02 May Lessons from the GFC – Margaret Lomas
We ask Margaret Lomas from Destiny if there are any investing strategies that do well in boom and bust.
Transcript:
Kevin: Are there any investment strategies that do well in “boom and bust”? What a great question. I’m going to ask that question of Margaret Lomas from Destiny Financial Solutions.
Good day, Margaret. How are you doing?
Margaret: I’m very well.
Kevin: Good. Can you answer that? Is there such a thing as an investment strategy that does well in both boom and bust?
Margaret: I can answer that. And I’ll go back to when the GFC first hit, because at that point in time, not long before the GFC, I’d actually invested in quite a lot of properties that you would have considered to be right at the lower end of their markets. So, I’d gone to some capital cities but gone right into those areas that people generally turn their nose up at, and I’d also invested in a couple of larger regional towns, as well.
And interestingly enough, what I found is that once the GFC hit and a lot of people with more expensive property were finding that both their values were down and their rents were also down relatively speaking, I found contrarily that my properties actually all grew in value really well during the GFC.
I think the reason behind that is that when you think about it, people still throughout the GFC wanted to buy property to live in, but they had to amend what their aspirations were. So, more people fell down into those lower price ranges, more people needed to rent in those lower price ranges, and we actually saw a subsequent increase in demand in those lower price range properties and those lower rent range properties.
So, because I owned quite a lot of properties in those areas, I had a great time during the GFC, and my properties rose really well in value.
Kevin: Okay, so turn it around. What happens when it’s the opposite?
Margaret: Well, the thing about that is providing you make sure that the areas that you buy in are also areas that have future potential – because you know there’s some infrastructure coming up, you know that their population is growing, and you know that the demographic is made up mostly of families, and those families need to be met through the future provision of schools and childcare centers and shopping centers – then those areas also continue to grow post-economic stress just the same as any other property will.
So, you get similar growth to any other property after or when there’s no economic stress, but you seem to get better growth while there is some kind of economic stress.
Kevin: What’s your most favored strategy? Or have you just told us what it is?
Margaret: That’s not always my strategy. Certainly, if I think the economy is going along nicely and we don’t have any kind of major economic stress, then I will change that strategy. And from time to time, I will buy from areas where they might not be in that bottom third of the market – they might be closer to the median value – but they exist in areas that border onto areas that already had a lot of attention and grown really well.
And you can see that happening all over the place. If you look, for example, in Queensland and we go to the northern suburbs, let’s say we think about places like North Lakes and Petrie where we have all of that big university development happening, we’ve seen properties in those two areas and Kallangur going up really well in the last few years, and they’ve gained some great value and their rents have also gone up.
If we have a look at those areas and then have a look at their bordering suburbs, we find places like Dekabin and areas like those where there’s a significantly lower buy-in price, but those areas are also subject to the same kind of infrastructure. So, the reason their prices are lower is because at this point in time, they’re still not favored. People still think that they’re not the best area to live in.
But what you always see happen over time is that once those other areas that are doing so well start to just peak up a little too high and come outside of the price range of the average buyer and the average investor, then we see them start to look a little bit further afield and we get pressure on those outlying areas.
And I really like that as a strategy. That’s what worked for me very time I’ve bought.
Kevin: You’ve mentioned there some areas in Queensland. Does the same apply in some of the other capital cities like, say, the outskirts of Melbourne as an example? As you head out towards Gippsland?
Margaret: Absolutely. And let’s have a look at what happened in places like Altona. Now, Altona wasn’t doing that well and it was still fairly cheap to buy in, but when we started to see the areas of Williamstown and those other beachside suburbs that were a bit closer to Altona rise in value, it wasn’t long after they went up that the focus then centered on Altona.
And Sunshine, which is formally an area that people thought wasn’t that great and area, we saw that grow, and then subsequently places like Tarneit are now starting to get attention because they border Sunshine.
So yes, absolutely. We do see this happening everywhere. It’s not something that’s unique to Queensland.
Kevin: Some of these regional areas that you’re talking about, it’s interesting, because we seem to be talking a lot more about regional areas, which I guess in a large way is driven by affordability, how unaffordable some of those inner-city areas have become, Margaret.
Margaret: And we see this happen every 10 to12 years. I still very clearly recall the last time that the regions came under focus by both investors and experts, and we did see people make some really good money out of some of those big regional areas like Bathurst and Orange, like Townsville, Bendigo, and Ballarat. Those kinds of regional areas actually made some good money for people.
But I do warn people to understand that when they do buy in those regional areas, first of all, it’s not every regional area. It’s the major ones that have some kind of industry of their own or some kind of microeconomy of their own that can behave independently to their closest capital city, but also understand that timing is really critical – and even more critical when you’re investing in the regions.
If you do get in at the right time, absolutely, you can make a lot of really good money for the short-term, and it usually has a run of about two to three years. But regional areas do have a greater tendency to then sit a little flat for longer than what a capital city will.
That’s fine because you’re usually getting pretty good rent return as well, just understand if everybody is already talking up a regional town and you can look at the figures and see that it’s already had significant growth in the last year or so, you’re probably a little late to get in.
Kevin: Yes. Just before I let you go, Margaret, could I just ask you for your top three tips for creating a solid investment or having a solid investment?
Margaret: The first thing is don’t read the magazines, because despite the fact that experts are very free with their knowledge these days and they’re happy to recommend different areas, I’m definitely of the impression and the feeling that anyone who is recommending an area, it’s probably too late to invest there.
I like to think I’m a little bit different; I try to get in early, especially with the webinars that we give for our clients where I try to get those areas that no one else is talking about. But you’ll see when you read the magazines that everyone is always talking about the same areas, which means everybody is buying there. And the moment you’re buying in a heated market where there are a lot of people moving in that market, then you’re too late.
And that brings me to the second tip, which is never buy in a heated market. If you find that you start looking in a market that you think sounds okay or you’ve heard that it’s okay but you find that as soon as you find a property, someone else has bought it, then that’s a clear sign that you’re too late to be there.
You don’t want to be competing against anybody else for the buys that you’re making. The minute you’re forced into a situation where you’re competing, you will also pay too much for that property, and you’ll get to the point where you start getting so tired of missing out that you start to adjust what you’re prepared to pay upwards, and pretty soon, you’re even getting out of your own price range.
And I guess the third tip is always think about that family demographic. To me, that’s one of the most critical things that drives growth. I know I’ve said this on your show many times, but it really does bear repeating over and over again. When you think about it, when a family moves to an area, they generally do so because there’s something about that area that’s attracted them, and it will be because everything that you need for your kids is there in that area and there’s an expectation that it will continue to grow and develop.
And when you move there, you put your kids in the local school, and most people are unwilling to move their kids around once they’re in school. You know what it’s like. You have your kids in school; you don’t like to interrupt that learning process by making them school hop.
So the average family is going to stay in an area for upwards of 12 years, and more likely 16 to 18 depending on how many children they have, which then means that as that area becomes more popular, the availability of property becomes less and less because nobody is selling.
Kevin: Well done. Three fabulous tips there to round out our chat with Margaret Lomas from Destiny Financial Solutions. Margaret, once again, thank you so much for your time.
Margaret: Thanks for having me.
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