29 Sep “No sign of a crash” – Dr Shane Oliver + Purple Bricks turns the industry red with rage
We’ve heard the dire warnings of a property market crash from the doomsayers, we’ve heard that the Australian economy will take a big hit because of the downturn in mining and the effects of Brexit and financial crisis in Greece… but where do we actually stand? How is the Australian economy actually tracking? Dr Shane Oliver, Head of Investment Strategy and Economics, and Chief Economist at AMP Capital joins us to answer those questions.
While many Australians will sit on the sidelines waiting for someone to ring the bell heralding the property market has bottomed, savvy investors will be out looking for and buying investment opportunities created by the current buyers’ market. While many unsuccessful property investors speculate emotionally, the successful investors use research and education to get their investments right. Michael Yardney gives us some of the time tested rules these successful investors use to make their fortunes.
Rarely do I see a startup company ruffle as many feathers in the real estate industry like Purple Bricks has in the last few weeks. Purple Bricks, if you have missed all the hype, is a UK based company that claims to be a full service agency offering to sell property for owners for as little as $4,500 but, as you will hear, that is a bit misleading. We caught up with that company’s CEO when he was in Australia. For the first time in the 10 years or so that I have been doing this show, I make a comment about Purple Bricks after I speak with Michael Bruce in the show this week.
This week, my feature guest is Miriam Sandkuhler from Property Mavens. With a background in the financial services industry, Miriam was interested in property from a young age. Starting at 23, she began building her own portfolio, but some misguided ‘advice’ from selling agents led to some very costly mistakes and this experience contributed to her becoming passionate about the advocacy side of the property industry, and ultimately led to her starting Property Mavens. I discuss that journey with Miriam.
In an Australian first, a tiny home project has been approved for disadvantaged and the homeless in NSW. CEO and Co-Founder of The Tiny Homes Foundation, David Wooldridge joins me to discuss the initiative.
You will find us at iTunes under podcasts as Real Estate Talk. Listen there for free, leave a review which helps us grow and tells us what you like and how we can improve the show. Don’t forget to subscribe at the site as well –even if you do get the show through iTunes – so that we can tell you about the bonus offers we make to subscribers. Your questions are welcome through the site as well.
Purple Bricks turns the industry red – Michael Bruce
Kevin: Purplebricks, the UK-based online real estate agent that charges homeowners a flat fee to sell their property, is promising to shake the local market and save Aussies nearly $6 billion in commissions. There has been a lot of news and a lot of talk about this in the last week or so.
Purplebricks, of course, has launched. They launched in the UK in 2014, where they charge homeowners a flat fee – as I said – of $4500, including marketing costs, to sell their homes. Joining me to get a bit more detail on this, the CEO and co-founder, Michael Bruce, for Purplebricks.
Michael, thank you for your time.
Michael: It’s my absolute pleasure. Thanks for having me on.
Kevin: That’s okay. The Purplebricks concept has been very successful in the UK, as I said. But attempts in Australia to run a similar concept in the past haven’t really worked. Why do you think this is going to work as opposed to others? What’s so different about Purplebricks?
Michael: I think what’s absolutely clear is that people have tried to do things along the journey, but they haven’t done anything like Purplebricks.
What Purplebricks does is it takes great local property experts, licensed real estate agents, and gives them the tools in order to provide a first-class service for customers. They give them technology. We’ve spent nearly five years now perfecting that technology, that makes them much more productive, so they can spend more time with homeowners, chatting to them in living rooms, helping and supporting them through each settlement.
At the same time, it gives the homeowner a much better experience, much more transparent experience, because they’re able to interact with the market. They’re able to see everything that’s happening 24 hours a day. They’re able to get to know who’s arranging viewings, what their feedback is, and when offers are coming in, the second an offer is made, it’s instantly with them.
In terms of all the things that traditionally, the perception of the industry has been it’s not quite as transparent, not as much communication, etc. With Purplebricks, what we’ve tried to do, and the reason why we’ve been successful, is because we’ve built a model that encapsulates all of those things and delivers them back to the homeowner but for a fraction of the cost that they would pay a traditional real estate agent.
Kevin: Of course, the Internet’s made everything much more transparent – a lot more information for consumers. I’d challenge you on the point there about transparency. I think one of the things that we have seen in the industry is a lot more transparency over the years. No one denies that’s a good thing for consumers. But I just wonder if we’re discounting, here, the amount of work that goes into selling a property.
You’re asking here for consumers to take a big lot of that load on. In the past, we’ve seen private sale, for sale by owner, a lot of those people actually go back to a traditional agent because they simply can’t handle what needs to be done.
Michael: I don’t disagree; I think you’re absolutely right. The only difference is that doesn’t apply to Purplebricks. When you talk about in the past, those for-sale-by-owner type propositions, they haven’t worked. They didn’t work in the UK. They’ve been around for eight to ten years. There’s only a particular type of homeowner who’s willing to participate in that type of service. And they haven’t seen any material growth in the UK, unlike Purplebricks.
Purplebricks has grown massively over the last two years because it does everything that a real estate agent does. It provides you with the whole support, the whole process, right through to settlement.
