In today’s show we talk with Margaret Lomas,  from ‘Your Money Your Call’ and Destiny Financial Solutions, about her portfolio.
 

Transcript:

Kevin:  Earlier in the show, I was talking to Margaret Lomas in answer to Matt’s question. We continue that conversation with Margaret now as we talk to her about her portfolio.
Margaret, how often do you review your portfolio?
Margaret:  Every year, I have another look at it. People think that because I’m what I call a buy-and-hold investor, that means that I buy and never, ever sell. That’s not true either. I frequently look at my portfolio and sometimes even sell.
I sell as a result of many things. If I realize after giving it a couple years that I’ve actually made a mistake after all. I’ll go back and review the area and realize that I didn’t read it well, and all the things I thought were going to happen are never going to happen, and I’m going to sit on that property with it dragging down my portfolio forever, so I need to get out of it.
The second reason why I might sell is if a property has already had a really, really good period of growth and I don’t feel there’s any more in it.
Some areas have some real sentimental growth that’ll happen, and you can be lucky and time it to get in early enough for that. Then at the end of that sentimental growth there’s no more real growth drivers.
Under those circumstances I might sell, as well, particularly if it’s holding me back from borrowing more money to buy something that I think has better opportunity.
In the main, my portfolio remains the same, and I review it just for rent rises and things like that, but I’ve been known to sell around the edges of the portfolio to reshuffle it and to get a better-performing portfolio.
Kevin:  What’s your drive right now – for cash flow, as you indicated, or is this a time to be looking for capital growth?
Margaret:  I always look for both, Kevin, and there’s no question in my mind that you can have both. I think people are mistaken, and I think they’ve been led to believe for many years by the spruikers that it’s one or the other.
Even a couple of weeks ago, someone on my show said, “You know, if you buy that property, you’ll get cash flow and it’s going to come at the cost of growth.” That doesn’t naturally follow to be true, so I really want everybody to understand that that is not true.
I’m not the kind of person who always buys exactly the right property. I make mistakes, too, so I have some lemons.
I’ve gotten rid of a couple, and I still have a lemon in the portfolio, but most of the properties in the main that I have bought have had both cash flow and growth.
I firmly believe that there are indicators in all areas that tell you that that area is going to see its rents grow and it’s also going to see growth to the capital value of the asset. To suggest that in all cases, growth comes at the cost of cash flow and cash flow comes at the cost of growth is just not true.
Kevin:  That lemon you’re holding your portfolio now, Margaret, why are you holding it?
Margaret:  To continue to remind me of the lessons I need to learn as an investor. To be honest, it’s not a big enough lemon for me to sell it. I almost did sell it this year. It’s the very first property that I bought in Cairns.
Kevin:  I remember you telling me about this one.
Margaret:  It did go up, and then it went down. The last valuation a couple of years ago put it at about $4000 more than I paid for it 15 years ago.
It’s funny; I was having a chat to my friend Dr. Andrew Wilson the other day, and I said, “I’m going to get rid of Cairns.” He said, “No, don’t, because you’re actually going to see some growth next year.” Now, I know that that growth will only be a window, because Cairns doesn’t have the kind of growth drivers for sustained growth over time.
In your portfolio, you want your properties to grow every year. They don’t have to boom, but you want them to grow every year. In the main, my properties do. Cairns doesn’t. I guess I’m kind of hanging onto it.
It’s got a pretty good cash flow. I get a good rent on it. I’m hanging onto it, just waiting to time the market next time that we get some investor sentiment in the area, which is coming because everyone’s talking it up. It’ll get some investor sentiment in that area, and I will then sell when everybody else is buying.
Kevin:  Is that what’s going to drive that growth in Cairns, purely that investor sentiment? Just talk?
Margaret:  Absolutely. Look, a few things are happening up there, but nothing that’s going to create sustainable growth. We have to face the fact that markets like Cairns are very much itinerant markets.
A good number of the people who live in areas like that are from one of two demographic groups. They’re either retired or semi-retired. The proof is there that any area where we have a significantly higher average age than the national average doesn’t grow as well. Those people tend to sell down, not sell up. They tend to go to smaller homes, and therefore we don’t get the pressure.
The second demographic is itinerant people who go there just to work; they push the rent up because it’s too far to take all your furniture to Cairns, so people go up there and rent furnished properties – and they get good yields on those – but then they leave. They don’t stay. Cairns is the kind of area where you don’t stay.
Certainly, young people and families don’t tend to stay in places like Cairns, and we need families to anchor an area. We need to see private schools coming in. We need a lot of schooling. We need to see more and more schools because of the population growing so fast. We need sporting grounds and the facilities that families want.
Families bring money to an area, grow an area, work in an area, spend their money in an area, and overall make an area become more affluent. Places like Cairns don’t get that.
Kevin:  Margaret, great talking to you. I know we deviated a lot there from what Matt’s original question was, but it’s always good talking to you.
Margaret Lomas from Destiny Financial Solutions. Thank you so much for your time.
Margaret:  Thank you.
Kevin:  And Matt, stand by, because we are going to give you a 12-month subscription to Australian Property Investor magazine for being our question of the week.
Margaret, once again, thank you. Look forward to talking to you again soon.
Margaret:  Great. Thank you.