29 Jan Why Simon Pressley is concerned about Melbourne + Women should invest in Industrial property
This week we round out our series to kick the year off as we have been catching up with a number of our experts to seek their opinion on what we will be saying about the property market this time next year, the big property surprises of 2015 and we ask them where they got it right – and wrong – and the lessons from last year.
Our experts this week include Rachel Barnes from investor friendly agents who says she was blown away by Brisbane and she tells us where she would invest in Victoria, also Simon Pressley from Propertyology who gives us a list of the areas to watch in every Australian state and tells us why he is concerned about Melbourne.
Also advice coming from Nhan Nguyen and Patrick Bright and we hear from the author of a book that sets out a guide to women who want to invest in industrial real estate.
Michael Yardney joins us as well, as he details his 5 stranded approach to select the best property.
Kevin: So far over the last three weeks, we’ve been inviting a lot of our experts who share some thoughts with us from time to time to tell us what they think about 2015, the year that’s just gone, and have a look at the year of 2016. Of course, we’re already one month into 2016. Joining me this time is Rachel Barnes from investorfriendlyagents.com.
Rachel, thanks for your time.
Rachel: Pleasure, Kevin.
Kevin: Here we are one month into 2016. Let’s reflect back on 2015. Any big surprises last year for you?
Rachel: Not really. I think it was a bit of a bland year in relation to property, but that’s probably because I’m in Adelaide, South Australia, rather than some of the more eastern states. I did go to Brisbane a few times, and I was quite blown away by the prices for some of the properties that were going there. The smallest lot with the oldest house on it with all these restrictions was going for ridiculous prices. I think there’s been a bit of a buying frenzy, people getting a bit scared they wouldn’t get into the market in time.
Kevin: Yes. What about the Adelaide market? How is that looking, Rachel?
Rachel: It’s been fairly flat along certain areas, but it’s the same with anything; you can’t pick just one area and assume that everything goes along that vein. There have been certain pockets that have been doing really well in 2015, and I’m sure they’re still going to grow in 2016.
Obviously some of the unemployment areas in the north cause an issue when it comes to holding prices down in that area. There’s starting to become more infrastructure done down south now, as well, and for other parts, like Port Adelaide.
Especially Port Adelaide, it’s an area that for many years people have talked about it’s going to be the next boom, it’s going to be the next boom, but nothing really has happened. But I wouldn’t be surprised now that I can see more businesses going into the area, the whole place gives you more of a cosmopolitan type of feel and a bit more life in it now. It wouldn’t surprise me if that’s an area that starts to improve in South Australia at least.
Kevin: Gentrification takes some time, and that’s actually what’s happening in that area, I understand. It’s becoming gentrified and a lot more popular. We’ve seen in different parts of Australia, that can take several years, almost up to a decade sometimes.
Rachel: Yes. When you get into property I think sometimes anybody gets in you’re eager to buy property and invest. Then you go out and you hear all these exciting things that are going to happen, all the plans that are there from the council, for example, and you get in. Then as you say, it may be a decade and you can get tired of waiting or if it’s negatively geared, it can be too costly to wait.
Therefore, you start to sometimes slow down the momentum because of people getting out of the market and putting a bit of oversupply in there for a while. I think that’s starting to level out now and starting to look like an improvement for this year.
Kevin: Through your website, investorfriendlyagents.com, you’re talking to a lot of real estate agents and also property managers and helping them understand more about the psyche of working with investors. What would be your advice to anyone who wants to start a portfolio this year, a brand-new investor?
Rachel: I think the main thing is still buying well and working out your strategy first, so then you can decide what area you’re going to be looking for. For example, if you’re going to be a renovator and you want to do something close to home because you want to be doing it yourself, then you wouldn’t be going perhaps further than 50 Ks out, because otherwise it’s going to be too exhausting for you to try and renovate around something else that you’re doing.
Whereas if you’re looking to buy and hold and you just want the yield because you’re looking for positive cash flow, you’re not worried about doing the work yourself, you’re happy to outsource it, then you could look at anywhere around your area, just making your mind. Then you have to look for the yield.
