Margaret Lomas on housing affordability + Where renovators go wrong when buying a property + Why capital growth wins out over cash flow

Margaret Lomas on housing affordability + Where renovators go wrong when buying a property + Why capital growth wins out over cash flow

Highlights from this week:

  • Learn from a master and get paid to do it
  • Cash flow vs capital growth
  • Is the money allocation to help affordability going into the wrong pockets?
  • The wrong things to look at when buying a property to renovate
  • TV property personality talks about his ‘best deal’


What not to do when buying a renovator – Cherie Barber

Kevin:  Joining me now from Renovating For Profit, Cherie Barber.
Cherie, welcome to the show. Thank you. I have a couple of key questions to ask you, strangely enough, about renovation. You’re doing one right now, I believe, are you?
Cherie:  I am right in the middle of one for Channel 10’s Living Room, a low budget $15,000 whole house makeover.
Kevin:  Well, there you go. The question I want to ask you – because I’ve had a few questions posed of me, and Margaret especially asked me to ask you – is there anything in a renovation property especially that you look for, to pick one?
Cherie:  In terms of buying the right unrenovated property?
Kevin:  Absolutely.
Cherie:  Yes, definitely the location I think is paramount. So, buying in a good capital-growth suburb to begin with. A lot of people nowadays have a buy, renovate and rent strategy. It is getting harder to make the buy, renovate, and sell strategy stack up, so obviously a lot of people now who are buy, renovating, and renting.
If you’re going to do that sort of renovation strategy, then you need to make sure that you’re buying in a suburb where you can get a property that’s going to get good capital growth moving forward.
It’s also right down to buying on the wrong and the right side of the suburbs. You have to buy not only in a good suburb but the right side of the suburb, and you need to buy on the right streets within that suburb, as well.
For example, the property that I’m renovating at the moment, on behalf of the homeowner, they bought an unrenovated property but it’s on the bad side of the suburb where the property values aren’t high enough to make a renovation profit. So, your suburb due diligence is pretty critical.
And then I think obviously in terms of the actual property itself, buying a property that is structurally fine, perfectly livable just cosmetically tired, and buying a property that has the right layout. Not all layouts are great; some layouts are fundamentally flawed. Yes, buying the right layout essentially.
Kevin:  In Margaret’s e-mail to me she actually posed a couple of other questions, and she gave me a scenario. She’s obviously been to a seminar, and it wasn’t yours, I must admit, Cherie. She said she’s been to a seminar and she walked away rather confused after a day because there were too many things for her to consider.
She wants to know, in your opinion, what are some of the wrong things that people look for in a project that they can discount?
Cherie:  So what are some of the wrong things that they look for, or what are the wrong things they do?
Kevin:  She’s asking specifically, what are some of the wrong things, some of the things that aren’t important? You’ve given us lots of information about location. Other things, like the aspect of the sun. She’s just given me a whole lot of information about the physical location of the property, and she found it rather confusing and hard to work her way through it. What are some of the pluses for you?
Cherie:  I think some of the things that people don’t necessarily need to be concerned about, for me, aspect or orientation is not a big thing when you’re renovating for profit. Renovating for profit only works at certain price points, and it is the lower end of the market, not necessarily the higher end of the market. Obviously structural renovations are completely different, but things like orientation where the property is facing north, south, west, it doesn’t really matter when you’re renovating for profit.
I think a lot of people pour money into areas of their property that aren’t going to add any value whatsoever. For example, the laundry. Laundry is one area that doesn’t add a lot of value according to the bank valuer, so why would go and spend $2000 or $3000 buying tiles and investing in tiling labor if it’s not going to bump up any property value?
I think a lot of people just inject their money into the wrong areas of the property and they therefore over capitalize and don’t get that value back.
Kevin:  Yes, I think that was the point that Margaret was trying to get to. So, thank you, you’ve clarified that.
Let me ask you this question, though. If I were going to renovate a property that had some period features, how important is it that I retain those?
Cherie:  It’s really important. I’ve always said all along, your house has to have one personality. It’s either modern, or it’s more a character house. The worst thing you can every do is strip away some of those period features and have a house that has some modern stuff in it mixed with period. It never looks right, so you have got to go one or the other, modern or heritage. It is important.
Again, it comes down to suburb due diligence. Some suburbs, for example where I live personally, Balmain, it is full of beautiful little character cottages, and if you ripped out the ornate ceilings, the fretwork, you would actually devalue that property. So it is important, and it’s also important at a suburb level.
Kevin:  Cherie, thank you very much. I’ll let you get back to your renovation. And also, Margaret, thank you for your question.
Cherie, thank you once again, Cherie, of course from Renovating for Profit.
Cherie:  Thanks, Kevin.

