The Elephant in the Room Property Podcast | Australian real estate
The Elephant In The Room Property Podcast with Veronica Morgan & Chris Bates

Episodes

Episode 71 | Life changing decisions mislead by data | Kent Lardner, Suburb Trends

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What data matters & what you should ignore

When it comes to property, people rely on a single source of data that is rarely interrogated and often misleading. Kent Lardner joins us for a second time and guides us through the murky waters and statistical importance of data.

  • Why looking at more than one metric gives you a broader, wider picture of a marketplace.

  • Lenders Mortgage Insurance - is it a good thing for the property market?

  • Free online AVM’s & the dangers of misleading information.

  • How to understand the limitations of data & why you need to dig deep to understand it.

This is a great episode full of insider knowledge!

Guest Website Links:

Kent Lardner - Suburb Trends

EP 6: Kent Lardner Elephant in the Room Property Podcast

Home Buyer Academy - Free Mini Course

Work with Veronica? info@gooddeeds.com.au

Work with Chris? hello@wealthful.com.au

EPISODE TRANSCRIPT:

Veronica Morgan: You're listening to The Elephant In The Room Property Podcast with the big things that never get talked about, actually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent and cohost of Fox Hills, Location Location Location Australia.

Chris Bates: I'm Chris Bates, financial planner, mortgage broker and wealth coach.

Veronica Morgan: Together we're going to uncover who's really making the decisions when you buy a property.

Chris Bates: In this episode, we're going to talk about one of our favorite topics and that's property data. We've had a guest on here for the second time and the reason why, it's such an important conversation and we need to keep peaking and digging into data to help you make better property decisions. The reality is data can be so confusing and if you don't know how to look at it and what not to include, you're going to make a big mistake to please listen on.

Kent Lardner: With AVMs, one of the biggest risks at the moment, machine learning offers some fantastic opportunities, but the downside is we could have a flurry of people who might be experts in machine learning without any domain knowledge in property. They're throwing in the whole nation into one big bucket, one big database and letting the model train itself for a couple of days and spitting out what looked like pretty good results. The problem is, it fits some models and some results that are rather opaque at best in black box I call it, and there's some crazy results that come out.

Chris Bates: Please stick around for this week's Elephant Rider bootcamp and we have a cracking Dumbo of the week coming up.

Chris Bates: Before we get started, everything we talk about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent. They will tailor and document their advice to your personal circumstances. Now, let's get cracking.

Veronica Morgan: We're back talking about data in this episode. As you know, we find it endlessly fascinating how research can be used and abused by pretty much every aspect of the property industry. But why does this matter? Well, it matters because some people make life changing decisions as a result of it. Others ignore it, while yet others actively seek out data that supports their own version of events. Headlines, screams statistics, they'll talk of increases in percentage terms and decreases in dollar terms. When it comes to property, more often than not, they're relying on a single source of data that is rarely interrogated and often misleading. Put simply, property decisions carry consequences and smart buyers, both investors owner occupiers will invest in inappropriate research, which begs the question, where can we go from meaningful data and how can we recognize that the opposite? Who better to guide us through these murky waters an hour we're turning geek with a personality, Kent Lardner.

Veronica Morgan: Kent was our guests back in episode six and I highly recommended you go back and listen to that episode. If you find this one interesting, which I'm certain you will. For those of you who don't know who Kent is, he's one of the creators of Price Finder. Throughout his career, he's been at the forefront of using tech to improve decision making around property. Most recently he's launched a new website called Suburb Trends that I'm sure we're going to find out all about that very shortly. Welcome Kent, and thank you again for joining us.

Kent Lardner: Thank you Veronica. Thanks Chris. Off they mean and bought it back a second time. Usually that's to apologize.

Chris Bates: Good to have you on here. You are our first second guest by the way, that's an honor.

Kent Lardner: Great, thank you.

Chris Bates: It's not going to be something we usually do, but we thought it was important to get you on because on Saturday I was driving. I think, it was Saturday morning hours, on Sunday was Mother's Day, and we were driving back from Mother's Day brunch. I had Scott Morrison, saying he's new pitch around 5% deposits, and I was screaming at the radio being a madman and saying, "You don't get, it doesn't make sense" et Cetera. I'd love for you to tell us a bit of a story when you read media or you hear something in the media or you say something, can you tell us a time when you actually just started screaming and just said, "Look, you guys did not get it."

Kent Lardner: That's every day now. There was one I saw on a ... I won't call out the name of the site, but it's one of the big investor websites. They said, "These are the top five performing suburbs." One of them was Balmain East. I like to go back because that's the old home ground, but it said like 41 or 43% growth in the last 12 months. They worded it in terms of it was home price growth and it wasn't the change in the median. I pulled up the chart, the distribution chart, now which always I like to refer to the old bell shape curve, normally distributed. It was six or seven sales above $3 million in Balmain East and then three or four sales down below two million.

Kent Lardner: You could just see it was all skewed to these $3 million plus end of the market. They're saying that the houses in Balmain East, effectively the headline read. Every house in Balmain East has just jumped by 40% plus in the last 12 months. Now, if you scratch the surface you say, "Hang on, that doesn't make a lot of sense. Everybody's talking doom and gloom and the housing prices are flat and whatnot." What the hell are you doing saying it's grown by 40%? They should know better.

Veronica Morgan: They should know better. Not only that, Balmain East, I know this very, very well. It's a very small suburb, a handful of sales. For starters, you've got a problem with the statistical significance of the amount of data, right? You've only got a handful of sales. You want to have what? At least 100 sales to make it statistically significant. What would you say?

Kent Lardner: I always like to work with the sample of around 40. Now that sample size, and I think we even covered this in episode one, but if I'm repeating myself, that's okay because it's been a few months, right? Typically, the number that you've got in your sample is relative to the shape of the distribution. It's a really tight distribution, you can get away with a smaller amount. Usually what you find is, if it's a wobbly distribution you need to get out and get the numbers a bigger before it starts to take a meaningful shape.

Veronica Morgan: When you say wobbly and Balmain East is a great example is because you will go from having a tiny little worker's cottage right up to a waterfront, Harbourfront home. If you get a bunch of Harbourfront homes happen to sell or a bunch of tiny little worker's cottages, you're going to be skewed in one end or the other. It's going to make it look like the whole market's going up or down, which is actually not.

Kent Lardner: That varies, it's a composition issue. It's what selling is the answer. The headline should probably read is, "Hey, this been a sack of really expensive sales in the last 12 months."

Veronica Morgan: Because, that's all it means.

Kent Lardner: That's all it means. I think, across the board though-

Veronica Morgan: That's lazy, isn't it?

Kent Lardner: It is lazy, but it's about headlines and that's what's really driving me nuts at the moment. Chris, to your point, I'm shouting and screaming every day.

Chris Bates: It just reminds me of a time last year, and it's one thing the media doing it, and then it's someone using that media article and then creating a point of view and saying, "Look, I told you so" or "Look, this is where to invest." They're using bad data and then telling people that they should be doing something. One thing, Veronica and I both got a bit of annoyed was a chap called Matt Barry. Last year and he's the CEO, he started, an outsourcing online business called Freelancer. He lives in Singapore I think, and all of a sudden he's this property doomsday and it what were very similar article, but it was in the other vein, massive falls.

Chris Bates: It was two minds point or Milsons Point, one of those it premium high end apartment market, very small. The data was showing that that market had fallen 22% in a year. The reality is it hadn't really, it's actually a highly desirable suburb that's doing quite well, but there was just not that many sales, and those sales are under. I guess, when we see these data is, we've got to even if someone else is referring to it, we've got to say, well where are they getting their data from?

Kent Lardner: Scratch the surface. It's almost a 50-50 perfect split between if I look at asking prices by suburb over the last 12 months, for houses, it's almost perfect 50-50 split, 50% have fallen in price over the last 12 months and 50% of increased in a median of the asking price suburb by suburb. Now, I've sampled that by effectively taking properties that have had on average more than 10 sales per month in that suburb through the period and a few other things. So, but as a general guide, half the suburbs have fallen, half the suburbs have not fallen.