As I said, it really gets down to what is your strategy, what suits you personally? Not what your neighbor or your friend does, but what suits you financially, personally, risk perspective-wise, and everything else. From there, you can decide your strategy, work out where the best place would be from there, and then you can perhaps employ a buyer’s agent, a seller’s agent to help you to find the right property that’s going to suit your needs.
Kevin: Just to round out our chat for today, Rachel, what are the markets that you’re going to be watching in 2016? You’ve mentioned a couple already, Brisbane and also down around Adelaide. Are there any other markets around Australia you’ll be watching?
Rachel: There are a few places in Victoria. We haven’t invested there yet, but some of the outer areas, I’m just keen to see how they go, but I’m not very good with crystal-balling I have to say.
Kevin: That’s okay.
Rachel: As a matter of interest, I’d be looking at some of the areas – not Geelong but around that area, so on the main freeways where’s good communication and commuting from Melbourne.
Kevin: Rachel Barnes, thank you so much for your time.
Rachel: Pleasure. Thanks, Kevin.
Kevin: Welcome back into the show as we continue to have a look at what’s going to happen with the property markets in 2016. Joining us this time from Propertyology, Simon Pressley.
Simon, we asked you to have a look at into your crystal ball. What do you think we’re going to be saying about the property markets this time next year?
Simon: This time next year, Kevin, if the media are consistent, which they usually are, whatever is happening in Sidney and Melbourne is what I’ll be reporting on a national sense. We’re probably going to be saying property markets are flat, which is where I think Sidney and Melbourne will be by the end of 2016.
Kevin: You think we’re in for a pretty flat 2016. Late last year, towards the end of the year leading up to Christmas, we did talk about how some of the smaller markets around Australia could be a nice choice. Do you still share that view?
Simon: I think it’s a common mistake of property investors. They get too focused on not just the capital cities, the three big ones – Sydney, Melbourne, and Brisbane. Traditionally, there’s a lot better markets out there than the three big capital cities. That’s certainly going to be the case in 2016 and many years yet.
Kevin: Looking back on 2015, were there any surprises for you?
Simon: The biggest surprise to us, Kevin, was Melbourne. Our 2015 market outlook report is still up on our website today, so people can look back at what we did forecast 12 months ago. Back then, we described Melbourne as a market of mixed fortunes, and we were surprised that 2015 Melbourne’s jobs were as strong as what they were and we were also surprised that what is a significant oversupply housing hasn’t taken grip yet. That may be a forecast 12 months ahead of ourselves.
Kevin: You think that’s likely to be the case in 2016, a bit of an oversupply, and particularly in units?
Simon: Particularly in units, yes, but also on the outskirts of Melbourne, broadacre land development has been unfolding for a few years there, yes. We still think Melbourne will be one of the better performing capital city markets in 2016, but most of that growth will be in the first half of the year. We’ve maintained for a couple of years, Kevin, that we think 2017 is going to be the start of a very, very ugly period for Melbourne.
Kevin: Okay. Where there any disappointments for you? Are there any bandwagons you wished you had gotten on that you didn’t?
Simon: Not too much ones that we didn’t get on, but probably the biggest disappointment in general is Queensland’s inability to fulfill its economic potential. We didn’t predict the very early call of the Queensland state election at the start of 2015, and more importantly, we didn’t anticipate the result. It was really a 50/50 call. In the end I think it was one seat that resulted in an eventual change of government. We did actually downgrade our outlook according to the market as a result of the state election, and we didn’t anticipate that that result would happen.
Kevin: What’s your advice for anyone wanting to start a portfolio this year?
Simon: Education is always a key thing. I think it’s great that investors get motivated and excited, but there’s this tempatation to jump in, place too much emphais on the property itself rather than the market, and are probably too easily influenced by the things that they can easily read on the Internet these days.
A lot of the things that the broader investor takes as gospel or theories about property markets is contradicted by the historical evidence, so we would say get educated, develop a good team of advisors around you and be guided by them.
Kevin: What are some of the market indicators that you watch out for that we can learn from if we’re looking around Australia. We touched earlier in this show and late last year about looking at some of those smaller sweetfish type markets. What are some of the indicators that you’d recommend we should be keeping an eye on?