Learn from a master and get paid – Bill Malouf

Kevin:  Here’s an opportunity for you if you ever wanted to get into real estate. There’s a great opportunity for you to work with one of the best agents in Australia, Bill Malouf, who is renowned right around Australia. He’s from L.J. Hooker at Double Bay in Sydney, and he’s offering an excellent opportunity to go and intern with him for a three-month period. He joins me to talk a bit more about it.
Bill, thanks for your time.
Bill:  Good morning, Kevin. How are you?
Kevin:  Great, mate. This is a tremendous opportunity. Having joined real estate back in 1998, I would have walked over hot coals to work with someone like you and get that inside knowledge.
Bill, what’s behind this? Why are you doing it?
Bill:  We sat down and spoke about this a number of times at head office, and we think there are a lot of young people or even people in the industry at the present moment with the go to break the shackles that they’re currently in and get into a new industry, but nobody knows how to or nobody can get somebody to trust them to come in and trial it.
We decided to do it as an internship because we’re looking for young, vibrant, new people. We don’t even mind if you’re in your 20s or your 30s or 40s; it’s about the drive. And we don’t want to pick somebody up that’s already tainted with certain old-fashioned, restricted ideas.
We’re looking for people who want to go into the 21st century plus with leadership ideas in regards to the way they operate, ethical responsibilities in the way that they talk to people because we believe this is like being a doctor in this industry – that we’re there to give honest and direct information to the clients who are selling and without all the fluff and without all the time wasting and without taking money out of somebody’s pocket and not being able to deliver.
And the way to do that is get fresh blood and people who can see the potential if they work with honesty, credibility, with good product knowledge. They could build themselves one hell of a future in this industry.
Kevin:  We’re going to tell you in a moment how you can take advantage of this opportunity, but I wanted to make a couple of points with you, and one is about great people industry make this industry look so easy, but the thing that I know, Bill, is that it’ll make or break you. It depends on who you work with and how well you’re trained.
What I like in particular about the internship idea is that they’re going to get some really good training in that very critical three-month stage, that first three months.
Bill:  Yes, they are. What they’re going to get, which you can’t do with a lot of offices… People come along and say, “I’d like to get into the industry,” and you know what they do? They throw you a desk and say, “Here’s a territory. Now go work the territory.”
Kevin:  Yes. They throw you a desk and a phone book and say, “Here you go. Here’s you database.”
Bill:  Now how do you learn? What we’re doing is they will come with me, they will come with Alan, my manager, my son, David, and listen to our presentations. They will also then see the negotiation skills at an auction room, and then they’ll get to see an expression of interest, which is what I do a lot of, and they can see how we handle the buyers, how we handle the vendors, how do we get to that final result that’s a successful result for the client? And these are the areas that under normal circumstances, they would never get to see.
Kevin:  Now, let me tell you what’s involved here. You can make the application. I’ll tell you how to do that in just a moment, but what you actually get is a three-month internship with Bill. You get three months’ salary, you get three months’ accommodation in Double Bay, you get an Audi to drive around in, as well. Deck you out in business wardrobe and also then put you through the New South Wales Real Estate Certification Registration course.
Does anyone who wants to join have to be in New South Wales, Bill?
Bill:  They’ve opened this up nationally. They will even fly the person down from interstate.
Kevin:  So they make an application. Tell me how to get more information about this, Bill.
Bill:  If they go to the Hooker website and all the Hooker offices will explain what they need to do. I believe the first initial step is to do a 60-second video on yourself selling something or anything. Then there will be a whole process over the next six months.
This is a golden opportunity for somebody who wants a career change, and they’ll get to see it in the hard coalface. They’ll get training that under normal circumstances they would not be able to get.
Kevin:  It’s a great opportunity. I strongly suggest you go and do it. Just go and check out the L.J. Hooker Website, All the information is there for you.
Bill, I’d love to track this with you, too. When you make the decision about the person who’s going to join, I’d like to talk to them, and then I’d like to shadow them over that three-month period to find out what they’re learning.
Bill:  That would be a fantastic thing to do, Kevin, and I’d be more than happy for you to ring. You can talk to me and you’ll probably be able to talk to the intern and say, “Right. What have you learned? How’s the process?”
Kevin:  It’s going to be a great learning experience. Thanks, Bill. All the best, mate. Hats off to you, mate. I think it’s great.
Bill:  Pleasure. Bye.