What we have to be really clear on is that the process of selling a property is the same anywhere in the world. It’s about getting a property onto the market. It’s about presenting it in the best possible way. It’s about making sure that you market it in order to engage as many people as you possibly can so that market forces does its work alongside the agent to help support that customers get the best possible price. Then once you get the best possible price, it’s about supporting them through to settlement.
What we’re doing is all of those things, but what we are doing is cutting out stuff that is ineffective, that doesn’t help and support customers achieve those objectives. Our customers end up getting a light-bulb moment. They get a moment whereby they say, “I’ll get a full real estate service, a meta local property expert, a licensed real estate agent, who’s promised a particular type of service, who’s delivered on that service, got me the best possible price, sold my house, and assisted me through to sale.”
That is just fact of what real estate agents do, and that’s just fact of why Purplebricks is so successful, because we do all of those things.
Kevin: Which parts will you actually be cutting out, Michael? You said there’d be some parts that you’ll cut out that’ll be irrelevant, that’ll cut back on the cost. What are those things that’ll be cut out of the process?
Michael: In terms of the process, the process will be exactly the same, but it will be different in the sense that it will be instant, convenient, and transparent. For instance, it’s not a matter of people trying to engage with real estate agents during office hours.
I understand that here in Australia, people put their mobile numbers in and things like that so that they can communicate more after hours – and that’s fair and that’s good – but reality is with Purplebricks, people can arrange a viewing at any time 24/7 instantly.
They’re instantly requested you for feedback, chased for feedback. The second they provide that feedback, it’s instantly with the seller. The second that an offer is made, that’s instantly with the seller. The seller can see the offer, they can see the nature of the offer, they can see who’s made the offer, and the position the person’s in.
They can go through the whole auction process at whatever time of day or night. They can get access to information about their marketing. They can contact and speak to someone 24 hours a day, so if they have an issue, then that issue can be quickly resolved. They get a local expert who helps them through to settlement.
They’re getting absolutely everything; nothing’s cut out. But what we’re doing is taking technology and people and delivering in a better way.
Kevin: I understand that. Michael, in terms of the local experts, you say these are licensed agents. What will be their role in that? Will they assist with negotiations? Will they assist with open homes or anything like that? Or do they very much just take a…?
Michael: They will assist with all of those things. They’ll be the first port of call in terms of undertaking the appraisal. They will then undertake all the process of getting and supporting the customer onto the market. They will, if the customer so chooses, take all the viewings for the customer. They will, if the customer so wishes, negotiate with all of the offers, and they will be heavily involved in assisting and supporting the customer through the whole journey.
Kevin: Is all that done for the flat fee of $4500, or are there add-ons there dependent on what the consumer would want the agent to do?
Michael: The only additional add-ons that we have are if you want us to undertake the viewings for you. There’s an additional fee of $385. That covers you for every viewing, no matter how many there are.
The reason why we offer choice for consumers in this respect is because of the thousands of homeowners we spoke to across Australia, the majority said they felt they were better equipped to do the viewings themselves. And 79.7% of people said that if they could undertake the viewing and save some money, they’d like to do that. What we do is give choice: the 80% who want to save money great, and for the 20% who want to have the comfort of having that support, we’ll provide that as well.
In relation to negotiating offers, and all of those things, that’s all part of the service. There’s no additional fee there.
The only other additional fee is if you want to undertake an auction, then it’d be $850, but that would include the auctioneer and all of the viewing service covered, all of the open houses, everything like that. If a customer takes any of those options, they can have as many viewings as they wish, they can have as many open houses that they desire.
Kevin: Of course, I do understand what you’re saying, and I can see there’s a need for a model like this. The only question I would ask is the quality of the agents. I would question why good agents would be attracted to your model and have to work as hard as what you’re saying to earn about one-third of what they would earn ordinarily. Isn’t that then going to impact the quality of the agents you attract as these local experts?
Michael: I’ve been involved heavily in the training of these people over the last few weeks, and I have to say the quality of the people has been great. I take your point of what you say, but the reality is these people will not be earning less. These people will be earning as much, if not more, than what they would otherwise earn. They’ll be far more productive.
What we do is give them the opportunity to run their own business. We don’t charge them like a franchise. We give them advertising and marketing on a scale never before seen in the industry. We give them technology that makes them more productive and ensures that the promises they make their customers, they know can be delivered.
And we’re saving people loads of money, so in reality, it’s easy to take a look at the quality of our local experts and say, “Well, they’re not earning $1 million dollars”, but that’s a very small fraction of the market who earn that amount of money.
Kevin: Of course.
Michael: They will be certainly earning as much, if not considerably more, in relation to others in the market, who are providing a great service for customers on a day-by-day basis.
Kevin: How does Purplebricks make money out of the transaction? Do you get a portion of that $4500 flat fee?
Michael: Absolutely. The real estate agent will receive a proportion of the fee, and Purplebricks will receive a proportion of the fee. Obviously, we will earn revenue off other things, such as mortgages, etc., and other things that we can offer services to customers if they decide they want those.
Kevin: There you go. So, there’s an insight as to how it’s going to work.
Michael, I want to thank you very much for giving us your time, and we’ll watch with interest how Purplebricks develops in Australia. Thanks very much for your time.