Simon: Great question, Kevin. I maintain that the most important indicators for property investors aren’t actually found looking at historical property data. While things like vacacy rates and the number of days on market or sales volumes, they’re interesting but it’s really a reflection of what’s occuring in a market now, and the property asset class, the best decisions are made when we form opinions about the medium to longer term, the five- to ten-year period.
The answers to those more important questions are going to be found in industry trends. Really understanding Australia’s economy and processing property as a commodity called shelter. If we get a greater understanding of different industry drivers and which industries have the healthiest outlook, that’s going to be more useful to us to direct us into particular property markets.
We feel that for the foreseeable future, the industries in Australia with the best opportunity include things like agriculture, tourism, education, and health. If property investors look for locations with those industries within its economic profile, they’re more likely to land on a good performing property.
Kevin: Simon, just before we close off, have you got some examples of those?
Simon: Yes, I do, Kevin. Looking around the country, Western Australia, places like Bunbury and Busselton in the state’s south. In Tasmania, it’s places like Launceston and Burnie and Devonport that have a healthy future. In Victoria, it’s Sheppatron, Bendigo, and Ararat. New South Wales is spoiled, really: Griffith, Leeten, Armidale, Dubbo, Tamworth, Narrabri. We think that they all have good outlooks.
In South Australia, it’s Port Lincoln and the Barossa. Northern Territory, Katherine is something that we have some interest in at the moment. In Queensland, which has a lot of regional locations, Townsville is going to improve, Cairns will remain strong. Rockhampton, Toowoomba. Gympie is one to watch at. The Gold Coast we’ve maintained has potential to be one of Australia’s best performing markets, and the Scenic Rim is one to watch, as well.
Keith: Always good talking to you. Simon Pressley from Propertyology.
Thank you so much for your time and your insights, Simon. Great spending some more time with you.
Simon: Any time, Kevin.
Kevin: Last week in my discussion with Michael Yardney, Michael was helping us make sense of the 2016 market – how you read it. Last week, Michael, you were kind enough to give us your top-down approach moving from macro to micro. That’s actually choosing the market, and we promised that this week, we’d come back and you’d help us choose the right property or work at how we can choose it. What is your approach there, Michael?
Michael: The reason behind this strategic approach is because not all properties make investment sense. In fact, the sort of property that I like is one that is appealing to owner-occupiers, which isn’t the way most people look at investments.
You see, I like the sort of property that owner-occupiers are going to buy, not that I plan to sell my property but because owner occupiers are going to buy properties similar to mine, pushing up local real estate values. This is going to be particularly important in 2016 when I see the percentage of investors likely to diminish. The first strand of my approach is a property that appeals to owner-occupiers.
The second one is I like to buy properties below their intrinsic value. That’s why I avoid buying new or off-the-plan properties that tend to come with a premium price. I’m looking for a property where the land value plus the replacement value is actually probably less than what I’m paying for it. Even in the top-heavy markets of Sydney and Melbourne, you can find those properties.
I then dig down further and I choose an area that has not only just had a long history of capital growth in the past but more importantly, one that is likely to continue to outperform the averages because of the demographics there.
I believe demographics are going to be the big driver of our property market, so I look for areas where there are more owner-occupiers and where owner-occupiers want to live because of lifestyle choices. Also, areas where locals are prepared to, but mostly can afford to, pay a premium because they’ve got higher disposable incomes. In general, these are the more affluent inner and middle ring suburbs of our capital cities.
The fourth strand to my five-stranded approach is I look for a property with a twist – something unique, something special, something different, something scarce about the property. That’s why I don’t go for those big monolith buildings where all the apartments are the same.
Finally, Kevin, I only like buying properties to which I can add value through renovations, through refurbishments, through redevelopments. I want to manufacture some capital growth rather than waiting for the market to deliver me capital growth.
By doing this, I minimize my risks and I maximize my upside, because each strand of my approach makes me money from property. Combining all five of them puts me ahead of the odds because to be honest, they’re not always all going to work, but it’s stood a good test of time over the years to help me grow my wealth and those of our clients.
Kevin: It would require a huge amount of discipline, too, to stick to that because I imagine you’d be actually knocking back a lot of properties because of that.