Why capital growth trumps cashflow – Michael Yardney

Kevin:  Here’s a question we’re asked from time to time: how do you decide between capital growth and cash flow? I’m going to ask Michael Yardney to make a comment.
I think I know what you’re going to say, Michael, but I want to hear it anyway, then I want to be able to discuss the pros and cons with you. Michael Yardney from Metropole Property Strategists.
Hi, Michael.
Michael:  Hello, Kevin.
Kevin:  Michael, I want to ask you that question. How do we decide between capital growth and cash flow?
Michael:  Well, Kevin, there are clearly two camps, aren’t there? There are the cash flow followers, and they suggest you should invest in property that returns more cash than it expends. In other words, they want rental returns that give them some cash in their pocket every month.
And then of course, there’s the capital growth crew. They favor investing in capital growth over cash flow. In other words, you buy properties that produce above-average capital growth in value, and usually you have to carry some negative gearing along the way.
But, Kevin, I guess if there was only one way to do it, both wouldn’t exist. So there probably is room for both of them.
In my mind, I think there are three phases of your property journey. The first one is the accumulation phase. That’s the stage where you build up a high-growth portfolio of investment-grade properties. Kevin, that’s building your assets – asset accumulation – and that takes 10 or 15 years. That’s why I believe capital growth comes first.
Then there’s the consolidation phase, where you slowly lower your loan-to-value ratios, and conversely, that increases your cash flow.
Then the lifestyle phase. This is where you live the life you want to live using the proceeds of your cash machine.
But Kevin, most people get it the wrong way around and they look for cash flow first.
A really good example, Kevin, was a couple of weeks ago a new investor – somebody who hadn’t invested before but picked up one of my books at the airport – came along and said to us, “Michael, I want to buy an investment property because I’m actually cutting back my hours, I’m going to have another baby, and I want the property to pay for the school fees for my first child.” She assumed, from a thing she’d read in the magazines that she could actually buy property and it would spit out enough money to pay for school. Then others say, “I’d like to buy an investment property because it’ll pay for my holidays.”
Residential real estate doesn’t work that way. In my mind, residential real estate is a high-growth, relatively low-yield investment, and if you do get some cash slow, Kevin, it’s not hundreds of dollars a week, it’s not enough to change your lifestyle
Kevin:  Michael, that makes so much sense to me. You’ve actually swung that whole argument around. But I can really understand why someone who’s just starting out, maybe limited cash flow, looking at it and saying, “Well, I have to make this thing pay off so that I can actually let it grow.” But you’re saying it’s the other way around.
Michael:  You’re right, Kevin. The common philosophy is that “I need more cash flow.” That’s what most Australians say, because the money runs out before the month does. But the trouble is if you look at the result of most investors, you’re going to find that half sell up in the first five years, and of those who stay in the property game, less than 8% own more than two properties – 92% never get past their second property – which means that if you do what everyone else does, if you listen to what everyone else says, you’re going to end up getting the same results.
Kevin, it’s just too hard to get the deposit for your next property out of a couple of dollars a week positive cash flow or out of your savings. So, the way you grow a substantial portfolio is through capital growth.
But, Kevin, you actually can have your cake and eat it too. What I’ve been proposing is that you buy a high-growth property, a property in an area where it’s going to have substantial capital growth and over time, rental return, and then you make it a high-yield property by adding value.
You’re going to increase the value of your property, but more importantly you’re going to increase the rent because it’s more attractive. It’s going to give you good depreciation allowances. And it’s very likely that you’re going to find a property that had a reasonable amount of negative gearing could well be cash flow neutral, or even a little bit cash flow positive, because you’ve manufactured the rental returns and the capital growth.
That’s, in my mind, having your cake and eating it too.
Kevin:  Michael, many people will just look at it and ignore the fact that as a property grows, or you get good capital growth, you therefore get a lot more equity in it. You can then use that equity to gear, to help you get into the next property.
Michael:  Exactly right, Kevin. And the other thing, of course, is as the property goes up in value, so does the rental. A high-growth property, over time, will have higher returns than a lower-growth property that isn’t growing as fast, even though it starts with a better return.
I think the other point, Kevin, is that you make your money in property in four ways. You make it out of capital growth, you make it out of rental returns, you make it out of the tax depreciation and other benefits – not that that’s a reason to invest in it – and you make it out of forced appreciation by manufacturing some capital growth.
But capital growth is income. Sure you can’t bank it in the short term, you can’t eat it, but capital growth is income because you can borrow against it, and in turn, you can use it to make more money.
Kevin:  Great talking to you. Michael Yardney from Metropole Property Strategists.
Thanks for your time, Michael.
Michael:  My pleasure, Kevin.