Veronica Morgan: Across Australia.

Kent Lardner: Across Australia in the last 12 months based on that filter that I just mentioned, at a minimum 10 average in the listings.

Veronica Morgan: Interesting.

Kent Lardner: That's the housing space, the unit space, it's about 65% of them have fallen. Have fallen in asking price median. That's quite telltale because I could go and cherry-pick any suburbs I want from the 50% and paint one particular picture. Equally, I could pick from the other side and say, "No, no, everything is great, everything is fine." Really what you've got to do is look holistically at the suburb and say "Okay, has the asking price, has the sale medium price shifted? What about the other measures? Days on market? That's an easy one, everyone understands what it is. It's how long it takes to sell. You'd look at that. That's one thing I'd look at.

Kent Lardner: The other one I really love, and the Americans are big on this, but we're not, and I don't understand why they focus on inventory levels. Typically, what they do is they say, how many properties are listed for sale? How many are selling per month? They worked that out and express that as a ratio. The one that I say is, okay, there's 100 properties for sale, 10 selling per month, 100 divided by 10, 10 months of stock. You look at that measure and if that aligns with the days on market and aligns with your median price, then you can start to make the assumption that the market's moving up or down. You look at a little bit more, I think looking at more than one metric, look at two or three measures gives you a much broader, wider picture of that, that marketplace.

Chris Bates: Is anyone reporting on that now though?

Kent Lardner: Inventory?

Chris Bates: Yeah. Besides that, you say the big figures, there's 30,000 properties for sale right now across Sydney or something like that. But, we don't actually say it too much to a suburb level.

Kent Lardner: You need to effectively look at it in relation to what's selling, the sale volume. The total listings totally irrelevant, if it's expressed in isolation. It needs to be expressed at the same time as well, they're all selling, or they're not all selling. I think, at the moment it's not being published. I'm certainly planning on publishing it, on my suburb trends website because I think it's interesting. There's a very strong correlation to days on market. If people are using days on market that's pretty good, but sometimes it's good to get that extra metric just to verify what you're looking at.

Veronica Morgan: We do calculate or try to remember exactly how we calculate it. Because you can go into a real estate or come to you and been domain. One of them actually has a day on market average. You can also go in, I think it says QM, you can actually work out total volume sold-

Kent Lardner: Total listings?

Veronica Morgan: Total volume sold or maybe we use price point. I'm trying to remember what we do. You can go and look in what sold on the last year divided by 12 basically, and look how many properties are currently on the market in that suburb and that's a bit of a crude way. There's DSM-

Kent Lardner: DSR.

Veronica Morgan: DSR, what's that? There's a dsr.com I think it is.

Kent Lardner: Yes, it does factor in your demand and supply.

Veronica Morgan: Yeah, demand and supply ratio. That is actually does have that built into it. I think, there's a free suburb thing you can plug into. This data is there if you can dig in and find it, it's not too difficult to get. But yeah, it'd be great to have any one spot, Kent?

Chris Bates: I guess, it's digging that's the key though. The data is there, but you've got to dig.

Veronica Morgan: You got to dig.

Chris Bates: Even then looking at that, is that digging far enough? You say like, maybe 8% of the stocks selling every month, and so that's probably a pretty low figure, but is 20% of three bedroom houses selling and 2% of apartments selling because that would. If you want to buy a three bedroom house where you go, maybe it's quite competitive.

Kent Lardner: I really like, if you're looking at an individual property, look at the suburb level, macro data at a property level, houses versus units. If you're investing in a house like how's that entire housing market go? But, you look at that individual property and you say okay, well if I look back through time, it's pretty easy to find comparable sales for that exact property. It might be a rundown fibro property and more real for example. At the moment inventory levels are really, really high. Well, actually that's an interesting one and it's a different story. We will gravitate to as if you look at data and oscillation, say Maury would give me terrific yield right there. Then, you look at it and say, but hang on a minute, how many properties are listed for sale and how many is selling? Inventory levels, they are building and building quite high. We know that the capital growth is going to be a bit subdued well this situation exists.

Kent Lardner: If you're looking at it in isolation saying great cashflow opportunity, I'm going to jump in. You might be disappointed on the other front where you won't get the capital gain. I think, you've got to look at you, if it's owner occupied or if it's an investment property, different data sets apply. You look at that individual property and you say how many like it off for sale and what are they listed for? That tells you a lot and then go back in time. Go back a year ago and say how many properties like this were selling at the same time a year ago? Be objective, don't cherry-pick say, "Okay, same bed counts, similar bed counts, similar condition." What were they selling for a year ago? That's probably the best metric to know what, how prices have shifted in a suburb.

Chris Bates: The problem is right now, while there's potentially a lot of stock across the whole board, you don't buy across the whole board. Generally, you find a certain suburb-

Kent Lardner: You buy on one suburb.

Chris Bates: Good suburbs, haven't really got a lot of stock. Would you agree though in a lot of the premium suburbs is that you would look at?

Veronica Morgan: The stock shortage, most suburbs that I buy in now, we're talking a third down. To be quite frank, we went back to 2016 though, they were down a third than on previous years and they never really recovered. Now, that pretty much puts us around about 50% of what we were looking at the absolute peak of the market in terms of stock. That is underpinning price, a price is holding if you like as basically because there's very little stock coming on the market. Those who, and also the fact is it's really hard to buy good quality property in a flat market, in a buyer's market because those owners know they've got a really good asset and they will wait.

Veronica Morgan: It tends to be their proportion of crap on the market goes up when it's easier to buy stuff. Then, so there's all these sub stuff that goes on underneath the surface that you need to understand. Of course, that means that you will get really competitive auctions and competitive negotiations on certain properties that are really good and people will be going and some buyers will be going, "I'm not competing for this ridiculous. This is a buyer's market." It's like other, we'll be going, "Well, it doesn't matter because I've been looking for a year now and I have not found anything as good as this and I'm going to go for it."

Kent Lardner: I think, the total percentage at a suburb level of properties that are totally owned is a great indicator, owned outright as like in the census data. It's tabled G33. How nerdy is that?

Veronica Morgan: I love that you know that.

Kent Lardner: It's the percentage of property zoned outright, and they divide this up. They can do it at a suburb level, but they can go right down to what they call a statistical area level one it's around 200 homes. You know for that little pocket in the suburb and what the percentage of properties that are owned outright and that's a great lead indicator for what you've just covered. Is that these are people who own the damn thing, they're probably living in it or they could be know blue blood, old school money, own the property for a long time. They're not going to sell, they don't need to.

Chris Bates: It's a really good point. I really loved that as well because when you think about things like negative gearing changing, the first thing you would go to, where would that effect? Well, you would look at that statistic and say, "Well the suburbs that are 90% owned by people, mean that only one in 10 properties are owned by an investor, and the chances are those investors bought in the last 12 months? Where only a portion of those have a lot of them have bought maybe five, 10 15 years ago and they're sitting on big gains, and so those investors aren't going to sell anyway.

Kent Lardner: The rental tenure is another really interesting field. I think, what is happening with the election at the moment, investment property is going to be obviously a hot topic in terms of both the capital gains and existing property versus new. If you look at the census data there, they do tell you what the percentage of properties at a suburb and right down to an essay one what the percentage of rental properties are and they split it up. This is a great measure because they say how many are managed by a real estate agent? How many and managed by somebody outside of the household? Not real estate agent. How many are public housing or community housing? You can look at some of these suburbs that are typically in a 50 ... I like to look at 50% and above, the suburbs that are predominantly rental suburbs and I'm watching them with great interest because what might happen in the coming months is going to be fascinating.

Veronica Morgan: When you say you like to look at them is because you're curious?

