Opportunity Cost

Choosing the house means accepting less financial wealth in almost all model scenarios. However, the model does not assign value to housing security, autonomy, or the tax-free status of a principal residence.

Choosing ETFs means more liquid wealth, diversification, and flexibility in location (for work, lifestyle, etc). But rent must be paid and there is no security of home ownership.

The Recommendation

On the numbers alone, and under stated growth assumptions, the diversified ETF portfolio is the stronger wealth-builder.

But this is close enough to consider the real and unpriced non-financial benefits of owning a home. The question becomes binary:

Buy the home if the non-financial benefits of ownership outweigh the expected financial shortfall, or if there is reasonable expectation of stronger-than-modelled property appreciation (>6%).

Buy ETFs if optimising for liquid wealth and are comfortable renting.

The Decision

Every model is a reflection of its assumptions. Change the assumptions and the answer changes with them. This exercise clarified what must be true for each option to be the better decision.

Running this model answered a financial question. Continuing to rent and investing in a diversified ETF portfolio is projected to build more wealth over the next ten years. Buying a home becomes financially competitive only if local property growth is materially stronger than the central assumptions.

Writing this essay answered a life question. A home is not inherently a better legacy than a portfolio, nor is a larger portfolio inherently a better life. Both are simply tools.

My grandparents’ legacy was never the money. It was the values that created it: patience, hard work, generosity and long-term thinking. The Great Australian Dream is more than owning a home, it is about leading yourself to a better life.

The right choice is the one that best serves the life I want to live.

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