Property Hub - Investment Insights & Inspiration - Realty Talk Vault: The biggest driver for growth is family

Episode Date: March 2, 2023

Tim Lawless is one of the property experts who has added so much to the show since its inception and bought us a level of experience unmatched in property data information and its use to determine future trends.  Tim’s view on a number of issues might change how you look at property investing in the next 10 years..   RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media. Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Welcome back to the show and I'm delighted that our next guest is someone who I've known very well for almost my entire real estate career, Margaret Lomas. G'day Margaret, how are you doing? I'm doing well and you know Kevin, I have on my wall at home a photograph of you and me in the 4BC Studios in Brisbane, and I think it was taken, oh, my gosh, 20 years ago, possibly more than that, probably 22, 23 years ago, because we both look really young. Yeah. Well, we're both still very young.

Bushy, as I mentioned to you at the opening of the show, I've known Margaret for such a long time. One of the things that I recall, Margaret, was an interview that I did with you, and you and Ruben joined me. And we were at an outside broadcast in the caravan. Do you remember that? I do remember that. You were the only ones there.

I know. It was the first of a number of outside broadcasts I did, and it was a great one for me to learn on. But, yeah, just us, but we had a good time anyway. We had a great time. In fact, I think you were there for the whole show, the whole two hours. Yeah, indeed.

I didn't have anything else to do that day. It's interesting. I mean, Margaret, we were looking back just recently at what's happened over the 500 shows, and you were one of the very first guests on the very first show, Margaret. That's right. That's correct, I was. I've been around for a long time now.

I guess if you think about it and you go back that far to even when I wrote my first book in 2001 when I thought I was a property expert then, but I probably wasn't really. I was only a couple of steps ahead of other people really but back then there really wasn't anyone writing about property investing. Jan Summers had released a book called Real Estate Investing I think or something I can't remember the title but it was really more about the physical process of visiting a property looking for the right things in that property and it was more about the way we would buy a house, I guess, to live in and maybe that house down the street

to invest in when we're ready to do so. And I remember at the time thinking, there's just so much more people need to know about investing in property, including what happens with your tax and where is the best place to buy is down the road or next door or the block behind you really the right thing for you as an investor what happens long term and how do you set yourself up for that long-term future by knowing more about how to buy property and that was the motivation behind by writing that first book and I guess I'm still here so eight books later hey Bushy um we are going to talk to Margaret about the last 10 years uh and also projecting forward for the next 10 years but I might just go off script for a little while if we could

because I think something that Margaret has talked about before we came on air demonstrates a wonderful point, and that is that no matter how long we're in this business, we're never too old to learn. And I think, Margaret, your book, your latest book, which is what I'd like to pick up on now, is a classic example of that, how after all these years, you've written a book now, and I want you to tell us what it's about

because I think many, many people are going to be interested in this. but you learned so much from writing this book. Oh wow, it was such a journey for me. We, as you know, I've got quite a lot of property and I guess a natural next step for me and certainly many other property investors was to think about whether I wanted to take some of those ones that I had on bigger blocks and develop them into more than one unit, be it two, three or four. And I did have a corner block down in South Australia that I knew lent itself to fall when I bought it I didn't buy it for that reason but I knew that that could have been a possible outcome down the track but I knew nothing about developing I know a lot about property investing but I didn't

know anything about property developing but one of my regular guests on my show Peter Kalizos he runs a property development course at TAFE in South Australia and so I asked him whether he would be interested in co-writing the book with me, but making it like a diary of my journey as a developer myself. I just thought there's no better way to learn something than to do it and to have someone guide you, but to go through all the trials and tribulations. So we agreed to do that about four years ago, thinking we'd be 12 months in the book. The idea was that I would start my development and I would diarise it. So every couple of days I'd write up what we'd been through and what we were doing and then Peter would summarise with well this is how you should

be doing it all and these are your steps. He has these 10 steps for developing a property and I was going to undertake the 10 steps. Well little did we know that every single problem that could have come up and every barrier we could have faced we did face during our journey. It took me four years to get the development finalised which in itself is a fabulous lesson for anyone wanting to take it on because that means money is tied up you're paying interest on debt if you've got debt to do this it means that you know you've got no income coming in while you're spending all of this time on the development and I learned so much about developing councils surveying you know I didn't really even know what a contour was I mean I sort of did but the relevance of a contour on a plan