Michael: I used to say 5% of properties – only 5% – are investment grade, and I was wrong. In the last year or two, I’d say it’s probably more like 1% are what I call investment grade. I think this year, we’re going to have to be even more selective.
It involves a lot of time, a lot of research, a lot of due diligence. But I do that for us, personally, for Pam and myself, and we do it for our clients. I actually piggyback on all of the research Metropole does for other people and I use it to my benefit, too, Kevin.
Kevin: Of those five, are there any of those that are negotiable?
Michael: I think when you buy a property, there are three things. There is your budget, and the budget really is usually determined by other factors – by the bank, by the lenders. Then there is location, and that one is not negotiable. You have to choose the right location.
Then there is the sort of property that you end up buying. I’d rather choose the right location and have an apartment than house and land in an area that isn’t going to have the best location. I think location is the big one that you can’t change. The others change with time.
Kevin: That’s wonderful, Michael. Thank you so much for sharing that with us. That’s Michael Yardney’s five-stranded approach. I appreciate your time, Michael. Thank you so much. Michael, of course, from Metropole Property Strategists, and you can always follow Michael on his blog, of course, Property Update.
Michael, thanks for your time.
Michael: My pleasure, Kevin.
Kevin: Another one of our experts joining us to give us his impression of what the 2016 market is going to look like is Patrick Bright, who is a buyer’s agent from EPS Property Search and Property Management. They are Sydney’s number one buyer’s agency.
Patrick: Thanks, Kevin.
Kevin: Let’s have a look at what your thoughts are for 2016. But before we do, let’s have a look back at 2015. Any surprises in there for you?
Patrick: Yes. I think I was a bit surprised at the level of growth that we’ve had in Sydney for 2015 off the back of such a strong 2013 and 2014. Yes, I was a little surprised at the strength of the market that we ended up having.
Kevin: Were you able to ride that wave?
Patrick: Absolutely. I’ve been very happy, and our clients have been very happy. It’s been a good three years.
Kevin: They were happy surprises, weren’t they? Obviously, you got it right in Sydney. Were there any markets apart from Sydney that stand out for you, either as a disappointment or as a pleasant surprise?
Patrick: From a disappointment point of view from 2015, the things that highlight it for me when that comes to mind is the fact that the New South Wales government had a chance to stamp out dummy bidding and underquoting, and all they’ve done is formalize it with their new legislation that’s coming in and just starting this month. The federal government’s enquiry into foreign investment, too, was a bit disappointing. Those are probably the low lights. But otherwise, I thought the market was a good year.
Kevin: Yes. One does wonder about those rules with regards to bidding and underquoting and so on. There were some good case studies around Australia, particularly in Queensland, where the state government of New South Wales certainly could have gone that way, Patrick?
Patrick: Exactly. I think what they’ve done is that the rules that have just come into play essentially formalize underquoting. It’s not going to get rid of dummy bidding. They’re tinkering at the edges again.
Kevin: Well, back to the markets. What do you think we’re going to be saying this time next year about the 2016 market?
Patrick: Look, I’m someone who is not as stressed or worried about what the individual intricacies of the market will do year to year. I’m more of a buy-and-hold, long-term investor. If you stick with tried and tested fundamentals, you don’t speculate, you look for properties that you can add value to cost effectively, you buy in land-locked areas, areas where people want to be, where population is growing – the old supply and demand factor – if you do that, you’re going to be very happy over the medium and long term.
Kevin: What advice would you have for anyone who wants to start their portfolio? Basically, what you’ve just said is pretty good advice. Anything you can add to that?
Patrick: Yes. Markets to watch, things to watch out for for 2016 that always worry me: avoid anything that’s written up as a hot spot, especially if it’s in a property investment magazine or a newspaper. Any of these lists like “the top 100 properties coming up,” avoid that. If you avoid that, you’re actually going to be in front because most of those suburbs that are named underperform the average for those areas.
Now, I know that they do this because I check them from time to time and I’ve had conversations with the editors and journalists who write these magazines. They’ve told me that when they’ve gone to revisit the lists from a few years ago, it’s too embarrassing to publish the findings.