Michael: It’s my pleasure. Thanks for having me
“No signs of a crash” – Dr Shane Oliver
Kevin: We hear different reports all the time – don’t we – about how the property market’s going. Especially after the mining downturn, we have doomsayers saying it’s going to crash; others say it’s not in such a bad state. A man we like to talk to all the time is Dr. Shane Oliver, who is the Head of Investment Strategy and Economics and Chief Economist at AMP Capital. He joins us.
Doctor, thank you very much for your time.
Dr. Oliver: My pleasure, Kevin. It’s great to be here.
Kevin: We’ve heard those dire warnings about the market crashing, haven’t we? I’d be interested to get your insight as to how the Australian economy is actually going right now.
Dr. Oliver: Yes, you’re right. We often hear these calls of some sort of property crash, and certainly, even an economic recession. In fact, these calls have been quite common ever since the mining boom ended about four or five years ago.
Of course, you can go back over a decade or so through which people have been talking about some sort of property crash, whereas at the end of the day, the market remains reasonably resilient. We occasionally get these corrections, but certainly not the crash that people have been talking about. Part of that, I guess, is because the economy has been reasonably solid.
I think if you’re looking for a property crash, you really have to have some sort of collapse in the economy causing a big rise in unemployment such that people can’t service their mortgages anymore, whereas the reality is the Australian economy has help up reasonably well over the last few years, despite the end of the mining boom.
Unemployment has gone higher, but it’s not disastrous, and that sort of rebalancing of the economy we’re seeing – mining has slowed down but other parts of the economy have picked up – has, I think, helped support household incomes, and consequently, we haven’t see anything close to a property crash. In fact, the property market has remained relatively resilient.
Kevin: Are there any signs on the horizon that we could be in for tougher times?
Dr. Oliver: I think there are some signs on the horizon; you might call them clouds on the horizon. The biggest problem, I guess, is that we’re seeing a lot of cranes around, across many Australian cities, in fact. After many, many years of not building enough residential property, we have seen over the last few years a big spurt in the supply of apartments hitting the market, which is probably a good thing.
If we want more affordable property in Australia over a long period of time, we probably need to see more dwellings hitting the market, but there’s always a danger that that property, all those apartments, will hit the market all at one time, causing a bit of indigestion.
I suspect we could go through a patch of softness in terms of unit prices or apartment prices, particularly in the major capital cities. So Brisbane, Sydney, Melbourne and Perth I think could be at risk of a bit of weakness on that front. But in terms of regular homes – standalone dwellings that most Australians aspire to – there’s certainly not an oversupply problem. If anything, there’s still an undersupply; we’re still not building enough of those.
My feeling is, yes, at some point in the next few years when interest rates eventually start to rise – it looks like being a fair way away; it could be 2018 perhaps – then we could go through a bit of a correction in home prices. But I think that would probably be concentrated in Sydney and Melbourne, because Sydney and Melbourne have had a very strong growth in property prices over the last four years, so they would probably be more vulnerable.
But other cities, particularly Brisbane, haven’t seen anywhere near the gains that Sydney and Melbourne have, so therefore, I think any decline in standalone home prices in Brisbane would be very modest if it were to occur.
But really, to get to that point, you have to see higher interest rates, and we’re not anywhere near that at the moment.
Kevin: Yes, the RBA we hear all the time are really focusing very much on facing some of the issues that face us as a country, and they try to protect the Australian public from financial pain. How do they go about that, and what are some of the issues they’re watching?
Dr. Oliver: The Reserve Bank does have a difficult task, because you’re balancing across a whole bunch of competing interests, and I think that’s one of the biggest issues. You can make an argument, for example, that interest rates in Australia at the moment are set too low for Sydney and Melbourne, because those two cities have seen strong economic growth and very strong house price gains, but the Reserve Bank, of course, has to set interest rates for the average of Australia, and all the other capital cities have been seeing a far more modest growth in house prices, and some of them – Perth and Darwin – have seen house prices falling, which is actually an argument for lower interest rates.
The Reserve Bank has to balance this out and, of course, set interest rates for the average, and that’s what they’ve been doing. It’s why we’ve been seeing interest rates come down as the mining boom has come to an end.
Now, of course, they do need to manage things getting too hot in Sydney and Melbourne. They’ve been trying to do that by relying on APRA. APRA is the regulator of the banks, the Australian Prudential Regulation Authority, and it has introduced measures, particularly last year, to try to slow down lending to investors.
That was on the back of concerns on the part of the Reserve Bank that investment activity in some of our cities was getting too hot and needed to be slowed down, and of course, we have seen that happen. The banks have slowed their lending to investors and have also tightened their lending standards in terms of how much you can borrow against the value of the house or relative to your income.
I think some things have been done to cool it down a little bit, but the Reserve Bank does face a difficult balancing act, and at the end of the day, people might have different views on what the Reserve Bank is doing, but at the end of the day, they do have to manage interest rates for the average of Australia. They can’t just do it for one city or one part of the country.
Dr. Oliver: I’m talking to Dr. Shane Oliver from ANP Capital.
Doctor, in terms of growth and the state of our academy, how do we compare with other developed countries?
Kevin: That’s a very important question, because we in Australia are often inclined to get a bit gloomy about things. A lot of the commentary out there seems to be gloomy. Some statistics come out, you can always find something wrong with them, and that, I think, sometimes leads to this sense, the impression that Australia is in a constant state of crisis, whereas the reality is that our economic growth rates on the most recent numbers has been 3.1%, which is bang in line with the 100-year average.
