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


Episode 80 | Is co-living the answer to housing our housing crisis? | Ed Fernon, CEO of UKO


Does co-living mean you can afford to live where you want?

Ed Fernon, CEO of UKO, joins us to explain co-living. We’ve seen co-working spaces take off & now people are saying that they’ll start living in a similar way.

So, what exactly is co-living, how does it work & is it only something millennials would be interested in? Or is it something you should invest in?

Here’s what you’ll learn from our chat with Ed: 

  • The ins & outs of this type of accommodation.

  • Why millennials are embracing the co-living model. 

  • Why amenity, walkability, convenience & community matters.

  • Why there is a whole new pool of renters on the hunt for co-living.

  • The loneliness epidemic, how people's mental health is driven by the quality of their relationships.

  • What co-living looks like as an investment & what it costs.

We hope you enjoy exploring the possibilities of co-living. Let us know what you think!


UKO: Co-living


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Veronica: You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan, real estate agent buyer's agent and Co host at Foxtells Location, Location, Location Australia.

Chris: And I'm Chris Bates, financial planner, mortgage broker and wealth coach and together we're going to uncover who's really making the decisions when you buy a property. Please stick around for this week's elephant rider boot camp and we have a cracking dumbo the week coming up.

Chris: 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 adviser or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica: In recent years there's been quite a lot of talk about the future of work where the robots will take our jobs and is the era of full time employment ending and then with less full time work on offer, how will people get mortgages and buy a home? We've been seeing a trend of people who actually shun employment. Instead they formed startups, small consultancies, online retailing, you name it, no longer setting up in their spare room or garage, but taking advantage of the recent proliferation of coworking spaces. And now there's a bunch of people saying that we're going to start living in a similar way. It's called coliving. So what is coliving isn't something that only millennials will be interested in. Is it something to consider investing in? Well in this episode we pick the brains of Ed Fernon CEO of a company called UCO, a Coliving company.

Veronica: Ed's property journey started in 2013 when you started taking up options on properties to develop and putting together creative deals. And along the way he began to see a lot of opportunity in the new generation boarding house space and started to investigate coliving as a way to drive additional revenue while creating positive social benefits. Ed met with the founders of UCO in mid 2018 and was immediately impressed by their vision, which matched his own belief that coliving had huge growth potential. And there was a real need in the community. Not long after that he became the CEO and he's been busy improving the model and expanding the business. And just as an aside, Ed also competed for Australia at the 2012 London Olympic Games in modern pentathlon and is a 2017 winner and record holder of the Mongol Derby, the world's longest horse race. So thank you for joining us, ed.

Ed: Hi. Thanks for having me. Very excited.

Chris: Thank you Ed. Um, I've been wanting to talk about this topic well since the start of the podcast cause I'm fascinated by it. But before we go there, I mean Mongol rally, derby. What is that?

Ed: Yeah, so the Mongol Derby, a lot of people, uh, really like to talk about this because it's, it's just crazy. It's absolutely nuts. Um, yeah. It's the longest horse race in the world over a thousand kilometer horse race through Mongolia, right? It's based on Genghis Khan's postal system. So Genghis Khan up the first postal system in the world, where they used to have horse stations. So you'd have a rider, gets on a horse rides 30, 40 kilometres, then gets on another horse. And that's how they were able to communicate through their empire. So same rider different horses. Same rider, different horses. So we rode the horse. Yes. Yes. I mean now it's a bit different because we've got a vet checks along the way, but we ride 28 different horses over a thousand kilometers. It's generally a 10 day race. Um, and we were riding up to 180kms on one of the days during the race and you got a very sore bum and I can tell you. There was 42 starters from around the world.

Ed: Um, people from all different uh, equestrian backgrounds. Yup. A lot of indurance riders, um, very top horsemen and we'll come together in Mongolia. And uh, it's, it's more than just being a good horseman cause you ride the Mongolian ponies, which as people probably don't know, they're, they wild. Um, basically untamed horses that get hurded, still like riding Brumbies effectively. Yeah. And they, that they bring them in and they buck and carry on. Everyone falls off. Everyone. Um, everyone goes a bit crazy. But um, you get on and you go and then each night at, at eight o'clock h night, you've got to stop and wherever you are in Mongolia, you've got to stop and you've got a GPS on and you just camp wherever you are. So you might be staying with a local Mongolian family who don't even know you're turning up and you're camping out and you're hobbling your horse. And so great fun, great challenge. And uh, yeah, something I'm very proud of.

Chris: Is that where you got the idea for coiving in Mongolia?

Ed: Well, I certainly have some aspects of coliving in Mongolia or that the way their traditional way of life, but in all seriousness, effectively coliving, we don't see as a new way of life at all. Um, it's a way of how communities have always been from the beginning of time living that traditional way of life in a community. We are relationship based people. We're emotional creatures and the way we interact, we want people around us. And so over time I think with urbanization, population growth and the development controls, it's all about how we fit more and more people and how we just increased density, not really thinking about the way people live in these places. It's just about building mass scale.

Ed: So what we're trying to do is bring that back, think about planning, think about the why people are living and come back to that traditional way of life, you know, from the beginning of time, which is community based living.

Chris: Okay. So, um, UKO, what's the kind of, what's the future of that business and where do you see the future of coliving in Australia more broadly?