Kevin: It’s unfortunate, Patrick, because that is, in fact, what a lot of people think they need to chase, and that is the next hot spot. It’s almost like “I just want the quick fix.”
Patrick: Yes, that’s what people do. They know that they want the sugar hit. They want the above-average return. Unfortunately, they’re not going to get it doing that. They’re taking a speculative risk.
You’re better off buying and holding, sticking to investment fundamentals because we know that chasing these hot spots, they might be a hot spot now… The mining town is a great example. For about three or four years, they’re written up as the best spot to be. All these so-called experts are saying, “Buy here. Buy there.”
But a lot of these areas that were written up as recently as five years ago, two or three years on are actually halved in value, and they have 12%, or 14% vacancy. It’s there. The examples are there, but you’re not seeing them revisited.
Learn from history, people. Don’t go and follow these hot spots. If it’s being written up as a hot spot, it’s too late. The smart money has been made. It’s known in the industry that a lot of magazines and newspapers are advertorials and space is bought by big developers and marketing companies with something to sell.
You just have to have that awareness. Don’t trust everything that you see that’s written up. Check it out. Test it.
Kevin: That’s a great piece of advice, and we’re going to leave it on that note. Patrick, I want to thank you.
I look forward to catching up with you again as the year 2016 progresses, and thanks again for your time, Patrick.
Patrick: Pleasure as always, Kevin.
Kevin: And a further look at the 2015 market, looking into 2016, this year, Nhan Nguyen joins me from Advanced Property Strategies.
Good day, Nhan.
Nhan: Hey, Kevin.
Kevin: Mate, are your strategies going to be different in 2016 from what they were last year?
Nhan: Look, I think that I’m a conservative developer investor. My strategies won’t necessarily change. I might be a little bit more conservative because the run has been a lot longer than I anticipated, but I think now I’m just looking for something unique. I think exit strategy is going to be very important this year, just like any other year.
Kevin: Are you looking only at Southeast Queensland, or are you going to be looking all around Australia?
Nhan: My preference is mainly Southeast Queensland. However, I do have properties in North Queensland. Pretty much, I’ll be focusing in Southeast Queensland, yes.
Kevin: Many of the people we’ve been talking to over the last few weeks are saying there are some glimmers of hope about the Brisbane market, that it’s likely to be one of the improvers of 2016. Do you agree with that?
Nhan: Look, I think it will be quite steady. I’ve been quite surprised last year with APRA, what the effects of that were. I know their intentions were to slow down the bigger capital cities from the boom-or-bust cycle that they were concerned about. I’m really surprised that the Brisbane/Southeast Queensland market has continued to bubble along at the rate that it has.
Kevin: One of the questions I’m really enjoying asking all of our experts are the indicators, the signs that you look for that the market may be shifting, changing, and it’s time to invest. Can you give us a bit of a guide as to what you’ll be looking at this year?
Nhan: Yes. Indicators are very, very important. I’m laughing because that’s what we always look for. One of them is clearance rates. I know in December, in New South Wales, clearance rates had dropped considerably from three or six months ago. Victoria has slowed down a little bit. Queensland had dropped a little bit, but relative to the rest of the clearance rates in Queensland, it hasn’t dropped much at all. Clearance rates is definitely a big indicator that I’m always looking for at auctions.
The other indicator I often look at is building approvals. You can find that on the Australian Bureau of Statistics – seeing how many building approvals are actually going through and builds are actually starting.
I can go through a few more indicators if you want.
Kevin: Please. But just on that building approvals, is there a tipping point? Do you look for where buildings are going to go up, or is it a bit like “Build it and they will come”?
Nhan: That is part of the theory behind it. I think building approvals also overlaps with what people are demanding. Let’s say, owner occupiers, if they’re wanting to build their own homes, to get out of the ground. It’s just more so looking at the trend. Is the trend going up, or is the trend going down?
Obviously, if the trend is going up, there’s more demand for buildings. If the trend is going down, there’s less demand. We’re looking at indicators of supply and demand, and more so, oversupply is probably more what I’m leading towards.