“Why I love property” – Bryce Holdaway

Kevin:  I’m delighted this week that our special guest is Bryce Holdaway. Bryce, of course, is from Empower Wealth, and we’ve spoken many occasions on this show about your television appearances on location but also your podcast, The Property Couch.
It’s great to have you on the show.
Bryce:  Yes, thanks for having me, Kevin. I always like having a chat with you.
Kevin:  Thanks, mate. In this chat, I want to talk a little bit about you, Bryce, what you’ve done with property and so on, and that journey. What got you involved or interested in property to start with?
Bryce:  I wrote it in the book. There was an interview with Jan Somers on Ray Martin’s show back in the 1990s. She got up and just scratched a few things up on a whiteboard about the tenant and the taxman paying most if not all of your bills, and if they go up in value, you create some wealth for yourself. I remember that being a massive lightbulb moment for me.
Previously, my best made at high school went and worked for his father in retail, and I went and did the well-worn path of trying to get a university degree. At 18, he bought an investment property, and he just said, “Look, I don’t really know why I’ve done it. Dad said, ‘Do it, it’ll go up in value, and I’ll make some money.’” That planted the seed of the idea.
He really couldn’t answer too many of my queries, so as soon as I saw that interview on TV and just saw it explained – and it was really simple; it was a “back of a napkin” chat up on the whiteboard – I had two thoughts at that point. “Ah, I get what’s going on here now, and to me that sounds terrific.” And the other one was “Why isn’t every single person on the planet doing this?”
It’s not since I’ve matured a bit that I understand that there’s human mindset and psychology that gets thrown into it. But at the time, it was a massive lightbulb moment for me, and I was hooked.
I was studying accounting at university at the time. It was one of those things where I didn’t know what I wanted to do. I wanted to be an electrical engineer and I stuffed around too much at high school and didn’t get the grades. So I stumbled into commerce at uni, and my father was an accountant, so I was just heading down that path, but I wasn’t passionate about it.
But as soon as I found out about property, it felt like it was for me, I was in my flow, and I just loved talking to anyone who would listen.
Kevin:  Interesting you talk about your mate there whose father encouraged him to buy property, didn’t really know why he was doing it, but just thought, “Well, if dad said it, I should do it.” You mentioned there about your dad being an accountant, too.
What were the conversations like around your table? Did your parents encourage you into property?
Bryce:  Interesting story. No, because my dad was born in 1939, so he was born in the shadows of the Great Depression and also War years, as you know. So for him, he was very much the traditionalist that you get a good, safe, secure job, you pay off the home as quickly as you can, and you don’t get yourself in over your head.
My dad’s been very encouraging for me – my number one supporter – but there were some very robust discussions early on. Dad thought that it was better for me to not leverage and to not get into debt, to just go down the path, finish your university degree, buy your first home, and pay it off.
He’s really proud of what I’ve done today, but at the time, he probably would have been very concerned because I took the opposite of what he said to do. I wanted to leverage myself into property, I wanted to take risks, I wanted to get into business for myself, and everything that he valued, I was bucking against.
But ultimately, there were no kitchen-table discussions about property, hence me just trying to find as much information as I could in external sources. But he’s always been encouraging of me.
Kevin:  Interesting that story you told about Jan Somers. I’ve interviewed Jan on a number of occasions, and I know you have spoken to her too. Nothing much has changed. You could still get Jan up and she’d still scratch on the whiteboard nowadays probably the same scenario. It hasn’t really changed, Bryce, has it?
Bryce:  No. It was a terrific trill for me. I met her about six weeks ago, we interviewed her on The Property Couch, and it was a terrific chat from someone who is incredibly humble, who has been investing for 45 years, who didn’t complicate it.
I feel she was one of the pioneer educators in the country, and she’s the original independent voice where she never took any kickbacks, she never took commissions, she was never seduced by any of the outside influences and the influence that she had.
She said, “Buying property, correctly financed, held for the long term, is my philosophy. It’s been my philosophy from day one. It’s still my philosophy 45 years later.” And for me, it was a nice circle, completing of the loop for me, but also just to remind myself that for her, she’s created a very significant level of financial independence but she’s remained humble. You’d never know.
I like the story where she says she’ll indulge on a couple of things, she likes to have a nice, comfortable place to live in, but she drives an old, 2004 BMW. She actually flies business class to Europe, but once she gets there, she stays in a $20 a night accommodation that might not even have a shower.
Just keeping it really real and not getting seduced by some of the trappings that come from her wealth, but just looking to get her time back and her experiences back, which she’s done in spades.