Kent Lardner: I'm curious on monitoring them because-

Veronica Morgan: It's not because you necessarily say, look these are great opportunities.

Kent Lardner: Well, it's the dynamics of these locations because I look at it and I say, okay, that percentage is ... I look at it quite differently. For example, if it's a 60% rental tenure in a suburb. I say, well, if a property sells there today, there's a 60% chance they're just going to be purchased by an investor. I look at it as a propensity score.

Veronica Morgan: Those suburbs, suburbs I would look at the moment to say, well, their capital growth potential for the next, however long is really going to be hamstrung. It's already hamstrung because of the pressure on investors borrowing.

Kent Lardner: Exactly. If it's a second hand home, depending on who wins on Saturday, suddenly-

Chris Bates: Everything’s second hand.

Kent Lardner: If six out of 10 potential buyers were coming through that were investors, suddenly that could be zero out of 10.

Veronica Morgan: Well, it's pretty much zero out of 10 now, in a lot of these suburbs, which is precisely why they've in dire straits in terms of prices. For them, for how long into the future is that going to be the case.

Kent Lardner: Instead, it balances out. I wrote about this about three years ago saying, hey, if this negative gearing policy change shifts, here are some interesting suburbs to watch that had 50% higher rental tenure for this reason.

Veronica Morgan: This is the thing too and what gets me, it's like this is not going to have a uniform impact across the country. Like anything with regard to property, there are not uniform, reactions in different markets. They're talking about affordability and supposedly the LPA brought this out to say it's going to solve affordability for first buyers.

Chris Bates: If it lowers prices.

Kent Lardner: If the lowest prices, if that's going to be the objective, right?

Veronica Morgan: I know, right? But, then they've come out with data on treasuries modeled that just say, no it's not going to affect prices, goal it. How is that thing going to help first time buyers that they've got themselves tied in knots. The reality is Sydney and Melbourne is the biggest issue for first time buyers getting into the market. They're the two markets that are going to be least impacted by this. Whereas, what you're talking about is those are the areas are going to be severely many other areas. I wouldn't say those I haven't named them, but-

Kent Lardner: Individual investors, I think investor wants to offload a house. Suddenly now, if they're in one of these locations, it's 50% plus rental tenure, they're going to struggle.

Chris Bates: With a very low yield. That's where it kicks. It's bought by a lot by investors, and then secondly, when you look at the yield of what they're renting out for right now and how many other on the market for rent, they're only getting a three, 4% yield. But then, they've got a minus off massive strata fees. They yield drops even lower, and then that's they've the suburb. It's very easy to do those numbers on suburbs and go, no investor would buy this post negative gearing.

Kent Lardner: Most of the investors are more and they've got one property.

Chris Bates: 100%. If their property is in one of those suburbs, they will hurt.

Veronica Morgan: We'll just point out listeners that, as you know we record these interviews at all times. We are recording this two days before the Federal Election, but we won't be releasing it until after. All this stuff we're talking about now in conjecture, we'll know by the time you get to listen to this.

Kent Lardner: In two days time.

Chris Bates: Even regardless, and this is why I think this conversation is interesting is because these are still good fundamentals when you're investing. I've never had clients buying these suburbs. Clients have got properties in the suburbs because they've come to me when they've already owned them. High rise apartments and we're figuring out what to do with a lot of the time. It was only this week we've got a problem where clients got an apartment in Waterloo, they bought it for $500l pre-boom it went to $750K.

Chris Bates: Now, they'd be lucky to get low sixes for it, and it's a one bedder. The question is now, do you sell now? Do you hold on hope for the best? They want to upgrade. They've got a family on the way, they need the cash. They will be dramatically affected as a couple because they have to sell because they have to upgrade. They'll go the whole process and go, "Well, that was a whole waste of time."

Kent Lardner: I'm guessing, the rental tenure in Waterloo is pretty high.

Chris Bates: Type it in, Waterloo, Roseberry I think 800 units or something stupid will scare you.

Veronica Morgan: Well, actually on that, because I was talking to a property manager in Bondi Junction recently and because of course you've got all that new stuff out at Green Square. At Mascot, and they were saying that basically that glut of rental accommodation is infecting twice the way it's affecting-

Kent Lardner: Everywhere.

Veronica Morgan: All the eastern suburbs and in probably into the inner west as well. Well, because previously people wouldn't have gone from Bondi Beach for arguments sake  that they wouldn't have said, Oh yes, I'll go on renting Mascot. Maybe it's still on must not, but the thing is when you've got a brand new apartment being offered full lease very cheaply, and it's like all of a sudden it's like, Oh God, that's brand new. Look, I'll just go and live there for a while. I'll get those incentives to some one year lease and maybe I'll move out again after that. But whatever, you tenure-

Kent Lardner: That's absolutely.

Chris Bates: That's for sure. Living in Edgecliff, and they were like, well, my mate is said I can rent this thing for $600 bucks a week. It's a brand new two bed, two bathrooms, with parking, with views, high rise for $600 bucks a week. Yeah. I know, running an old art deco thing in Edgecliff for $700 there's a bit rundown. Well, actually no, let's just go live there for a year.

Kent Lardner: That's what I love about the rental market because it's fluid. When things shift, people can move around. You might only be six months in, you've only got away done the six months, and you can move.

Chris Bates: That's when you've got a special apartment. There's something unique about it. There's something about the suburb, the community, the street. Even though they build this stuff, your tenants go, "Well, you what? I don't really want to live there. I don't like those parties and the noise. I do like the community and the quieter streets." You're much more protected because your tenants will go, "Well, I'm not at that stage of life where I want to be around that."

Veronica Morgan: I guess that's the thing, that they lure them there when they're brand new and then when they're not brand new, there's nothing to lure them there. They'll go back to where they want it to be in the first place. This is sort of like you said, it's the fluidity. You said tendency, the tenant's rental tenure is an interesting one. I find that I haven't gone into that depth of it to splitting, but do they also, is there data around how long tenants tend to stay?

Kent Lardner: That's not public domain data as far as I'm aware, but you can typically sample a lot of the lease terms are advertised in the listings. You don't need to go too far into it to find, a sample of listings look at the text and you'll glean from it, what the lease term is. There are companies like ALO, that I have done some consulting with, and they have this particular data set as well. They collected it and work with agents and do some really interesting analysis at that level.

Chris Bates: Do you think that, at some point though, you're getting the data just gets better and better? Because, there's more information sources, there're more machines to analyze that data. We will be able to just keep going deeper every year in this.

Kent Lardner: I think the key is, a lot of data already exists, it's untapped. I think, once you start to aggregate and collect it and then handed back to the original owners of that as a packaged meaningful insight, tell a good data story with it, suddenly people realize the value. I think, at the moment, there's these massive amounts of data sets in all facets. I was at a Mumbrella Conference not long ago, and it was a retailer conference and pretty much everyone got up there from the retail sector and said the same story. We've got all this data but we don't know what to do with it. I'd almost going to say that that applies to every business everywhere, that they're still discovering the value of their data sets.

Chris Bates: Moving data in terms of ... because I know you've got a company that does help people, target people, moving homes.

Kent Lardner: Home movers.

Chris Bates: It's a pretty smart business to be honest. Because, if you're moving home, you need to spend a lot of money on removalists and energy and furniture and blah, blah, blah. If we put that to one side in suburbs, can you tell us about the differences between some suburbs where people are moving around a lot and changing properties a lot and then some that are not. What's your experience with that?

Kent Lardner: This is in the census data, so typically it says, "Have you lived somewhere else, within the last five years?" I think, there's a shorter term it might be, have you moved somewhere in the last two years as well? I often and mainly use the five year one, and that gives you a great idea. There's a strong, strong correlation to rental tenure because obviously people are moving on average about three years. So my statistics are telling me that, rental tenure, people are staying in their same rental property on average around three years.

Veronica Morgan: What about owner occupied, how many are they?