Another one is development approvals – finding out where the concentration of development approvals is. There are actually a lot of units coming out of the ground, you may have heard and you’re probably aware of, especially within one or two kilometers of CBD, that’s where a lot of high rises are often coming out of the ground. When you have, let’s say, 2000 or 4000-square meters, you can put hundreds and hundreds of units on there, and sometimes, the unit market is the first to be oversupplied.
Kevin: What are some of the other indicators? You said you’d be able to run through a few.
Nhan: Another one is exit strategy, and also sales rates for developments. A lot of valuers out there talk to a lot of developers and are looking at sales rates. If sales rates are going up or sales rates are going down, that’s another source of information that you have to really study intimately.
Some developers have really good sales channels, and if those sales channels dry up due to various reasons, whether the market has changed or finance has changed, that’s definitely another indicator.
Postcode restrictions. If you look at the GFC, finance really determines the market. If finance is hard to get, then people cannot buy, and therefore, sales are slowed down. There’s a reason for postcode restrictions with certain suburbs and certain towns.
Kevin: Where would you get that information from, Nhan?
Nhan: Oftentimes, they’re published via finance brokers. You can go through finance brokers. They have various newsletters issued from time to time. That would be my definite suggestion there. Talk to your bank or local banker. They have a list. They can basically tell you which postcodes to steer away from.
What happens there is the banks reduce the amount of lending possible for a particular project. Instead of lending there to 80% or 90%, they’ll cut it down to, let’s say, 70%, and that will change the dynamics of the lending situation there.
Kevin: Nhan, what about aspirational buyers – that is people who have started to buy up so that we see the medians start to creep up, and also an increase in wages? Is that an indicator for you, too?
Nhan: That is an indicator. More so in the background, that’s an indicator. Another indicator that will reflect part of that is what the Reserve Bank thinks about interest rates. I, personally, think that interest rates this year will come down a little bit further just based on all the feedback that has been mentioned out there.
I think wages is an indicator; however, it’s more so about people’s sentiment. Sometimes people’s wages are low but if they’re really, really gung ho on property, they’ll go and buy property either way whether they believe they can afford it or not. It’s more so about confidence and sentiment in the market, just like the share market.
Kevin: Just to sum it up for us, Nhan, what do you think we’ll be saying about the 2016 market at this time next year?
Nhan: Look, I think the 2016 market will be full of surprises. I’ve found that when I did my predictions at the end of 2012, I was completely wrong. I found oftentimes – I was reading a book recently by a billionaire who founded PayPal – the predictions are generally reflective of the person doing the prediction. My prediction at the end of 2012 was that the market was going to be flat for another five years, and I was completely wrong. It was just what was happening at that point in time.
I think 2016 is going to be a clear year. What I mean by that is in 2015, the APRA came in. It gave the market what we call a soft landing, as opposed to a handbrake with the GFC, and so it will adjust. If the market slows down, it won’t be much. It’ll just be incremental to allow the market to naturally adjust rather than a handbrake fall off the edge of a cliff.
Kevin: Always great talking to you, Nhan Nguyen from Advanced Property Strategies. All the best for this year, mate, and we look forward to talking to you during 2016. Thanks, mate.
Nhan: Thanks so much.
Kevin: Industrial property or investment in industrial property has largely been the domain of male investors, but I was delighted to see a book called “The Money Factory: Teaching Women How to Make Money from Industrial Property” written by my next guest, Lilly Cawthorn.
Lilly, welcome to the show.
Lilly: Thank you so much, Kevin. I’m delighted to be here. Thank you for inviting me.
Kevin: Congratulations on a great book, too. It largely has been the domain of men, hasn’t it? Why is that, do you think, Lilly?
Lilly: It’s not an area that is discussed even widely amongst men. I think it’s because it’s traditionally been lumped in with commercial real estate. People think of commercial real estate as shops and offices. Therefore, the idea of a factory doesn’t even cross their radar. That’s true for men and women, but you can particularly imagine that it doesn’t appeal to women. It doesn’t sound sexy at all that you invest in factories and warehouses.
Kevin: No. Given that’s the case, how did you get started?
Lilly: I arrived in Sydney almost 20 years ago. I traditionally invested in residential real estate. I purchased several houses, what I call ugly houses, and prettied them up because I love interior decorating. That was my thing. I arrived here in Sydney on holiday and met my husband. At that time, he was an industrial real estate sales agent, so I discovered industrial factories and warehouses through him.