Kevin:  Jan, of course, was one of the first pioneers of educating investors. I know there’s a lot of that goes on. We like to think we do on this show, and certainly you guys do on yours as well. There are a number of other podcasts that do exactly the same thing. But when you think about it, property investors are really at a great risk because of a lack of protection. They don’t really have a voice, and there are many people who attack them and try and think “Oh, these guys are wealthy; let’s try and rip them off.”
A lot of dangers there for property investors, aren’t there? And a lack of protection.
Bryce:  Yes, absolutely. It’s an unregulated environment, and the challenge is that the investment class is largely an emotional investment class. It’s an essential need with shelter, so for you to try and regulate residential real estate is going against some very powerful lobby groups.
For example, the Real Estate Institute in each state and across the country, because a real estate agent earns a living from transacting in real estate, and of course, they have a discussion around whether or not it makes for a great investment or to have a yield discussion. It’s hard to say to those guys that you can’t talk about investing because it’s their bread and butter, but as you point out, it makes people very vulnerable.
I always say the barriers to entry are pretty low to be in the property investment sales game where all you need is a haircut and a suit and if you have a silver tongue, and with lots of people wanting to outsource their understanding when it comes to money.
I don’t think there is a problem with outsourcing the execution, but a lot of people outsource the understanding and leave it in the hands of someone else and someone else’s agenda. I’ve been an advisor now for pretty close to 20 years helping people buy investment properties, and I’ve seen some roadkill in that time – and it’s largely where people have, as you say, been in a vulnerable position and people have taken advantage of that.
Kevin:  What was the first property deal you ever did?
Bryce:  It was a property in Vic Park in Perth back in 1999. I paid $199,940 for a three-bedroom apartment. I went into partnership with someone else because I was 23 at the time. I was so super excited. But Kevin, the funny thing is $199,000 sounds like nothing now, but the median price for Perth at the time for a house was $158,000, so I got massive buyer’s remorse after that. But what I know now is I was three kilometers from the city, I was in a high land value area.
It was a scary time, but I reckon that’s the best decision I’ve ever made, because I know that most people struggle. Only 1 in 12 people in Australia buy an investment property, and of that small percentage, nine out of ten don’t buy more than two. Despite what the magazines say and the people you get to interview, they’re the minority. The majority of people don’t feel comfortable buying investment properties and going into debt.
I always think that that first one is the best deal I’ve ever done, because it took me over the line. Every deal I’ve ever done since has been so much easier. But that one, the adrenaline was up, the learning curve was high, and I certainly was nervous for a long, long time.
Kevin:  Well, that’s the one you measure all the others against I guess. You mentioned there that the learning was high. Did you actually heavily research that, or was that a lucky purchase?
Bryce:  No, I was really young. I’d like to say that I was one of those guys who compared all asset classes, but I just loved property and I had a mentor who said, “Let’s buy a property together,” and I just absolutely jumped at it.
You learn how to play a few songs and then you learn how to read music later on. I was the guy who wanted to play a few songs before I learned the big picture. I just wanted to get into it. I just knew it was something that I wanted to get involved in.
But I learned the hard way about joint and several liability, because I bought this property with this other mentor of mine, but what I didn’t realize is that I only owned half the property but as far as the banks were concerned, I had 100% of the liability. So they considered me to be responsible for 100% of the loan even though I only owned a portion of the property.
That was an interesting exercise to understand the lending game, and it also made me realize that investing in property is not a game of bricks and mortar; it’s a game of finance. So I had to quickly understand how finance worked.
Kevin:  Yes, it’s a game of strategy, too. Have you used the same strategy all the way through, Bryce?
Bryce:  No, I’ve made some mistakes, Kevin. Because I had some success young, I thought I was a bit of a legend way too early and with another couple of guys, we bought two houses in Tugun on option to do a development. We were going to knock them over and build 21 apartments just near the Coolangatta airport.
It was around the time that Schapelle Corby was in the headlines. The house next door was actually her father’s house. I remember we were trying to talk to him about taking that so that we could actually build more. But that was just an exercise in taking your eye off the ball, not doing the Jan Somers method of sticking to your knitting and knowing what you should do.
I tried to make a lot of money from being a property developer, and long story short, two years of my life I was out of the market, I burned a lot of cash to get the DA approved, and because of something in council that was outside of our control, we didn’t actually get the application to go ahead. So we lost a bit of money.