That’s what it’s been averaging over many years – hundreds of years – and it’s also far stronger than virtually all other developed countries. Of course, an emerging country like China or India will report a stronger growth rate. I think in China it’s over 6%, in India it’s over 7%, but they’re starting from a very low base, so we shouldn’t really compare ourselves to them; we should compare ourselves to the US. Most recently in the US, economic growth has been just 1.2%.
In Europe, it’s about 1.5%, and in Japan, it’s around 0.5%, so in the great scheme of things, we’re actually doing pretty well, despite the impression some might get that things are pretty gloomy. The reality is that the Australian economy has done very well, and I suspect it will continue to do so.
Kevin: Thank you very much for your time and for that insight into what’s happening in Australia, Dr. Shane Oliver, I appreciate it. Thank you very much, Doctor.
Dr. Oliver: It’s been my pleasure. Thanks for having me on the program.
Time tested rules for investing – Michael Yardney
Kevin: In any market, there are always great opportunities. Many unsuccessful property investors speculate emotionally, and we’ve talked about that on the show before, but the successful, strategic investors use research and education to get their investments right.
Now, I did say at the outset that in any market, you can always make money, but there are some rules for successful property investing. We’re going to run through them with you now, along with Michael Yardney from Metropole Property Strategists.
Michael: Hello, Kevin.
Kevin: I know there are ten simple rules that you’ve documented for us today. Let’s go through them. The first one you say is they invest, they don’t speculate, which I touched on there in the introduction.
Michael: Yes, you did. So rather than buying emotionally, like you said, or saying “That’s going to happen, because that area hasn’t grown for a long time; it’s about to,” or buying emotionally like where they want a holiday or where they want to retire, smart investors do it differently. They make educated investment decisions based on research, buying a property below its intrinsic value, one in an area where the demographics are going to drive capital growth, and where there are other growth drivers, as well.
Kevin: You say in number two that it’s about the property, not so much about the attack strategy, Michael.
Michael: That’s right. A lot of people get caught up with “I’m going to get some depreciation, or I’m going to get a rental guarantee or tax benefits or negative gearing,” but at the end of the financial year, you always hear people coming quickly to us and saying “I have to buy property before the end of the financial year, because I need some negative gearing.” No, Kevin, it’s about property; you’re right.
Kevin: Number three is it’s all about high-growth, low-yield investment.
Michael: In my mind, residential real estate is a high-growth, relatively low-yield investment. I know there’s an argument for cash flow, and we’ve discussed this before, but in my mind, savvy investors know that the fastest way to build a substantial property portfolio is through the capital growth rather than through a couple of dollars a week cash flow.
Kevin: Land appreciates.
Michael: Yes, that’s right. That’s one of the rules successful investors use. They know that the majority of the heavy lifting for the property investment is going to be the location. 80% will be the location, maybe 20% or 25% will be the property itself within that location. But not all land appreciates equally, so they also recognize that they want to buy land in the right areas, areas where there’s strong demand and minimal supply.
Even if it’s just an eighth of a block of land under a block of apartments, they recognize that they just need a high land-to asset-ratio, rather than in the regional areas where the land component, while it could be physically big, money-wise, financially it’s not that big of a proportion of their investment.
Kevin: And in tandem with that, number five, you say – and you just touched on that – is about strong demand. They buy properties that will be in continuous strong demand.
Michael: Certain properties and certain locations are going to be preferred as we move forward, and so not every property is what I call investment-grade. You can always make it an investment; all you do is you kick the landlord, the owner out and put a tenant in, but that doesn’t make it investment grade.
You want one that’s going to be in strong demand, in my mind by owner-occupiers, because they’re the ones who will push up property values around it, and also you want the sort of property that tenants are going to want to live in so that your vacancies are short.
Kevin: Yes, and that probably takes us into point number six – doesn’t it – about the demographics.
Michael: That’s right. In my mind, it’s the long term demographic trends – how people want to live, where people want to live – that are going to determine the type of property that will be in demand in the future. As our cities mature and as we have an older population and more one-and two-people households, I think secure, medium-density apartments and townhouses will become more of a preferred style of accommodation, as many of us swap our back yards for balconies.
Kevin: Number seven is one that I’ve seen you demonstrate so well over the years, Michael – I’ve known you for a number of years now – and that is the team that you build up around you.
Michael: We’re talking about the ten rules of successful property investment, and one of them is that you do need to be part of a team. You have heard me say before that if you’re the smartest person in your team, you’re in trouble.
Successful investors surround themselves with a good team, but they also know how to discern an advisor who’s independent from a salesperson, where sometimes you get caught out thinking this person’s working for you when in fact, they’re not.
Kevin: Risk and reward, Michael?
Michael: Successful investors understand where the risk lies. There are some risks you can protect yourself against, and there are others that are out of your control. We really can’t control the market, we can’t control the political system, we can’t control whether the government is going to change negative gearing rule or superannuation, but you can be prepared for things like that by having financial buffers in place and by owning the right properties.
One of the biggest risks smart investors recognize is it actually lies within themselves: the way they think, maybe what they choose not to do by procrastinating – they know that’s a mistake. So risk is external and also internal, Kevin.