I wouldn't have been able to read a plan and I certainly didn't understand many town plans to the degree that you need to to be a small developer and we got through it all finished the book and it's it's like a thriller novel to read well it's interesting yeah it just reinforces the point that while development can look very easy on paper it's certainly not for the faint hearted and if someone's as experienced and as expert as you has still had those roller coaster rides over that four-year period it's certainly a warning notice for others who are thinking this is going to be easy particularly in the current environment where the construction industry is really in turmoil and things are taking a lot longer than they normally are so I can't wait to

get my hands on it Margaret and have a good read. Yeah interestingly enough I think we summed it all up by saying everything that could go wrong did go wrong even a pandemic and hopefully other people don't have to develop a property through a pandemic but we've learned now that you just can't know everything can go wrong and probably will actually a question for you Margaret knowing what you know now roll back the clock four years would you have done it I think so because for me there's an element of timing in that although it took forever the timing ended up being good because we had that property boom in both of the areas that I was developing.

Let me give you an example. The New South Wales development, which is a house with dual key for holiday letting, and it's also a lesson in whether you should holiday let, and a granny flat behind it. So it's essentially potentially three permanent rentals or three holiday rentals. The bank had said it was going to value at $1.1 million as at the time it was finished, and that's what I was

in for when I thought of and it was a block I'd owned with an old shack for 20 years so when you take into account what I'd paid for it originally and what the loan was at and then the the cost to build then I was in for the 1.1 we couldn't make any mistakes on that there was going to be no equity that I gained out of that I had to do it because the old shack needed to be gone and I wanted to improve the cash flow on it. But about six months after it was finished, the bank revalued it at $2 million. And that was not because I'd had such a fabulous house, although it is a fabulous house. It's because of the boom. The boom gave us an extra $800,000 just in that, probably in that last year of the development. Similar in the South Australian, not to such a

great degree. The bank said we'd have a $350,000 house and then they valued it at $430,000 at the So we got equity that we didn't expect. I would do it again, but I think the process would be shorter because part of the problem, and this is clearly outlined in the book, is that I'm a busy person and it was actually a bad time for me to take on developing. So it took me longer because weeks would go by where I was so busy, I wouldn't do anything or follow up. And then I'd follow up and find out there was a problem, and then I'd have to deal with that problem. So we probably could have compressed it into two years

if I'd been less busy and if there was a more appropriate time in my life to be doing that development. Fascinating. What's the book called, Margaret? It's called Diary of a Small Property Developer. Okay. And you can get it from the shop on my website, destiny.com.au, or from Amazon.

Amazon also has it, and it's in Kindle, you know, the whole e-book thing as well. Okay, we're on destiny.com.au. Hey, Margaret, let's get down to the nitty-gritty of what we wanted to talk to you about. But that was fascinating. So thank you for sharing that with us. The last 10 years, what have you noticed?

Wow, a lot's changed and some things have stayed the same as well. I think the things that I've seen changing is that it's been 10 years of a very low interest rate environment. And when we first began helping people to buy property, we were helping people to buy property in an 8% interest rate environment and so the capacity for a property to deliver a positive

cash flow was very limited and if you needed a positive cash flow the focus was very much on getting a property in an area with a high relative rent return while it wasn't getting that because it was a one industry town so you know still plenty of opportunity for growth but a property that also had high on-paper depreciation because both that higher rent and the on-paper depreciation would plug up that hole for you so that the 8% you were paying, you could come pretty close to covering. Of course, today with such low interest rates, you'd be struggling to get a property that didn't give you at least an even cash flow unless it was in a big city and at a very high price with an extremely low relative rent so so that's the first thing that's changed I think you're getting

a good cash flow on your property is far easier than it ever was 10 years ago and 20 years ago I think the other thing is that people are definitely more informed than they were when I first started to help people to buy property nobody knew anything about buying investment property except that you'd find a house and buy it pretty much that was it people didn't understand that there's a whole economic component behind the decisions that you make that can be the difference between buying a property that does well over time and buy one that's a lemon for you and that economic component is split up into many areas that need a lot of research. I think people know that now and people are definitely more informed and they're asking a lot more questions.