Ultimately if I had just stayed true to the process of buying good assets, holding them long term, correctly financed, I would have done a hell of a lot better in that time.
I’ve done some speculative stuff, but now I’m pretty clear on where I want to buy, and I’m also clear on the fact that I have a very conservative approach now, so it’s about debt retirement. I don’t need to have ten properties, I don’t need to have a renovation exercise; I just want to finance them correctly, buy the right ones that grow in value in growth locations, and put a lot of my debt structure around retirement debt.
So ultimately I can retire with a passive income. As I said, I want to get my time back and my experiences back, and I want some freedom that comes from having that passive income. I’m pretty close to my goal, which is good.
Kevin:  Good on you, mate. Is your portfolio a mixture of houses and apartments, or have you specialized?
Bryce:  Yes, I’ve had everything, and I’ve been across WA, New South Wales, Queensland, so I haven’t been afraid to go across borders. If you talk to my father about apartments… I like to think of what I buy as flats rather than apartments, and the distinction being the old school 1960s and 1970s versus the new stuff. But if you talk to him about flats, he just thinks that’s low socioeconomic and you’d be mad. So he’s just quarter-acre blocks with a detached house surrounded by a garden with a Hills hoist and a barbecue.
But as we know, Baby Boomers will soon be at the tipping point where they’ll no longer be the dominant force in the workforce and Gen X will take over and then Gen Y. What we do know about different generation types is they value things differently.
For me, I’ve gone from land content is king to land value is king. I’d rather have a two-bedroom apartment four kilometers out from the CBD where the land value is high and the percentage of the purchase price of the building is low, versus some land where I have to go 30 or 35 kilometers out, where as a percentage of the purchase price, the land is really low and the building is really high.
I often see a lot of people saying “It’s all about the land, I must buy land,” and I think you have it around the wrong way. For me, you have to get the suburb first and the property second, whereas I see a lot of people go property first, suburb second.
Kevin:  Yes, buying the wrong way around.
You mentioned there that you do buy across borders. Would you buy outside of Australia?
Bryce:  I don’t see the need for it, personally. I know people do. My personal view is that you need to be a sophisticated investor because you’re throwing in exchange rate risk, you’re throwing in different economy risk, you’re throwing in geography risk, you’re throwing in different legislation risks.
If I go back to the fact that not many people buy an investment property and of those who actually do, a very small percentage buy more than two, let’s just get our own back yard sorted first. If you can get your portfolio up to $4 or $5 million worth of value and you have significant amount of equity, you probably have a good enough base to then consider other markets.
Let’s be honest, you can make money all around the world, but you don’t want to add complexity in the early days while you’re still trying to go through that accumulation phase to build up some equity and build up some cash flow.
For me, it’s not an ambition, but I do know that some people do. My caution would be for the beginner and the intermediate investor to probably really consider whether you do it, and then for the sophisticated investor, that’s a different kettle of fish.
Kevin:  You’ve given us a lot of great advice in our chat together. Just to sum it up for me, Bryce, what advice would you give someone who’s thinking about starting an investment property portfolio?
Bryce:  My number one advice is cash flows will tell the story. For me, I don’t want for someone to get into a property purely based on an equity play where they’re servicing debt with debt. I’d like to see that there’s some surplus at the end of the month, which shows that they have good financial discipline.
We want to be in the investment game for a minimum of ten years to get some maturity out of this investment. It’s a high-value transaction, high entry cost, high exit costs, so if you have to turn over too quickly, that’s going to destroy your wealth rather than grow it.
We have to plan our cash flows, take a bit of a look to the horizon and see what’s happening in our life. Are we at the early stages of life and we may have to plan for maternity leave and being on one income? Are our kids at a stage of life where they’re going to leave the nest? What’s my attitude to risk?
All these factors come into play as to what my next step would be, but my fundamental suggestion to anyone who’s starting is be a farmer not a hunter. So multi-season outlook, know that you have a plan, reap and sow at some point in the future. It’s not going to be a quick kill, whereas the hunter is looking for all those quick kills.
Let’s be honest, the television industry that I’m a part of doesn’t help, because everyone can sit in their lounge room and watch people make what’s perceived an enormous amount of money, but there’s a lot of risk involved.
Kevin:  Of course, there is. It’s great talking to you, Bryce. Bryce Holdaway, of course, from Empower Wealth, Location, Location, Location, and also that podcast, Property Couch.
Bryce, thank you so much for your time. Great talking to you, mate. I look forward to catching up again soon.
Bryce:  Thanks, Kevin.