Kent Lardner: Owner occupancy is different between geographies and property types. For example, houses would be, again, this does vary, but I'll pick a high level figure. It's 10 year plus. Whereas, units are significantly lower and for obvious reasons, that's where you start out. You have a family, you meet somebody, you get sick of the noisy neighbors, and then you move up. You move from your Coogee unit to your Balmain House.

Chris Bates: What about the inner ring suburbs, because that's where people want to end up. Comparing that to say houses in the outer suburbs, are they moving around a lot more, changing properties a lot more?

Kent Lardner: The driver for me is rental tenure. A lot of the inner ring, inner city suburbs have that significantly higher rental tenure. That's what's driving that variable.

Veronica Morgan: When you say higher range of tenure means they'll stay longer?

Kent Lardner: No, no, no. The percentage of properties that are rental properties is the driver for a lot of movers.

Veronica Morgan: Yes.

Kent Lardner: That's a pretty logical. You can look at it all day long. How many properties are listed for rent and how many properties are listed for sale? You can just isolate it and say, "Well, the suburbs with all the movers, they're all the higher the ones with the higher rental tenure."

Chris Bates: From an investor's point of view, if you do invest in an area, where a high number of the properties are renters, you're going to have to know that there's also a cost to that because they're moving around a lot. You're going to have tenants that are going to move around a lot, so you're going to stay there for a year and then they're going to move somewhere else, but those that are all in the areas where there's very low rental tenure, they're not moving around as much.

Kent Lardner: No, they're not. I classify for my ... I just finished a project last week where I split it by above 50% rental tenure, and below 50%. It was designed for marketing agency that wanted to target and profile suburbs. I look at high rental tenure, low rental tenure, and the majority of the inner ring, high density type suburbs, they're all lots and lots of rental properties.

Veronica Morgan: It's interesting though, because once again, this whole digging beneath the data, when you look say Potts Point for instance in that peninsula there, right? If you go back to the 1990s, I think it's actually had the highest capital growth.

Kent Lardner: It's a place you want to live now.

Veronica Morgan: It is a place you want to live, but it's actually also got something like 68%, investor owned, it bucks the trend. Do you know what I mean?

Kent Lardner: It is so well located.

Veronica Morgan: It's fantastically located. Most of the time I would look at that numbering is 68% investor owned to go up, you don't touch it with a barge pole. However, I recommend a lot of investors. We've bought quite a lot of property there for the clients over the years and I'd happily buy myself. It is interesting that you've got to understand so much more than just purely the data. You then you've got to go to overlay it with local knowledge and all that stuff, don't you?

Kent Lardner: Well is it going to be vacant for a long period of time or is it going to be vacant for a few days or are the rents volatile? Are the up and down and that's a great lead indicator. If they fairly stable or the growing steadily, then the demands pretty solid matched up then married to supply.

Chris Bates: I think, maybe Potts Point are interesting one as a ta take case study I guess because probably 20 years ago was highly undesirable to live there, and the cross was in full flight. We're looking at where it is now, it was probably the one of the most premium apartment places where a lot of down sizers would love to live. Because of the accessibility to the harbor and the city and so the owner occupiers are pushing that market up.

Veronica Morgan: Absolutely.

Chris Bates: Then the renters, they're not building any more really, and if they are building them, they're building like the Omnia building, what that's got a two in front of it for a one bedder almost. They're expensive, those little high supply markets, over time they're probably getting more and more owner occupiers in those markets.

Veronica Morgan: I think, it's true.

Kent Lardner: You say they mainly came out in social media, and did the picture of Kings Cross, at nighttime 10 years ago. Then what it is today saying, "Hey look, it's lost its life." But then, what they should have done, is done that same photo at lunchtime because it was empty at lunchtime 15, 20 years ago now it's thriving. My dad managed the hotel in Kings Cross or all his life. I've been up there, I've seen it transition. I've seen everything happen up there and now we call it Potts Point.

Veronica Morgan: It's hilarious, isn't it?

Kent Lardner: I call it kings Cross.

Veronica Morgan: Potts Point or Push Point has expanded its boundaries, hasn't it? Kings Cross has shrunk. There’s this gorgeous little cul-de-sac, with loads of beautiful art deco apartments and saw the rest of it. It was always seen as being too seedy and then you can see that how our Potts Point is encroached into Kings Cross. How that's become, it was forgotten that it was too seedy before, it was only 10 years ago it was two CD was pretty rotten.

Chris Bates: It's hilarious when you do ask someone where they live and if they are living in ... they'll change, they'll go, "It's not Potts Points bay or it's not Edgecliff, it's rose buyers, double Blade. We all liked it and I know you're from Newcastle. Newcastle has got a bit of a problem with that. People live in Adams Town and then they'll say, "I live in Merriwether." Because, it's a ...

Veronica Morgan: We used to do that in Balmain, when I first started selling real estate there. There's the Balmain Peninsula, right?

Chris Bates: You were on the Peninsula?

Veronica Morgan: You got Balmain Beach, and you Balmain East and then you've got a bit of Rozelle, it's on the peninsula. We used to advertise these houses as Balmain peninsula, and then real estate agents used to know that, that meant Rozelle really. Because, it's the Balmain Peninsula and it doesn't even exist as a suburb, Balmain Peninsula. It made me laugh because then people started getting GPS, and of course they go to plug in Balmain Peninsula and the address couldn't find it. We had to stop and start advertising everything is Rozelle, so people could find it.

Chris Bates: Rozelle was actually really good one as well. For any of our Sydney listeners, they'll probably know where that is, Melbourne or other places, it's close to the city, but it's got a massive road that's extremely busy through the middle of it. When you're looking at Rozelle is a suburb, you've got to be really careful whereabouts in Rozelle is that property? Because, on the left side you've got west connects coming smokestacks, freeway changes. On the right side you've got, potentially high end buildings, lots of commercial changing. It's one of those suburbs where you look at data and you can very quickly make the wrong call on Rozelle because you might be picking the wrong comparables.

Veronica Morgan: Well, if you're not aware of what's going on or what's causing the changes. Yeah, absolutely.

Kent Lardner: The automated models, it's a good Segway. The automated models have got to obviously want to pick your comparables from the street and the locality, and picking the comps as a broad radius that would cross over Victoria Road and grab.

Veronica Morgan: Let's talk about AVMs or automated valuation models, because of course, the banks love advertising these, they'll give you a free report and a lot of mortgage brokers will give you a free report. They are all ... they vary in terms of the output. Talk to us a bit about AVMs.

Kent Lardner: Well, I've been playing around with them, so I'm guilty as charged. I’ve been building them for a long time, but the advantage of that is, you know where they go wrong, you know what the risks are. I like to devote myself into that risk and calling out the data for what it is, pulling out the models for what they are and talking to the errors. With AVMs, one of the biggest risks at the moment, machine learning offers some fantastic opportunities, but the downside is we could have a flurry of people who might be experts in machine learning without any domain knowledge in property. They're throwing in the whole nation into one big bucket, one big database and letting the model train itself for a couple of days and spitting out what looked like pretty good results. The problem is, it fits some models and some results that are rather opaque at best in black box I call it, and there's some crazy results that come out.

Kent Lardner: You've got to be really careful what you feed these big black machine learning boxes. You've got to almost refine it and say, "Well, you can only do these suburbs and you can only do maximum five bedroom and you can't do above 2000 square meter lot sizes. Otherwise, you get some really crazy stuff." My biggest concern is that you're going to have a flurry of people producing these models now without any domain expertise, not putting in the appropriate filters. We may see some crazy results filter through to the consumer.

Veronica Morgan: Well you already do have that, and I did a little study on this. I've got I'm developing ... I actually got a business partner, Megan Hetherington, and we're developing Home Buyer Academy, which is going to be an online resource. We started with first home buyers, and we've created a little course. If anyone wants to download it, by the way, it's homebaracademy/freecourse. Part of that is, the little course is teaching people how to work out what price to pay because it's really, really important, really super important. There're some principles that we take you through and there's a spreadsheet involved in this. There's three short videos and middle video is all about AVMs and the research I did and one case study. Megan did a case study in Breezy, I did a case study in a Sydney and the one that I did, I looked at a property in Tempe that sold in December, last year, little house in Tempe and before it sold I got 10 AVMs. Actually, yes, 10 AVMs.