Kevin: And the final one – and you and I have talked about this on many occasions; it’s a subject we can divide an entire interview to – is that the property market definitely moves in cycles.
Michael: That’s right, and so do investor emotions. During a boom, everyone is optimistic and expects the good times to last forever, just as we lose our confidence during a downturn. Of course, the truth is that property markets do behave cyclically, and each boom sets itself up for the next downturn – and they’re the sort of conditions we’re heading into currently – but similarly, each downturn paves the way for the next boom.
I think one really just has to make the most of the opportunities and recognize that every year, something going to come out of the blue despite all your best homework, all your best research. There will be an X factor, sometimes on the upside – like this continuing lower interest rate environment and the long cycle we’re in – or sometimes on the downside like some of the economic, political, and finance changes that are affecting us, as well.
Kevin: Indeed. Michael, thank you so much for your time, great talking to you. We’ll catch you again next week.
Michael: Thanks, Kevin.
Recovering from misguided advice – Miriam Sandkuhler
Kevin: We’re going to go on a bit of a personal journey with my next guest and talk about her experiences with property because we learn so much from doing that, but as well as that, what Miriam Sandkuhler from Property Mavens has learned along the way from working with the number of people she works with.
Miriam, welcome to the show. Thank you for your time.
Miriam: Hi Kevin. You’re very welcome. Thanks for having me
Kevin: Let’s talk about you and your personal journey. When did property become such an important thing to you?
Miriam: For me, it would have been about 26 years ago.
Kevin: Come on, you’re not even that old.
Miriam: Thank you. I was quite young and actually looking to purchase my first property. I was really venturing into a marketplace where I had no mentors or advisors on whom I could lean to help me go through that process. As such, I learned some really tough life lessons along the way.
Kevin: Was it because there weren’t many mentors around in those days?
Miriam: Absolutely. Buyer advocacy didn’t exist as a service to protect and educate the buyer. The market for decades – as we know – has been run by real estate agents, where they’ve educated consumers how to buy the property that they want to sell them in the way they want them to buy it. So it’s been heavily influenced by one side of the camp.
Back then, there was certainly no one representing the buyer who was in a position to advise me, and I didn’t have a family background where I could fall back on anyone there, either.
Kevin: Yes. Well, that changed, didn’t it, about 15 or 20 odd years ago when the Internet came along? That changed everything.
Miriam: Yes, definitely. And certainly more so in the last probably five to eight years in particular with buyer advocacy around the country. That’s been a bit of a slow, steady increase, but more and more, there are more licensed agents out there. And there are also people who are unlicensed and are probably operating illegally doing it, as well, so you have to be very careful who you engage. But yes, they’re slowly leveling the playing field.
Kevin: Yes, we’ll talk about that in our chat, as well. Tell me about your first purchase. Where was that and how successful was it?
Miriam: My first purchase was in St. Kilda. I bought a little one bedroom apartment off Grey Street, which was a bit of a seedy area at the time, and it was in a company share structure. Back then, I was quite fortunate; I had a fairly substantial deposit and getting some finance wasn’t an issue for me for that particular property type, whereas nowadays, people would have much more of a challenge.
At the time, I was tossing up between a house that needed some renovation in Port Melbourne on a decent chunk of land or a little apartment that was freshly refurbished but in the heart of St. Kilda. I went with the apartment, not understanding the concept of land value, and that was my first investment.
Kevin: That property type in a company like, it probably would have looked very attractive because of the price, as well.
Miriam: The price back then, we’re talking $112,000 for the apartment and what would have roughly been $130,000 for the house in Port Melbourne. The apartment nowadays with the oversupply that’s happened in St. Kilda would have dropped back in price, I’d roughly say, to maybe the $500,000 mark, whereas the house in Port Melbourne would easily be around that $900,000 to $1 million mark.
Again, it was just not understanding the dynamics of what to look for when investing, and I was a bit scared. I didn’t like the idea of taking on a renovation. I knew nothing about it. So I went for the easy option.
Kevin: And do you still own that property, the one in St. Kilda?
Miriam: No. I managed to get rid of that a couple of years later. I used that money to invest in what I would call an investment-grade property in West St. Kilda, and then one of the biggest mistakes I made later on is I took some free advice from a friend of mine who was a selling agent who instead of convincing me to keep it because it was a good asset and I should have bought my ex-partner out, he convinced me to sell it and he was going to put me in something better, which of course didn’t transpire. And here I am today talking to you professionally as a buyer’s agent.
Kevin: That’s the value of free advice, isn’t it?
Miriam: Yes. You make big mistakes. I had a couple of goes at it, again taking the wrong advice from the wrong people who had their own vested interests. That’s probably one of the toughest lessons: free advice often isn’t good advice and it is biased, and you ultimately do pay a price down the track, and in my case, poor asset performance or buying the right property but then under poor advice, selling it.
Kevin: Of course, you learn those lessons along the way. That sale that you were talked into there, is that what prompted you to start Property Mavens?
Miriam: Yes, it wasn’t actually long after that. Probably maybe five years later, I ended up getting into real estate sales. I had a financial services background, so I sold what was called managed investment real estate.