I think the other thing that's happened recently and certainly over the last 10 years is that people are busier than they used to be. And that means that they want people to do everything for them, which is fine, except it's also a trap and a big risk. Because if you're not going to be involved in the journey that you take to invest in property, you'll never learn anything. And you're putting yourself at far greater risk of the spruikers taking advantage of you and just selling you a property that's good for them because of the commissions, but not appropriate for your personal financial circumstances. I think probably, you know, the last couple of things

that have changed is that the country feels like it's become smaller in that there are more borderless investors. People are happier to invest outside of their own state and they certainly weren't 10 years ago. It was difficult to get anyone to realise that the best property for them might not be in the state where they live and certainly not in the suburb that they live in.

And the last thing is that there's been, as you would know, some legislative changes that have impacted when you're buying property so the biggest one being the change to depreciation and that plant and equipment prior to 10 years ago if you bought a property you could get a second-hand value on everything inside that property and that helped you with that cash flow now you can't get that unless you buy the item yourself as new and I think that hasn't hurt anyone yet because we do have those low interest rates and cash flow is easier to get but once interest rates start going up we'll notice that the benefits we used to get from that immediate deduction from those that plant and equipment um that's gone and and it's

it's going to hurt a little bit i think yeah very good points uh if you look back on the last decade then uh margaret what have been your top property takeaways and learnings over this time oh gosh there's just so many it's difficult and I know you don't have a couple of hours on the show but um I think as I said people prefer to have things done for them but there's still so many spruikers out there whose first desire is to make a commission from those people and I think most viewers of this show would be shocked to find that some of the biggest names that you might know in property investing as property investment advisors or buyers agents don't find the right property for you they will have either contact with a developer who develops property in

a specific area that might be okay but not necessarily okay for you or they might be just a single buyers agent who can only work in one area at a time and basically is negotiating as many purchases in that one area as they can and getting as many clients to buy those properties and the problem with this is that everybody is different so there's no such thing as the right investment property it's the right investment property for you some properties will grow sooner rather than later. Some properties will have a low cash flow, some will have a high cash flow, and some people are closer to retirement than others. And you have to think about all of those things before you invest in anything, particularly property, and you have to know

where to buy according to your personal circumstances. So I think the big takeaway that I have gotten from the last 10 years is that the majority of people still don't understand that and that's why they're still getting caught by the spruikers and still paying too much for properties that were never right for them in the first place and then being disappointed in the outcome. It hasn't turned out well for them. I think the other good thing that I've learned over the years from observing areas that do very well and why is that families are definitely the big anchor to growth over time so we get two kinds of growth we get growth in property that comes from that emotion that comes in a boom and we're seeing that at the moment and we've just

come through that in Sydney and Melbourne fear of missing out a lot of emotion goes into that we get a very short sharp boom and then we get plateauing Sydney between 2003 and 2010 barely grew it grew by eight percent over that whole time whereas other cities grew very well Adelaide for example did a very good amount of growth during that time so that's the emotional growth and then if you're an investor with a little bit of time on your side we get that organic growth that comes from families and the thing about organic growth is it occurs year in year out over time and over time it adds up to be better than that short boom growth so what families do is when they find an area that they like they they move in and because they have children who