Veronica Morgan: Most of them hark from CoreLogic. Basically, the data sources is from one of two. It's going to be AVM or CoreLogic, but how that turns into a recommended price this obviously depending on what variables are punched into the thing. A bunch of these all came from different banks, from mortgage brokers as a bunch of different sources of these AVMs and not one of them, actually all 10 of them were above the ultimate sale price, every single one. Part of that is because it's a falling market, and of course they're all looking in the rear vision mirror, that's the starter. So, if anybody had looked at one of those AVMs and relied on it, they would have been over.

Kent Lardner: Are over the odds?

Veronica Morgan: That's the first thing. The second thing, the only one that was really close to this ultimate sale price was actually the one I plugged in, I did the agent RP data reports. That's when I plugged in variables myself based on my knowledge. I'm proud to say that my personal input got the closest one, but the rest were way out. There was a spread of $430,000 from the top to the bottom, and this is the ultimate sale price was a sliver over a million. That's a 40%, and that's ridiculous. On the actual estimated so that they've got these spreads right and then you've got the estimated sale price. There was $115,000 spread on that and taking into point that not one of them was less than or equal to the actual sell price, that's $115,000 spread in excess of the actual sale price.

Veronica Morgan: I was just gobsmacked and look, some of them and with high confidence, they actually have on their high confidence. One was 1,000,074 high confidence and it's sold for $1,000,002 and a half. I was gobsmacked. Once again, if you want access to that free, we'll put the link in the show notes here. That's really important that people are looking to buy a property, actually learn how to do their research properly.

Kent Lardner: Well, I think I've always been a fan of actually selecting the best comparables yourself and that's easier to do today than it's ever been. Just go and find properties that have sold, that are similar, what you can do is if they might be a little bit older. For example, you find a property that sold six months ago, even 12 months ago, typically what will happen is these automated valuation models that are on the portals, et cetera. They'll take that sale price that happened a year ago for that well match comparable and they'll index it forward. It won't be crazy, it'll still be close to what the sale price. But, if there'd been some market movement up or down, it'll index it for a set period of time.

Veronica Morgan: Then that's reliant on median growth data?

Kent Lardner: It depends on who's doing it, some do hedonic indices et cetera. Let's just hold the assumption that that index isn't crazy. All right, if we hold that, if you go and find those comps yourself, cherry-pick the best match comparables. Even though they might be 12 months old, maybe even a little bit older. Usually most of these companies will index those properties forward. Then what happens is you've got an adjusted price given to you for the comparable, it might be up or down a little bit and then just look at those.

Chris Bates: I see you've got to go so close to the actual property, you're actually buying.

Kent Lardner: You have to because the models can't, the models aren't good at quality at this stage. They will, the AI stuff scanning photos and saying, is the bathroom new? If that will happen. We know that will happen. Some models are a little bit more sophisticated than others and they look for a matched streets and they profile the streets and pull properties from that. The biggest thing that I'm finding is a bit of a problem, and I've been part of this is you get in there and you build a model to what you call a minimum viable product. Something you can get added to your website and get some traction and get some eyeballs and everyone's happy and everyone's committed to AI, look, let's just get it out there. Let's release it, and then we'll come back and we'll fix it up later. Then you're not there, your contract winds up or you move on to another job where you start selling, moving away from the engineering team into the sales team. Suddenly the products are out there and years later they still the first version you ever built with no one maintaining it. That's the biggest problem.

Chris Bates: So lenders, mortgage, insurance, you've got a bit of work in a QBE.

Kent Lardner: No, I am housing loans insurance corporation was, you're talking about this common thing in the 5% deposit.

Chris Bates: Not yet, but yeah you will.

Kent Lardner: I know you will.

Chris Bates: You probably know where I'm going-

Kent Lardner: It just reminded me housing loans insurance corporations, sold it effectively, it was a government owned and it sold and GE bought it, GE capital bought it. I was brought on board by Ge, GE Mortgage Insurance, come on and run their operations and effectively take it from being a government structure into a GE structure. That was the reason why I got into this nerdy stuff.

Chris Bates: What was that job actually doing?

Kent Lardner: Mortgage insurance, it was typically anyone-

Chris Bates: Then, lenders insurance.

Kent Lardner: Lenders mortgage insurance, and we'll effectively in the earlier days we'll probably be processing seven or 800 mortgage applications and valuations that day without our teams. Really deep diving into the property security risk and effectively the personal profile of the borrowers and their borrowing capacity and all those things.

Chris Bates: What do you think about lender's mortgage insurance? The current structure of it, its viability and whether it's a good thing and if it helps people. What do you think of lender's mortgage insurance?

Kent Lardner: Well I, I looked back to the original design of HLIC, which seems very similar to what this Skirmos strategy is. How do we help people who can't get 20% down payment because it was a marketplace where before it, you could only buy a house or get a mortgage with a 20% deposit. LMI came in, lender's mortgage insurance came in by Housing Loans Insurance cooperation to help people who didn't have 20%. There was a social component to it, a social equality.

Chris Bates: The current structure now, from your view do you think it works quite well? Do you think it's fair? Do you think that it needs to be changed?

Kent Lardner: I always look at it and I'll say for the money. The money that the LMI premium is versus the money that I'm paying for the loan itself. I'm not paying too much for a property. If the underlying, if we scratch the surface, so what are we trying to do who are trying to put people into homes and do it cost effectively? I think, everything is fluff that's not related directly to demand and supply. I get right back to supply every time. You want to put people in, you want to house people cheaply, build more stuff. That's my view. LMI and all these other peripheral paper based strategies and policies and politics. I don't think ultimately they matter.

Kent Lardner: Sometimes politicians, they get involved and try, and achieve one outcome with a particular policy, and when it applies to the market in reality it often comes out the opposite.

Chris Bates: Well that's right. We give first time buyers a grant and it just pushes up the market.

Kent Lardner: It pushes out of the price. Okay, this is a great story. When that came in, that first home owner's grant, the first one, FOG is what we called it right? Everything had an acronym in mortgage insurance.

Chris Bates: In Australia.

Kent Lardner: When that came in, we saw prices step change on the day, and the step change was significantly more than their first home buyers. First home owner's grant.

Veronica Morgan: To what? Because, it was $7,000 grant wasn't it?

Kent Lardner: Great. And, $14K or something. It's going back a while now. My memory's fading because I'm old. Great. You've given me $14K and I've just spent $50k extra on the property. That's nuts.

Veronica Morgan: It's that short term thinking that seems to take over so I'm going to wait, I'm going to get my seven grand, my $14 grand and we saw it exactly the same thing. We could see quite clearly in that type of property back then, that was like you could easily see $30 to $50,000 extra.

Kent Lardner: I saw it on that day.

Veronica Morgan: We saw the data.

Kent Lardner: We just were watching. We were processing seven or 800 and we could just see it instantly is like wow, this is nuts.

Chris Bates: I've been thinking about it a lot and I'm just thinking, what it's really doing, it's like a credit card. You bring forward future demand and you're saying we need that demand today. We need to get buyers today and we need to get every buyer that is a first time buyer who could buy, we needed to buy today to prop up the market. Now, reality is if it was that they had entered the market in a year or two time, because they save from their 5% deposit, they might only need at the moment with lender's mortgage insurance it's not that expensive. If you can get yourself to a 10% deposit, right? If you're buying at seven or 8%, it's a lot.

Kent Lardner: It's a different risk profile though two spikes for risk with LMI, there was the 79% loan devalue ratio or LVR. That was effectively the massaged purchase price, going out and milking valuations and trying to get it. Get it, just trying to do everything you can to get it to that below 80% LVR.