The hidden key to housing affordability – Margaret Lomas

Kevin:  We talk in the show a reasonable amount about housing affordability. In fact, last week in the show, I was talking to Nerida Conisbee about that in relation to what happened in Victoria. I want to get Margaret Lomas’s view on that in terms of how do we make housing more affordable? Is it really a big issue?

Margaret, thank you very much for joining us. How are you?

Margaret:  I’m good. It’s a very important subject to me. I obviously have children of my own, and you’ll probably even hear in the background from time to time, a baby. I’m on grandma duties today.

I’m watching them all struggling to get into the market and wanting to help as much as I can, but I think it’s very, very important that governments look at what they can do, and I, frankly, think they can do more.

Kevin:  There are two things, I guess. It’s getting people into housing but also making housing more affordable from a rental point of view, too. But let’s deal with buying a property. Do you think that the moves the Victorian government have made are good? Are they going to achieve good results, Margaret?

Margaret:  Let’s say they’re a start. I guess the biggest problem at the moment, really, is that each state has a different amount of grant, different rules around their grants, and what I’m seeing at the moment is that the states that need it the most have the worst grants available and the states that need it the least, because their housing isn’t unaffordable, have the best grants available.

I wonder if there’s a correlation there that having those grants available has also assisted to keep a lid on housing. I don’t know. There’s an argument for and against that. A lot of people think that first-home owner grants do nothing but boost prices, but I don’t know that we necessarily have empirical evidence to prove that.

Kevin:  In some states – let’s have a look at Queensland as an example – they’ve made the first-home owner grant applicable only for new homes, and I think sometimes that’s actually forcing young buyers to buy properties in areas where there’s no infrastructure or very little infrastructure anyway.

Margaret:  Agreed entirely. It’s actually every state now. Every state has now shifted over to only providing grants for new homes, and I think that’s very unfortunate because the moment someone buys a new home, it becomes a used home anyway, so the next first-home owner can’t buy it off them. Those people are buying those homes in areas that are otherwise affordable, but suddenly they’re not available for the next first-home owner because the grant excludes them, and I think that’s unfortunate.

Kevin:  I’ve also heard people talk about making boosts available for regional properties only, to get people out of more of the regional areas, but I think whenever you manipulate some of these grants to get people to do things that you want them to do and live in areas that you want them to live in, it’s the wrong way to go, Margaret.

Margaret:  I’m not sure what the whole outcome would be there or why they would even want to do that. Regional areas are already affordable, and it’s not the property prices that are stopping people moving there; it’s the infrastructure, the lifestyle, and the access to services.

The governments would be far better offering grants to government bodies and other people to actually build the right kind of infrastructure, even to private providers of things like childcare and sporting and other things like that, to make them go to those areas so that it’s more attractive to people that live there.

It’s not the house prices that are preventing people from going to the regions.

Kevin:  The Prime Minister has said that he believes the answer to housing affordability is more supply. We know it’s all about a supply-and-demand argument, but is it that simple, Margaret?

Margaret:  I think more supply is one thing, but the problem is supply isn’t going into the right places. We have a lot of areas that are oversupplied in housing and they’re just areas that people aren’t wanting to live in just yet. Eventually, people do feel like they can commute a lot further.