are in school for 12 years they stay there for 12 to 20 years depending on how many children they have and because they stay there if it is an area that's got a lot of amenity that is a offers good lifestyle opportunity, gives you reasonable commute to work. These days, that's not as crucial. But if it's an area like that, they stay there and they don't move out, which automatically puts pressure on prices because other people want to move in, but there's no housing available for those people. So that family demographic is probably the most critical driver of growth. Fascinating. Fascinating. And Margaret, we spoke to Tim Lawless earlier in the show, and we talked to him about innovations and what's happened

and how that's changing our lifestyle. He talked a lot about technical innovations, but I'm wondering about lifestyle innovations and how you see that shaping the way property investment's going to be in the future in terms of, you know, let's have a look at what COVID's done. And you just touched on the fact that travelling to work is now no longer as important because we can be very remote.

What impacts do you see that happening over the next decade? Yeah. You know, I want to bring up something that might be a little bit, you know, controversial in its thought process, but I know everybody's saying, well, COVID's changed it and now we're all looking for lifestyle. But if you go back over the last 60 years, you'll actually see a pattern that occurs. And that pattern is that the parents move out to the suburbs because that's where they can get the cheaper housing and there's some lifestyle offered by moving in the suburbs.

And then the children all want to move back and live in the cities because they're sick of living out where there's nothing and they all move back into the cities. And then their children hate living in the cities, so they move out to the suburbs. And then their children hate living in the suburbs, so they move back into the cities. So it's actually been quite cyclic over a long time where we see the demand shifting between lifestyle choices and tree changes and then back to inner city urban living and Canada has a very good example of a period of time in the 70s where urban living became the thing and there was a huge amount of urban living, high-rise apartments that were created similar to some of the developments that are happening in and around Green Square

and Mascot in Sydney where it's not just an apartment block, it's a community that is developed with a shopping centre on the ground floor and park lands and pools and gyms, then that originally began in Canada in the 70s. And we saw them hugely popular. And then by the time we got to the late 90s, early 2000s, they had huge vacancy in them and people didn't want to live in them anymore because they wanted to go back out into the suburbs and into the more country areas. So we do see this as a cycle anyway. And I think COVID has just exacerbated that this time around, whereas people now don't feel that they need to commute as much and they're looking for that lifestyle. I think we're going to go back to where we were. I think people will

get back into the cities. I think people will go back to wanting to go to work again. A lot of people I know have said, oh, you know, I'm sick of staying home. I want to get on a train and go to work. And I think we will go back to that again. And that might be a bit of a controversial thought, but we need to keep in mind that this cycle exists. And therefore, if we're thinking of a long-term property investment, don't buy what's right for today, buy what will be right for tomorrow. Yeah, brilliantly said. So drilling down into that, and a great insight, by the way, in terms of that cyclic nature, what do you think this means for property owners and those planning to buy a home or an investment property over the next 10 years then? Look, there's a lot of things

that people do need to think about, but the fundamentals don't ever change. Let's not forget that. So the fundamentals are, of course, as I said already, those families and that family demographic. If you don't get the best growth in property from buying in an area rich in families, you won't get a lemon either so it's a sure thing to me to buy in those areas where we have those families where we have a council who is interested in providing amenity where we don't have too much new land that's always a bit of a risk factor over time because people would often rather build their own home than buy another property or someone else's property so we we're also talking about areas where we don't have an abundance of new land to be released and we you can work that out by

talking to the council what their planned future releases are but if we think about that the the family demographic on top of that we've got some really basic demographics that are very easy to identify so or basic factors so we need to have either jobs or access jobs accessible so if there's no jobs in the area and the central coast is a good example we don't have a lot of jobs in the area. But 60% of the workforce commute to Sydney for their job. Of course, at the moment, they're probably only commuting half the time. But there's jobs accessible to the Central Coast, which explains the Central Coast's very good growth over recent times. Plus, we have that lifestyle amenity. So we need the jobs. We need the population to be growing. And I like a population