Veronica Morgan: Which defeats the bloody purpose.

Kent Lardner: It were two distinct spikes in the risk profile. The other one was 5% positive. It was 79.999%, it was at one spike where you paid a lot of claims and the other one was 95%.

Chris Bates: 100%.

Veronica Morgan: Wow, interesting.

Chris Bates: You can say, this is exactly what's going to happen because what these, if you can get yourself to 10% deposit, and it might mean waiting six months, it might mean selling the car or the $40,000 car that you've got. It might be, potentially getting a bit of extra money from your parents, five or $10,000.

Kent Lardner: I have smashed avocado when I come in to Sydney for breakfast.

Chris Bates: They're all cut bucks they can do.

Veronica Morgan: You're old enough to be able to though.

Chris Bates: A bit of pain there to get themselves into the market, it's not a bad thing. I think, what they're trying to do is, prop up the housing market by basically saying, "Look, those buyers that were going to buy next year, are going to buy this year." You're going to create a future problem because next year that buyer is not going to be buying, right? You can only use it once. The problem is if you've only got a 5% deposit in a falling market and you buy a poor asset and because of the limits on how much income you've got, it's going to push people to certain price points. You'll find that as generally the lower priced properties that can only be bought. You're going to push people into lower priced properties.

Kent Lardner: You're artificially playing with the market.

Chris Bates: Yeah.

Kent Lardner: We've just forgotten that.

Chris Bates: I guess, it's just the people and they've got the least, they get no free stamp duty, 5% deposit going by this, it's risk free market goes up, just get on the ladder and then go and do it. I just find that it's a very, a lot of people say, you're a mortgage broker, shouldn't you love it? I'll say, well because there's more demand? Well no, it's stitching people up. It's great playing with that they don't know what they don't know.

Veronica Morgan: Well that's exactly it. It's hopefully then they can go a little bit of spare money to actually pay for some advice. If I'd have to save up 20% deposits.

Chris Bates: That's interesting. That's a good point because both the policy say even if you've got 20, 30, 20%, can you get the policy? Can you put the $150 grand that you've got to give that to the parents go in with the 5%, get the 95% from the government and then bring your cash back in.

Veronica Morgan: We don't really get in the 95% from the government. The government is just basically pay LMI, right?

Chris Bates: No, it's unsure how it's going to do, but they're going to guarantee the 15% which is pretty crazy.

Veronica Morgan: Are they really guaranteeing that or they're basically just say, no, you still got to go the bank and get you 95% loan. It's just that we're going to pay the LMI. Isn't that what they say?

Chris Bates: No, I don't think so.

Kent Lardner: I think, that's how I've interpreted, but I think I've over simplified it.

Chris Bates: I don't know, because I don't think any LMI provider the amount of LMI would be ridiculous. I don't think the government's going to want to be paying $30,$40, $50,000 per customer of the LMI. So, what they've got to do, they've got a guarantee.

Veronica Morgan: It's not that much is it?

Chris Bates: It is over 90%. That's the problem with it.

Veronica Morgan: Really?

Chris Bates: Yeah.

Kent Lardner: A lot of the fees are published.

Chris Bates: Yes, it's about three and a half percent. Let's say it's a two way, but even still, if you're talking to property of $500,000 that's $20,000 the government would have to pay, to pay this LMI. It's not going to just throw the money away and the bank is not going to take the risk on.

Veronica Morgan: Even though, they might underwrite it without actually paying it.

Chris Bates: Who will, the bank?

Veronica Morgan: The government.

Chris Bates: Yeah, they're not actually paying LMI. They've providing a guarantee for the loan, which is a bit different. If in this situation, the property, they buy it for $500, the customer's got a 95% loan for $475, and then two years later, they might get a divorce and they have to sell that property for $450, and they lose $25,000. The government would fit that bill. What the government was basically doing is the government is taking the risk, the pushing people into negative equity.

Veronica Morgan: They're taking the risks that those people will have to sell.

Kent Lardner: I think, the biggest concern though is you implement these policies and you create surge in demand, which inflates prices, which isn't the same as the FHB.

Veronica Morgan: Look, this is what bothers me about this election is the policy housing policy on the fly with the LIBs and with the ALP, it's housing policy developed in a vacuum a few years ago back. Also, with the complete disregard for and in disinterest in dealing with or talking to the industry. I don't get that they think we're all vested interests but it's like, we might know something that maybe you could learn from and which case you can develop a better policy rather than the sledgehammer approach does my hating. But anyway, and there's also of course it's not a $7 trillion market anymore, is it asset class?

Chris Bates: 6.3 or something?

Veronica Morgan: It's gone down.

Kent Lardner: I keep on getting back to supply and demand and you have so many people in the property sector side. It's all about red tape. If you can remove some red tape, I'll build some more stuff.

Veronica Morgan: Well, the problem is we are building more staff is that what has been built in the past largely has been crap as well.

Kent Lardner: That's a real a problem now, especially with some of the high rise.

Veronica Morgan: Yes.

Kent Lardner: The quality of the high rise is under question.

Chris Bates: I think, you're right as well though. It comes down to the government, makes too much money on the building of the new stuff.

Veronica Morgan: Here we go, it's a bit about of conspiracy.

Chris Bates: Because I remember who it was, but I think 40% of the-

Veronica Morgan: 40% of the cost of a new apartment is tax.

Chris Bates: The value of property is taxed. If you buy something for $500,000 the government is making $200K in tax. They really wanted to make housing more affordable. I would cut all the costs in actually releasing lands.

Veronica Morgan: It is in every layer of government. Then, stamp duty charges you, taxes on taxes.

Chris Bates: On taxes, yeah.

Kent Lardner: I think, the other thing that does upset me, you get a Greenfield site and they zone it straightaway low density, and you don't fit a lot of houses or a lot of families there and you should probably zone it medium density or high density and build good rail corridor. The Chinese have done that and do that well. Build a ...

Veronica Morgan: They got no alternative, loads more people.

Kent Lardner: It's all identity, but if the end game is putting people in houses, then why wouldn't if show the strategy that does that most efficiently.

Chris Bates: Why wouldn't you get involved with that a little bit more, rather than saying to them, you can do whatever you want with it?

Veronica Morgan: Well, and this, yes. There's a whole other episode on that, but so your suburb trends, what are you doing in that?

Kent Lardner: Well, it's all about telling good stories around property. It's about data stories and there's always a good story to tell and I think you've got to be truthful in talking to the limitations of data. It very much a focus on the investor class, as we've covered today and creating as many tools as possible to help the investor understand, what they've already got. But, equally understanding places where they could go. There's a lot of content at the moment that's on the site that's free, that you would otherwise be stuff that you would pay for or would you have to go and buy a magazine to get access to the data tables, I've made that free.

Veronica Morgan: We will include the link in the show notes.

Kent Lardner: Thank you very much.

Veronica Morgan: So, that people can get in there and play around. What can people discover in there?

Kent Lardner: Well, you can compare all the suburb trends, it's captain obvious name, and then at a property level. What I've done is I've created in such you can enter an address and then find you can access the entire national suburb trends from your individual address. You can drill into the address and then we've done some things further down on the page like price segmentation. In each price bracket, how many properties are sold in each one?

Veronica Morgan: Because, you know that I love that. You developed that in price funded, didn't you?

Kent Lardner: We did. The Price Finder one has rendered up beautifully. They've done a great job in the last few years presenting that's quite nice.

Veronica Morgan: I’ll tell you there’s a failing with it, it doesn't move. The scale doesn't move in price buckets.

Kent Lardner: Yes, yes. It needs to be fixed with bucket. The other thing that I believe needs to be created, and this is on my product roadmap, is to animated year on year. You can watch like you're looking at an amplifier effectively-

Veronica Morgan: I'm loving this.

Kent Lardner: If you look at it $200k brackets, filled with that the page and start 10 years ago and say, how is this thing shaped up and moving through time and watch it as a wave?