Then from there I got into buyer advocacy and actually working for the consumer, because I learnt very quickly that the nature of what I was selling didn’t perform like all the marketing materials and product disclosure statements suggested. I did more research and got a better understanding of the dynamics and the fundamentals of what enables property to grow in value and what differentiates them.
Then a few years later, I set up my own business – Property Mavens – and then not long after that wrote my bestselling book Property Prosperity as a way to educate consumers on how to go about buying property and what to look for, what to be wary of, the questions to ask, who to trust, who to maybe not trust, and how to go about investing safely and strategically.
Kevin: The book Property Prosperity, have you been tempted to write a second one or an update of that one?
Miriam: Funny you should say that; I’m actually looking at doing that right now as we speak. I’m in the process of mapping out – taking some specific content out of that and expanding it. Whereas Property Prosperity was designed really to help people safely and strategically buy property, this next book will be drilling down to some of the more DIY details of how to actually go about aspects of it.
Kevin: So you’re taking it to another level in that case?
Miriam: Yes, definitely.
Kevin: Tell me about Property Mavens. Who is your ideal client?
Miriam: Generally, I’m working with people between 35 and 50. They often want to invest. It might be their first investment property, or it might be their second or third. Often I’ll have financial planners and accountants refer their clients to me for self-managed super fund investing, which is far more complex investing in property in a super fund than outside of it. And they have anything from budgets between $500,000 and $1.5 million.
I’ll sit down with them and help them develop investment strategies, and then I’ll go into the marketplace and source and negotiate on that property for them.
Kevin: What’s the most common question they ask you when they first come to you?
Miriam: It’s not so much a question; it’s really the position that they’re in. They don’t know what to buy, where to buy it, or how to go about it. There’s so much conflicting information in the marketplace, and it’s conflicting because people have their own agendas as to what they’re trying to sell. People are selling strategies, and often those strategies lead to a product or a property that they’re trying to sell you as part of that particular strategy.
It’s generally confusion, and they need help and they need someone who knows what they’re doing and understands growth drivers and understands research and negotiation and pricing, because underquoting is still a big problem in Victoria. That’s where they’re seeking my assistance and I’m able to go out and get them investment-grade property.
Kevin: What’s the most common mistake you see investors make?
Miriam: Definitely, I think the free advice thing. They attend seminars, they go to coaching organizations or investment clubs and they become part of a group, and there’s a bit of a “Let’s all do this together” motivational component to it and they get sucked down that rabbit hole. But inevitably they’re educated to often buy the property that those real estate agents or property spruikers or developers actually want to sell them.
Again, it’s the free advice and not understanding that it’s biased. It can often be detrimental if they don’t get independent advice or do their own independent research.
Kevin: What sort of mentors should people be looking for, and when should the alarm bells go off?
Miriam: I think they should be wary from the beginning. They always want to get their own independent solicitors to look over contracts. They always want to get advice from their accountant or their financial planner first around structuring and what entity you buy it in.
There are a lot of these self-managed super fund one-stop shops out there that are putting people in super funds who just shouldn’t be, so always seek advice independently of whoever is trying to promote a particular property or structure to you because in a lot of instances, they’re not allowed to legally give that financial advice, either.
Definitely you want your independent building and pest inspectors, you want to obviously engage your own property managers, as well, but if you need help with some element of the buying process, whether it’s just bidding at auction or negotiation side or assessing if it’s a good property, then that’s when you can bring in a buyer’s agent, as well.
Kevin: You mentioned earlier that the first property you purchased was that apartment in St. Kilda. Would you buy apartments, or are you all about house and land?
Miriam: No, it’s not about apartments or house and land; it’s about buying for land value as a percentage of the purchase price. Regardless of what the actual property type is, I’m always looking to buy 50% to 70% land value. That way, it’s the land that goes up in value, not the building. That way, there’s potential to manufacture equity by doing a cosmetic renovation or an update, usually because the property is a bit older, and that gives you the best opportunity to get the best growth and to maximize your return on that property.
Kevin: Let’s have a look at regional and cap city markets now. The regional markets have had a bit of a caning. We’re hearing some bad stories around Australia about some of those regional markets. Do you steer clear of those, or are there exceptions?
Miriam: Yes, there are exceptions. I do buy in regional markets, and I’m always looking for the growth drivers within that particular area. I have some minimums. They need to be a regional center that has a minimum population of 90,000. There needs to be employment opportunities there. There needs to be fantastic public transport.
In the case of Victoria, if I’m looking in and around somewhere like Geelong or Ballarat, you obviously have to have easy access to Melbourne and usually within an hour on the train to Melbourne because that’s a source of employment for a lot of people.
Then you’re looking at affordability and you’re looking at local amenities, as well – schools, shopping, education, hospitals, those sorts of things.
If it ticks a number of boxes, then absolutely I will buy there. And it also depends on a client’s strategy. If they have a cash-flow strategy versus a capital-growth strategy or if they only have $350,000 to spend, then those regional centers may afford them to get into the market and get an income-producing property but not compromising too much on capital growth at the same time.
Kevin: Do you suggest people get their feet on the ground, physically have a look at the property, or can they buy it sight unseen?
Miriam: Never buy a property sight unseen ever. I’ve done enough inspections of enough properties to absolutely without doubt never recommend anyone do that. That is a massive risk, and why would you do that when you’re spending hundreds of thousands of dollars?