growing faster than the national average growth as well that usually means your growth is going to come a little bit sooner we need those lifestyle amenities in the schools as well because if people don't have a school that they can send their children to they will move and if they don't get what they need on the weekends they'll move so you need the restaurants and you need the sporting facilities for the kids and families are very child-centered these days remember um in my day I raised five children and the children were you know got what they needed but they certainly weren't pushed forward these days everything is about the kid so you think about those areas that satisfy things that kids need dance schools sporting clubs all sorts of

they have all the big indoor gyms for kids there's a lot of stuff like that these days that you need to think about so those fundamentals for the next 10 years won't change you will definitely need those but I think when you think about the kind of property you need to buy there are some things that people are now looking for that they didn't in the past and it's interesting because the big gourmet kitchens aren't as popular anymore and space for that big gourmet kitchen because you don't need a big gourmet kitchen to cook hello fresh or to get uber eats which is pretty much what many young families subsist on these days. So the big kitchen is being given over for better workspaces. So rather than the desk shoved up in the corner of the dining room that you used to

make do with for doing that little bit of work you had to do after work, people now want the fully resourced home office and a big space for that. And if it's a mum and a dad both working or a you know dad and a dad or a mum and a mum both working then you need those big spaces for two people or even two of them so if I was buying a house I would definitely be looking for houses that can lend itself to that sort of thing backyards people used to say you know the more land the more valuable the house that's not so much the case anymore because there's no difference in value really between a 650 square metre block and an 800 square metre block, unless you can subdivide the 800 square metre one. If you can't subdivide it, then the kids don't use the

backyards the way we used to. And all they represent to busy parents is extra work on the weekends, having to mow the grass and, you know, keep your backyards good as well. So I think I'd think about that too you know more house less yard and certainly close to all of those amenities wonderful margaret you've been such an important part of this show for you know the whole time i've been doing it um i i just want to thank you but also i would love to ask you what do you see as the future for all this show realty talk and others like it i mean how can we is there anything we can do to change or do we need to make any changes no look I don't think so I think it's really important for shows like yours and mine to be careful about who we have on as well and

you always are and so am I you know there's no coincidence behind the fact that I only have a small number of people who I get to come on my show it's because I want people who legitimately can educate others on how to buy well, rather than people with an agenda. I can remember one of the TV stations having a couple of property shows on, and they would just parade a series of developers and property spruikers through as their guests. And all it does is confuse people about the legitimacy of the information that they're getting. So I think what you're doing at the moment is the right thing. Continuing to want to provide education to people, to want to be able to be sure that people aren't getting stuck with bad property and from time to time even exposing

the scams. You and I have had frequent times where we've talked about the kinds of scams that people get caught up in and how to avoid getting caught up in those scams and the questions to ask to make sure that you're protected and I think shows like yours go a long way toward helping people to be protected yeah Margaret thank you so much for your support over the years too and you know this is not the end of the journey we're going to hopefully get a lot more years left in us yet but thank you so much you have to wonder that that don't you you and I just getting really old now Kevin how much longer can we do this oh well I I you see the thing about it I spoke to bushy about this is that I really enjoy it so it kind of keeps me young um you know I get up in the

morning and I knew I was going to interview you and a couple of other people and that really gets me pumped um I really enjoy that so you know Kevin Tuesday nights for me is my dancing night so I do four hours on a Tuesday night I do hip hop tap and jazz um with a group of fairly you know when I say young certainly younger than me I'm 62 soon um and when I'm there I often say that my dance teacher who's 30 um how much longer is it okay for me to do this and not look silly and he went you just keep coming and keep doing what you're doing so yeah brilliantly done look i want to thank both of you as a listener and now being actually involved in the show you've both made very significant contributions to the industry in educating and guiding property investors and

property professionals and yourself margaret you've done a fantastic job of lifting the professionalism of property players generally so we're really we thank you for your long-term support for the show and for joining us on Realty Talk today. Thank you for having me and it's always a pleasure. Thanks Bushy and thank you Margaret I look forward to talking to you again soon. Stay with us we've got lots more to come. Louis Christopher is going to be along after the break. Stay with us.