Veronica Morgan: In gentrification, that would the really interesting, when you see a suburb gentrify.

Kent Lardner: As you move it, so you hit play and see the animate.

Veronica Morgan: Just for the listeners, the price segmentation, for me, it's just an exciting discovery some years back. What it is, what you want is a bell curve, right? We love bell curves, right? A bell curve means and a price segmentation graph that fills this beautiful ... forms is beautiful bell curve is at the lower end, it will show you how many properties sold in a suburb or in a lower price brackets. Then you would see that, it's a bar graph and for each price bracket you'd see gradually more people until there's most popular price bracket. Then slowly it declines again up to get to the most expensive price bracket, and it's the normal form of most suburbs. For me, when I'm looking to help investors in particular, you'd be looking into say, where you want to buy a property that fits into the most popular segment of that market.

Veronica Morgan: These people that say, you got to buy under median, I say, that's bullshit. You've got to go for the most popular, where you got multifaceted by pool, blah, blah, blah, blah. Or if you're looking to add when you don't want to over capitalize, you want to be careful that you're not buying something.

Kent Lardner: I'll get up in the tale.

Veronica Morgan: Exactly. There's some really, really very simple ways to interpret this information. I love the fact you're putting in there. Having it freely available, this is the first one that's been freely available for years, Price Finder took that suburb flyover off freely available.

Kent Lardner: I didn't know, it's no longer there.

Veronica Morgan: It has been for years, it hasn't been available freely. It's really good news, I didn't discover it in yours. I've had the flicks from the website you need to go and scroll.

Kent Lardner: Effectively, we're adding lots of things at the moment of value writing or whether we put on the best agents who can obviously rent your property. That's the next thing we were evaluating at the moment. For us though, for me, I'm looking at it saying, if you're a landlord or property investor today, you pretty much know what your property is worth. You pretty much know what is renting for, but you're in always interested in trends. The trends that are the most interesting, are things going up or down or whatever. It's all about the data storytelling around the trends in the suburb.

Chris Bates: I was playing around with this morning, typed in a few different properties that are on the market and things like that. It was actually comparing using that too, domain, et cetera. There's just so much fluff and so much-

Kent Lardner: Ads.

Chris Bates: Yeah, and it just confuses you when it's words and stuff like that. One of the best thing about yours is actually extremely simple and you're only focusing on, and what was really good as the recent sales. I found that the cache, just getting the comparables are the ... let's say two bedroom houses in X suburb was much easier because when you're on these big platforms, it's just so hard to actually get it a long 20 or 30 sales. I think yours, how many of you showing on yours?

Kent Lardner: Well, it depends on the property, if there's only a few, but effectively that will be, that we're doing a lot of work there with a matching algorithm. Effectively, you come into a three bedroom, one bathroom property in Balmain, we'll create a comps list that's based on a matching algorithm. That's some of the roadmap stuff that we're creating.

Veronica Morgan: You've been playing with this for years, you and I had so many conversations over the years about trying to get agents to give you best comps and people to feed the data in and all that sort of stuff. This is, you're actually starting to use the algorithms yourself to pop that out.

Kent Lardner: It's finally my own stuff.

Veronica Morgan: Yeah, it's exciting.

Kent Lardner: After all these years.

Chris Bates: One final thing, we might ask you about is chasing yield and finding and what do you think some of the problems that could come in the next say 12 to 18 months if there is a turn around and investors are always going to be there in the property market it's an important part of it all. They may go, well look, I'm not going to buy growth for some crazy reason. They might go, I might go chase it.

Kent Lardner: It's all about cashflow. I've started to take the new listings we find each week and we isolate the ones that we know the address and we know the asking price and we look at the lower of the asking price. From that we compare it to what we can rent it for, and we produce what we call a cash flow report. I really stumbled upon this and the data speaks to you sometimes. What I found was that all the highest yielding properties where in these remote rural locations, the city ones were still there, but they are way down on, in terms of yield. Then I thought to myself, "Wow, if I was spreading this information out, not filtering it and not digging deeper, only looking at yield as the single metric. Then I could almost be steering people to these locations where cash flows could be unreliable, and equally capital values could decline."

Chris Bates: Could you get an example of a suburb just doesn't say, our listeners can visualize it.

Kent Lardner: I picked on Moree. Moree was coming to the top of my cashflow yield calculation.

Chris Bates: Where is Moree?

Kent Lardner: Moree is up northwest New South Wales. There's a lot of locations and effectively that when I scratched the surface and say, well hang on a minute, if everybody follows a report like this, if it was unfiltered and you just were presenting the basic cashflow suburbs or the best cash flow properties.

Veronica Morgan: There's plenty of these lists out there.

Kent Lardner: I had to slap myself on the hand and say, be careful here. Obviously, you put the disclaimers out there, but you want to do the best thing by people. I realized that what could happen is in the pursuit of a second hand property before policy change, we could have a flurry of people into these regional locations chasing cashflow. Then what happens after, and then you're going to see some significant shifts in markets. A lot of these are fairly small regional markets. You can find a flurry of investors come in, stoking up purchase prices.

Chris Bates: When you say they're small, you're talking maybe 100 houses?

Kent Lardner: Well that, but they might be an isolated community. The suburb itself might have a few hundred properties in it or even a few thousand, but they might be 90% across the agriculture sector or whatever isolated. So, it's not like in a suburb in Sydney, these are a lot of these localities are beholden upon one or two sectors for employment. They may have a high unemployment rate above the national average currently. There're some risks there, there's some beautiful spots, don't get me wrong, but there's some risk for an investor. They're risks that need to be acknowledged.

Chris Bates: How you get a high yield is the rent is equal to a lot of money compared to the price of the property?

Kent Lardner: Yes.

Chris Bates: You can buy it cheap, for $200,000, but if you want to rent it, it's going to cost you say three, $400 a week. What you're saying is that people want to rent it and they're happy to pay a stupid rent, but they don't want to buy it? That's a question.

Veronica Morgan: Or they can’t.

Chris Bates: Or they can’t, and that's the other question.

Kent Lardner: Or itinerant workers. You've got a lot of projects that are going on, Tamworth for example, a big surge in demand of renters or people who are just in for a big project that might only last six months.

Veronica Morgan: This is the thing too, is a bit of the danger with the negative gearing thing that you've got the rest of the unsophisticated investors will just go and buy brand new so that they can negatively geared, and you'll get an equally unsophisticated who says, well, I'm going to chase yield because I'm not going to negative gear anyway and I'm going to go and get the 12% yield.

Kent Lardner: That could all come crashing down. Because, you're only looking at data in isolation. For me, I stumbled upon this. I had the theory that what could happen, a flurry of demand in markets that are turning up the best cash flow because people are publishing these reports like I was, and then you suddenly say, no, don't do it. Then what you do is, you effectively follow through and see what happens when people stopped buying prices push up, and then they crash.

Chris Bates: Exactly. What you could do, we could say is, a group of investors go into these ... not many. You only need-

Kent Lardner: I only need a few.

Chris Bates: maybe 10, 20, in these little suburbs and it completely shifts the dynamic of the suburb because who are these guys that just rocked up? It pushes the prices up because they create a little mini price war to get some investment properties. It pushes out all the local owner occupies because they can't afford to pay and they're not crazy enough. I was about to buy that house last year for $200 now it's $250. They won't pay it, and then what happens is the investors push the prices at which creates more rental supply.

Kent Lardner: Then, what happened to rents?

Veronica Morgan: Go down.

Chris Bates: Pushes rents down and then you've got the big catastrophic risk is that rent high because of X project. If that was the case, then that rent goes from $400 a week back to $200 which is the locals. Then that's no longer high.

Veronica Morgan: Well, actually goes to $180. Because, we've got all these investors in the market.

Chris Bates: That's what's going to happen. I think, it's like commercial property. You see a lot of buyer's agents, now becoming because you'd becoming more conscious, don't buy residential but commercial then I can get a 7% or 8% yield on commercial property.