Kevin: Okay. Thank you for answering that one so succinctly.
Let me ask you then a question about first-home buyers. What advice would you give – or maybe you are giving it to – your kids, or for someone who has got children about getting into property? What advice would you give them?
Miriam: That’s pretty broad, Kevin. Save as much as you possibly can as quickly as possible and be as strategic as you can. If you need to partner up with a friend or family member to get into the market, then consider that, but make sure you have a partnership agreement in place that explains what’s going to happen if and when you decide to split and go your separate ways down the track.
I would definitely look at getting into the market at a price point that will give you a good asset, and so if someone can’t afford to buy their own home at $600,000 but they have enough to buy a good little cash-flow property with capital growth at $300,000 or $350,000, then consider those options because it’s more important to be in the market and benefit from income and capital growth than not be in the market at all.
There are always options available; you just have to be flexible. I don’t know about you, but I know I grew up and I didn’t have a new car until I was in my 30s and I had second-hand furniture until I was in my 30s. So it’s about sacrifice, and if you’re not prepared to sacrifice, then I guess you’re going to miss out.
Kevin: You mentioned there about going into a partnership with people to get into property. That’s a great piece of advice you gave, too, about the entry agreement: make sure that that’s in place. You always have to plan for your exit.
Miriam: Absolutely. It’s like business or marriage: it could all turn to muck at some point in time, and it’s easier to have that split agreement arranged at the beginning rather than down the track when there’s emotion involved.
The other thing, too, if you are going to partner up with someone, whether it’s just to buy a little asset – not so much “set and forget – that’s going to sit there and bubble away or if it’s going to be a development site or whatever the case may be, you want to make sure that your risk profiles are aligned. I you’re all going to get into developing, you all need to have the same risk profile. That way you’re all going to be able to equally sleep at night.
Where I find challenges is where someone has a low risk profile and the other person has a high-risk profile, and one person is constantly distressed because they’re investing in a strategy that doesn’t match their risk profile. That’s the first thing.
Then you want to look at risk appetite. You might want to do one whereas the other person might want to buy three or four or five properties. They are the sorts of things you want to talk about up front.
And as I said, if you do actually buy a property and before you do, you want your partnership agreement in place as to what’s going to happen if one of you needs to sell, has to sell, wants to sell – how you’re going to go about that and what the terms of that agreement are going to be.
Kevin: You said that about “set and forget.” There is a difference between that and the “buy and hold” strategy. Do you buy and hold, or are you a flipper?
Miriam: No, I’m not a flipper. I’m a “buy and hold” girl. Property is very much something that historically has grown in value substantially over time, and so you do need to give yourself time for a property to increase in value. Those people who flip usually have to follow a property cycle, and they have to be very well educated around where the markets and cycles are because that’s quite a risky strategy. So there is a difference between the two.
Kevin: Set and forget – there is a difference between that and buy and hold. If you’re buying and holding – which you are – how often do you reassess your portfolio?
Miriam: Personally, I look at it every year. I don’t necessarily feel that properties are all set and forget. The reason is that markets change and growth drivers change, government policy changes, local council planning changes, and with each of those changes, they can work for you or they can work against you.
If you buy a property and think, “Well, I don’t need to worry about it for 20 years,” and then after that 20-year period, you realize you’ve not made any money, that’s usually a consequence of not having kept an eye on it, not doing a regular review, and not understanding the growth drivers that will impact its ability to grow or maybe not grow in value.
Kevin: What’s the worst investment you’ve ever made, or have you already told us about it?
Miriam: No, my worst investment was that I participated in buying some managed investment scheme real estate, which was a holiday or resort style property attached to a resort. Probably one of the higher risk things that you can do and also with very limited resale opportunity.
It was after that investment that I went, “Yes, hang on. This isn’t working. What’s going on?” And I got into learning a lot more, getting some more qualifications, and then going into the buyer advocacy side and specializing in buying clients high-performing investment-grade property.
Kevin: What’s the best investment you’ve made?
Miriam: Gosh. I’d probably say my own home actually at the moment. I bought incredibly well. I bought off market, I bought below market value, I had every clause under the sun in my favor, and it resulted in me getting a $20,000 rebate from the vendor at settlement. It’s in an extremely highly sought-after area with a ridiculously high cost-per-square-meter land value, and it’s doing incredibly well.
Kevin: Is it one you’ll continue to live in as a principal place of residence, or will it become an investment, do you think?
Miriam: No, I’ll hold onto it until I’m ready to sell and upgrade. Providing I can stay in the area, then I’ll do that at that point in time. But at the moment, I’m just giving it a bit of a refresh, doing some landscaping, doing a bit on the interiors, and smartening it up.
Kevin: Miriam, it’s been great talking to you. Thank you for spending so much time with us. The book Property Prosperity is out now. What’s the new book going to be called, do you know? Have you got a name for it?
Miriam: I’m still testing names, so I haven’t quite got there yet. I’m literally just at the stage where I’m about to start writing it. It’s a little bit soon, but as soon as I know, you’ll be the first person to know.
Kevin: Thank you, and we’d love to hear about it, so you let us know when it’s ready.
Miriam: Will do. Thanks so much, Kevin.
Kevin: It’s lovely talking to you.
Miriam Sandkuhler from Property Mavens has been my guest, we’ll catch up with Miriam when she’s written her book, maybe even sooner.