Kevin: Did you buy your first property from him?
Lilly: No. What we did is when we decided to get married, we lumped everything we owned together and we set a goal. Both of us, fortunately, are great believers in setting a goal that you aim for and have an annual board meeting and be sure you’re on track. Our goal was that we would end up owning the industrial real estate that he was working at.
That’s how we got started. My first piece of industrial real estate was actually the building that the agency was running out of. After we got that up and running, then I bought my first factory.
Kevin: And you’re still running that agency?
Lilly: Yes, we’re celebrating 50 years – not us, but the business. Bawdens Industrial at Parramatta is celebrating 50 years of continuous business. My husband and another partner bought it in 2006.
Kevin: Let’s talk about industrial real estate. Lilly, in your book, you say it’s all about the tenant. What do you mean by that?
Lilly: I think the tenant is hugely important because I look at it as like a marriage. You need to be dedicated to look after each other and have a bit of give and take. If each one comes from a selfish point of view, then you get a lot of friction. My husband is big on this, as well, for educating the other people who he has in his portfolio.
If the market is poor, if business is having a tough time, if all of the utility costs are being put up and up and up, like we’ve seen recently with electricity and water, it’s not fair to keep raising the rent just because you feel you deserve an increase every year.
I’m lucky enough to have the same tenant in two of my factories that I’ve had for the last 15 years because I understand in the tough times, you have to be gentle, and then when times are better, you can maybe push it a bit harder.
Kevin: Would it be fair to say that the tenants you can attract to an industrial property are going to be business people so therefore, they’ll probably look after it a little bit better?
Lilly: Yes. That’s been my understanding. Across our portfolio of more than 700 buildings that our business manages – not my own portfolio but other people’s – we do hear the odd sad story but mostly the tenant is there to make their livelihood. It’s not in their best interest to trash your property. Also, Kevin, the leases are great. They really look after the owner unlike residential leases.
Kevin: Let’s round this chat out, Lilly, if we may with your tips for anyone who wants to get started in industrial real estate investment. What would be your first tip?
Lilly: The way I did it is I started small. It seemed a lot easier to understand a small strata title factory, about 200 square meters. It’s like a small apartment. Then you you’re usually only dealing with one person or a couple who are the tenants. It’s easy to visualize. You’re not intimidated when you have to speak to them. That’s how I started. It felt safe.
Then I just simply kept building more of the same, because eventually I accumulated $1 million worth of property that was bringing me $100,000 a year. After that, you learn and you grow as you move through it. Then I started buying bigger factories and warehouses and then getting involved in property trusts. Like anything in life, start small until you understand it.
The other big, big thing is have a separate bank account for each property and don’t spend the profit until you really know what you’re doing.
Kevin: Yes. With a lot of people who listen to this show, we’re always talking about putting together a team. A team that you may have for residential property, is that going to be the right team for industrial, or is there a difference?
Lilly: There’s a big difference, and it’s a very good point you’re raising. I consider myself an industrial property investor. I am not an industrial property expert – and I don’t want to be, because I have a team of five fantastic businesses who really look after me.
You need fantastic finance advisors. You need a really good accountant. You have to have a wonderful industrial real estate agent, not just an agent who thinks he can sell everything. You need people who understand the market, and then you need fabulous asset managers who look after you financial investment for you. We’re very proud in our company that it’s women doing that job, young women, and they do it better than men.
Kevin: Good on you, Lilly. It’s been great talking to you, Lilly Cawthorn. The book is called “The Money Factory.” If you’re interested in industrial real estate or even sticking your toe in the water, you want to start by reading this book.
Lilly, thank you so much for your time. It’s great talking to you, and all the best. We look forward to catching up with you again real soon.
Lilly: Thank you so much, Kevin. I want to tell your listeners that they can get a free Kindle version of my book by going to TheMoneyFactory.com.au and sending me an e-mail.
Kevin: There you go. TheMoneyFactory.com.au for a free Kindle copy of that book.
Well done, Lilly. Thank you for your time.
Lilly: Thank you so much.