Kent Lardner: When it's not vacant.

Chris Bates: When it's not vacant. Those commercial leases, if you haven't tried to release a commercial lease maybe I understand. It's not like just throwing it on domain and renting it out.

Veronica Morgan: Can we say that for six, 12 months vacant even longer.

Chris Bates: Or even longer.

Kent Lardner: There's a bank, a lot of banks exited those beautiful good corner buildings and it's the for lease sign up near home in Newcastle. It's still there and it's been two years.

Veronica Morgan: Ouch, somebody is paying the mortgage.

Chris Bates: Every week we hear incredible stories of the dumb things, property buyers do, dumb things that end up costing a whole lot of money and creating a whole lot of stress, mistakes that can be avoided. Please, Kent, can you give us an example of a property Dumbo? We can all learn what not to do from these stories.

Kent Lardner: I've got two great Dumbos so I surveyed the JLL valuations team last week and I said I needed Dumbo story and I got to that come back and one is a poop story. You've got to have a poo story every now and then. What this is, is, somebody who was buying a property, went to their solicitor and paid a lot of money to get clauses added to pick up the dog poop before they purchased the property. Now, I probably would have taken me five minutes with a little shovel dirt, but they went to the expense of getting it added through this.

Chris Bates: Someone hates dogs.

Kent Lardner: That was the first one.

Veronica Morgan: It was shit of a house.

Kent Lardner: The second one was, there was someone at an auction that outbid themselves not once, twice and paid $40k over what they could have bought the property for.

Chris Bates: That's a common one.

Kent Lardner: It's a common one. I knew you'd say that, but that's why I brought along the poop one because it was probably haven't heard that one.

Veronica Morgan: It's hilarious. Back in episode two, Damien Cooley talks about people bidding against themselves and he was saying, even in one of the auctions that he had actually said to the woman or guy, do you realize you've actually about to buy the property? You don't actually need to increase your own offer, he was surprised or maybe, anyway.

Chris Bates: Well in saying that, it wouldn't surprise me that sometimes people pay a lot of money for a house, and the last thing they want to do is when they buy that house to walk in and see it and it's changed their whole demeanor. I've had a client who's bought a house and it's not poop on the floor, but it'd be poop in the other places to ruin their day.

Veronica Morgan: Well, were they lifting it?

Chris Bates: It was still in the toilet. Sorry to finish on that note, I'm talking about $1.4 million house.

Veronica Morgan: Someone forgot to flush the toilet, and it had a floater.

Chris Bates: I walked in and it was sitting there and I called them up because I always do like, "Congratulations it's good. How are you feeling? You got the keys? Yeah, I got the keys, they didn't flush the toilet." It's quite common though when you buy these, buy a house it's not like you're buying, moving into a rental property a lot of the time. The cleans are there's mass and there's-

Veronica Morgan: It's funny I know, often the case I know when I was a selling agent, I'd be doing pre-settlment inspection with the buyers, I got that sinking feeling because you know how it looks as good when it's empty. The furniture move, and you're like, "Do I need to put my hand there?"

Chris Bates: When you look at the settled price versus the contract price of the original offer. There's often a lot of them that have got that few hundred dollar variation, which is a cleaning cost.

Veronica Morgan: Well, weirdly enough, you don't have to clean your house. You do when you vacate as a tenant, you don't as a buyer, as a seller. In fact, just this morning before coming here, I went to a pre-settlement inspection with some clients and it was a beautiful old home, that needs ... will be beautiful again. Will be beautiful again. It's funny because the owners, it's a deceased estate but they'd actually cleaned it and all the rest of it, but it needs a lot of work and it's got to be an amazing home. It made me laugh because our clients, it's one of the few pre settlement inspections where you don't have to remind people, remember what you bought, remember because when you got your furniture in here and everything is going to be as beautiful as it was when you bought it.

Kent Lardner: It looks beautiful.

Veronica Morgan: This one is just as bad, and they knew that. It makes me laugh because they're actually going to move into it and have a renovated around them, which is pretty brave. They're really excited about it and they've actually, got a crew, sorry, a crew coming in this afternoon to start working on all the walls basically. Then they're moving in a couple of days afterwards and they get the start.

Chris Bates: I think, the right strategy, a client settling next week. He was asking, he's in rental and he's like, "When should I send the lease cancellation." I was like, "Give yourself a couple of weeks, mate, just get you clean as in their tidy it up, you don't want to move into it straight." Because, it is an older house and it's going to take it. You want to make it a little bit nicer before you start throwing in new furniture in, give it a good clean. Thanks Kent, we really appreciate it.

Kent Lardner: Thank you.

Veronica Morgan: Thank you. Another good chat.

Chris Bates: We want to make you a bit of Elephant Rider, and this week's Elephant Rider training is-

Veronica Morgan: Well we talked about the dangers in using AVMs or automated valuation models and I also mentioned about a free course that I've got which will put the links in the show notes. One thing I want to do here is talk about how can you use one of these AVMs, say you broke all your bank, hence you want one of these property reports. Now, the first thing I would do is get a big black fat texter and cross out the recommended price. Don't even look at it in fact because we've talked about anchoring bias many times in this podcast and once you see that it's really difficult to unsee it.

Veronica Morgan: I would cross that out. Just force yourself not to actually look at the price recommendation. Go straight to the page where it comes up with the recent sales because that is the most important thing. What you want to do is use this as a starting point. Look at those recent sales and so which of those do you really think are comparable with the property that you're looking at buying? Get online, get onto realestate.com.au or domain.com.au. You can go in there, both got sold sections and their portals. Most of the real estate agents have got sold section depending on who sold it, you might be able to get in there.

Veronica Morgan: I would look up the listing, I would get the floor plan and hopefully you've seen that property yourself if you've been actively looking. I would actually go into look at the land size, the size of the rooms, the overall floor plan of the property, the condition of it. There's a whole bunch of things that you want to look at to really work out whether that property compares with the one that you're looking at buying or whether it's inferior or superior.

Veronica Morgan: That's going to help you start to learn where the pricing fits in terms of what you should or should not pay for the property you're looking at. That's what I would do, we won those AVMs, the boot camp this week is cross out that price. Do not look at it. It is actually going to do more damage than good because they are more often than not misleading. Look at the comparable sales and start educating yourself and making educated assessments as to how those properties can pay with the one that you want to buy. That is the best thing you can do with an AVM. Now, as I said, jump on the elephantintheroom.com.au, the link for the free course will be there because that actually takes you through step by step or the things you do need to assess when you are comparing different properties, in order to be able to work out exactly what to pay.

Veronica Morgan: Please join us for our next episode, a little bit of a difference. This one we're interviewing Dr. Happy as doctor Tim Sharp, who is the founder of The Happiness Institute. Now, why are we doing an episode on the elephant about happiness? Well, as it turns out, happiness and property are intrinsically linked in many positive and not so positive ways. There're ways in which people look to property to deliver them happiness, there's also ways that you're finding it difficult to be happy if you don't have a roof over your head. There's a lot in the science of happiness that we can learn from in terms of how we make decisions when buying property. That's why you need, you'll need tune in and listen.

Chris Bates: Don't forget, we're on all the social channels. We're on Facebook, we're on LinkedIn, we're on Twitter.

Veronica Morgan: Or you can connect with us on theelephantintheroom.com.au the links are all there for you.

Chris Bates: Please connect and send us a message we'd love to hear from you.

Veronica Morgan: The Elephant In The Room Property Podcast is recorded at the Sydney Sound Brewery. This week's podcast was recorded by John Hresc, editorial by Gordy Fletcher.

Chris Bates: Until next week, don't be a dumbo.

Veronica Morgan: Now remember, everything we talked about on this podcast is general in nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyer's agent. Who will tailor and document their advice to your personal circumstances with a statement of advice.

Veronica Morgan