Thanks, Miriam. Talk to you again soon.
Miriam: Thanks, Kevin. Bye.
Tiny houses for homeless – David Wooldridge
Kevin: In an Australian first, a Tiny Homes Project has been approved for disadvantaged and homeless people in New South Wales. The CEO and co-founder of the Tiny Homes Foundation, David Wooldridge, joins me.
David, good morning. Thanks for your time.
David: Good morning, Kevin.
Kevin: It’s a pretty exciting project, I guess, on many levels. Tell us why it’s such an important undertaking.
David: It’s important because of the scale of homelessness that’s in Australia at the moment. By all reports, there are over 100,000 people homeless at any given point in time in Australia. Given the resources and the wealth and the capacity and the lifestyle that most of us enjoy, it’s just a problem that shouldn’t exist.
Kevin: Tell us about the project itself. How is it being formed, and how many people will you be able to help?
David: Initially, we’re only going to be able to help four, so it’s tiny not only in size of the dwellings but in terms of numbers that we can help. But it’s really just a case of one step at a time.
The project is sited in Gosford on the Central Coast, which is an hour north of Sydney, and it’s next to a pretty large hospital, about 500 meters away from the main railway station and commercial center there.
It’s on a 500 square meter rough sized block of land, and we’re going to put 14-square-meter homes there that’ll be self-contained in terms of having their own kitchen, their own bathroom, their own sleeping and living area, a little outside deck, their own little garden and yard space, but they’ll have a shared laundry and a shared communications, TV, Internet room, and some community veggie gardens.
Kevin: Are you providing this to them free of charge?
David: No. These will be provided through state government-registered housing providers. They’ll actually sub-license the homes from us, and then they’ll actually source and put tenants in there and charge them according to the scale of how they set rents.
Kevin: And the land itself, I think you said 500 square meters of land. Is that right?
David: It’s between 500 and 600 square meters.
Kevin: Are you the owner of the land?
David: No. Council has given us use of the land for $1 for a couple of years to just test out this model.
Kevin: So you’re actually putting the homes on the site. Is that your role in it?
David: We’re building the homes in conjunction with TAFE Outreach and a skills generator who are a registered training provider and do work for the dole programs. We’re really linking a Housing First strategy together with training, and hopefully as this thing scales up, we’ll put together social venture businesses that can create real, sustainable, long-term employment opportunities for many of the residents.
Kevin: We’ve done a number of stories on Tiny houses, most of them focusing on sustainability and affordability of the homes themselves. Are these things a top priority in this project also?
David: Well, yes and no. Obviously, the most important thing is to alleviate homelessness. The benefit of Tiny is that if something costs you less than presumably for whatever resources and funding you have available, you can build more of them. That’s one aspect of it.
But the purpose is not to do them for the cheapest possible cost, but because of the collaboration that we have with all of the different partnering organizations and the support’s been overwhelmingly favorable. We have a lot of pro bono free/subsidized support for everything from building materials right through labor and the internal shipment of the Tiny homes themselves.
Kevin: It’s a great exercise, David. It sounds to me as if you’re doing this to help people get back on their feet. Are these Tiny houses a bit of a hand up for these people? How long will they stay in them?
David: That’s a really good question, Kevin. They’ll stay in them as long as they need to stay in them. Our view is that we would hope that they’re transitional and that as people do get their lives sorted out and work through whatever issues have been predominant in leading them into homelessness in the first place, that they’ll be able to use these as a stepping stone and then move on to whatever other form of housing works for where they want to head in life.
One of the things we’re most excited about is that – and again this is a bit of an Australian first in many respects – is that we’re going to attach an equity participation scheme to these. The old adage is that rent money is dead money, so what we want to do is we want to say, “Okay, whatever the rental we receive from the housing provider for these Tiny homes, whatever is not used in the actual repayment on an interest-free basis of the cost, which is circa $30,000 per home, or for the ongoing maintenance of the property itself, then that money would be set aside and be counted as if it were equity towards the tenants.”
Then if they need to move on and pay a rental bond or buy some white goods as they move into another form of housing accommodation down the track, then they can come and apply for that money to be released for their benefit. I think that’s a pretty revolutionary concept.
Kevin: Fantastic. It’s clear to me in all of these things that you need council support. We spoke to the Mayor of Byron Bay a few weeks ago. He’s considering a similar plan for his local community. Are you looking for other councils around Australia to adopt these types of projects?
David: Absolutely, we will be. We’re not trying to set up the next biggest charity and solve homelessness all by ourselves. I think it’s too big a problem. Our solution is part of it and not the only solution. There are many other great ideas and concepts out there. And it doesn’t necessarily have to come through us. That’s why we’re making everything that we’re doing available as an open-source model.
So all of our plans, our learnings, our documents, etc., over time, we’ll release all of those so that other people who have the same capacity to bring into play all of their collaborative partners – including councils – that they can actually replicate this anywhere in Australia or indeed the world.
Kevin: All power to you, mate. Well done, and it’s a privilege talking to you. I really appreciate you giving us your time this morning.
I’ve been talking to the CEO and co-founder of Tiny Homes Foundation, David Wooldridge.
David, thank you so much for your time.
David: No problem. Thank you, Kevin.