I always use Perth as a really, really good example. While people in Sydney are quite prepared to live on the Central Coast and travel what can be an hour and 45 minutes on the train to get to work, people who live in Perth, that’s inconceivable to them that they would do that. To them, anything longer than a 20- to 30-minute commute is just out of the question.

Now in 20 years’ time, that will all change, of course, but at the moment, the housing supply in Perth – the best supply and the oversupply – exists in those areas that are further than 30 minutes away, and therefore, people don’t want to buy them. They’re not boosting supply in the parts that they should do.

And places like Perth can easily do that because they have plenty of closer to the city areas where they still have houses sitting on 700-square-meter blocks and 1000-square-meter blocks, but the local councils refuse to change planning laws and allow people to subdivide into smaller blocks.

I think that’s a good start. If councils can recognize that they may be in areas that are commutable distance to the city and have a lot of people on very large blocks of land, then why not allow those people to begin to actually subdivide into smaller blocks and increase the supply that way?

Kevin:  Yes. You’re very right. Even in some of the outlying areas in many of the capital cities, we see houses on big blocks of land that could quite easily be subdivided.

Margaret:  Absolutely, but the government and the local governments just don’t want to do that.

Of course, the other problem there is that all of the levies and the charges that councils charge to subdivide prohibits a lot of people from going ahead with it. So let’s make that process easier – the process of subdivision easier.

I can think of dozens of people who have their own homes on big blocks of land and would only be too happy to add another dwelling to the black of it if it was easier to do so. Let’s make it easier. Let’s stop restricting those second dwellings to 60 square meters that people don’t want to have. Let’s allow them to chop off their backyards easily and cheaply and build the houses there.

And then let’s take it all one step further and think about things other than first-home owner grants to help those first-home owners – things like loan schemes that aren’t prohibitive. I’ve seen a lot of cheap loan schemes but they’re no good. They end up with people paying more than they borrowed at the end of the whole thing and going backwards.

Let’s think of different ways to deliver grants in a way that it won’t impact on the price of housing and it’ll really help people over the longer term rather than the short-term.

Kevin:  Always great talking to you, Margaret. We can catch Margaret every week, of course, on Sky TV on Property Success with Margaret Lomas. The channel I think is 602. Is that right?

Margaret:  602. That’s it.

Kevin:  Got it, okay. Margaret, lovely talking to you. Thank you for giving us your time. I’ll let you get back to your grandchild now. Is it a boy or…?

Margaret:  A little girl and she’s gorgeous.

Kevin:  They’re all gorgeous. Well done.

Margaret:  I’m just trying to teach her to say “granny” today, but it’s not working.

Kevin:  Okay. Well good luck. Let me know if you succeed.

Margaret:  I will. Thank you.

Kevin:  Thanks, Margaret. Bye.

Margaret:  Bye-bye.

  • Steve Polder
    Posted at 08:38h, 01 April Reply

    Kevin, nothing is going to be done about property affordability if we insist on letting the WRONG people try to fix the problems …. it’s the State and Federal Governments along with the Banks and Mortgage Insurance companies that are ALL implicit in the state of the market at the moment. Like yourself and many of your commentators, I’ve been in this industry for well over 20 years and I’ve watched the “masters of mankind” screwing things up and effectively leading us down this path – it’s SO frustrating listening to all the rhetoric and it will take us a generation of supply and the to remedy. I see the real problem as being one of supply exacerbated by oppressive development levies, fees and charges imposed by State government on the very sector that can help arrest this supply issue – private sector developers have no choice other than to charge the prices they do for land because of this extreme cost burden that they are made to pay to State government bodies. The multi-layering of government across the wider community acts with impunity and we are like muted lemmings or lambs to the slaughter. Our politicians take NO notice of their electors and WE WHO ARE THE PRACTITIONERS OF INDUSTRY really need to voice our dissatisfaction at the way that consumers are being manipulated and penalised in order to fund the livelihoods of these State entities that seek only to placate and patronise its constituents. Kevin I have much more to say on these matters and I wish to be an integral part of this “think tank”
    which can bring about the change that is needed – we CANNOT LEAVE IT TO THE POLITICIANS.

    • Kevin Turner
      Posted at 14:52h, 10 April Reply

      Thanks for your comment Steve.

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