Ed: So I think coliving is been incredibly successful overseas. We've seen it across Europe, um, across the states. There's a number of large scale operators, even Redicci in, in Europe and Germany, they raised one and a half billion dollars to launch coliving worldwide. And I guess they're trying to become the, the way work of co living. Yup. Um, so we think we're a bit late to the party here in Australia, but saying that we think Australia is probably the best market in the world for coliving. You've got the second most unaffordable housing in the world after Hong Kong. You've got no traditional build to rent in Australia and you've got a lot of limitations with that traditional build to rent. Um, and there's another, a lot of social issues, and changing in demographics in Australia as well, which is leading to to coliving being a really important, um, you know, important way for people to transition in their lives. We mostly target the millennial market a but we see in incredibly, uh, great potential in being able to scale this across Australia.

Veronica: So focusing on continuing to focus on millennials. Are you thinking that, well, there might be other demographics that fit this model?

Ed: Yeah, well absolutely many demographics fit this model and I think traditionally our market when we came to it was thinking about the 25 to 35 year age group. So people that have just finished uni, young professionals getting into the workforce. And, and coming in there, but what we've actually experienced is that the millennial mindset is, it is a mindset. It's not just a age bracket. So we've seen people who have been in their sixties and in their 50s come and stay with us. Yeah. And have joined. Like we had one guy who turned up and he was there and he, we have community dinners regularly and where the residents come and all eat together and it's fantastic way for people to meet each other. And uh, this guy brought his, his parents along and then his parents like, can we move in? And they moved in and it was great. So we are seeing, um, I think a change in the way people are approaching it and we're seeing different demographics coming in as well. But I think traditionally, yes, it will always be that 25, 35 age group. But we are seeing that great expansion as well.

Chris: Yeah. I mean that age group that already probably co living a lot of them, they're just going through the pain of getting a lease. You know, I find their three or four mates, they go and sign the lease, they kick the furniture out. Yeah. Someone agrees to take the phone, you know, and get electricity. Someone agrees to do the shopping and,

Ed: And that's, yeah and that's exactly right. You look at coliving, what we're trying to do is sort of two parts. One is create community. The, the first aspect of that is that you've got a situation in Australia where you've got a one in five Australians will suffer mental health illness in a given year. You got a major loneliness epidemic. Even in the UK now they've got a Minister for Loneliness. You've got 26% of households are actually single person households and with singles and couples are making up over 50% now. So you've got a situation where people are becoming and the quality of people's mental health is largely driven by the quality of people's relationships. So you know, when people are in these apartment blocks and they don't know anyone and they're isolated, that's going to affect them. So we're very much on community living, building relationships.

Ed: And then the second part of what we're doing and our point of difference is what you just touched on then was it is very, very difficult for tenants in this market to actually go out and get a lease. It's very unflexible. You've got most of the stock in Australia is actually mum and dad landlords and if just put yourself in the position of being a tenant today, wanting to go out and get a lease, you've got to go and inspect the property on a Saturday, find out when it's open. You've got four properties on at the same time to inspect. Then you've got to put your application in, takes weeks, then you've got to find the money for a bond. Then you successful, do your references, go and get furniture, pay for the furniture, then you're on the phone to Sydney Water or another electricity provider, your Internet. All of these things. It's so tough for people. What we try and do is complete hassle-free city living. It's, it's complete flexibility. You determine how long you want to stay. The longer you stay, the less you pay, all included furniture. Um, we've got very, uh, creative furniture that we've developed.

Veronica: I have looked at your website, and it's like beds on top of the wardrobes and things like that.

Ed: That's right. That's right. But all inclusive utilities as well. So it's just about making it easy for people and people want that flexibility.

Veronica: Interestingly enough though, there's a point at which some people, and we've interviewed a lot of people around, you know, at the point in which they say that want security and they want stability and all that sort of stuff. And so I guess, you know, that may not be provided by these sort of living, you know, because they don't own it. They can't change the paint, they can't furnish it. They can't, you know what I mean? Like, so I guess there's, maybe that's the next generation of communal living, but, but what is the actual, what's the difference say between, you know, moving into a communal living such as UKO versus bought, you know, renting a studio apartment somewhere?

Ed: Oh, huge differences. One is that you're moving into a studio apartment and then you've got to go furnish that apartment. There's no community aspect of that. You've got organize the utilities and all of those things. So all of our properties are hosted. We have a community host. It's sort of like a mother hen, someone who's looking out for the residents in all the properties. We get to know the residents really well and then they facilitate the community dinners that we have. We have yoga at the properties, we have movie nights. Um, they organize trivia often at the local pubs once a week, uh, and different, um, events during the year. And what that's about, firstly for us, it's about generating relationships with the people because as soon as you develop relationships between your hosts and between your different residents, the social issues go away. Any, issues because you've got the relationship, it just dissipate.

Ed: You can always talk to people and people, there's a general general respect that is created by the counselor.

Veronica: So is the host a councillor

Ed: Yeah. I guess that's part of their job, but yeah, they're in the common room. Um, and a huge part of it, it all comes down to that community, um, common room and community area so people can, can facilitate

Veronica: So the living space is very much, there.

Ed: I think that's probably a good good why we're using the new generation boarding house set. So effectively there are anywhere roughly around 24 square a studios all self contained. They've got a kitchenette, they've got a ensuite bathroom, they've got a double bed, they've got joinery and we do a lot on the joinery to improve their space so that they can fit all their things in. And then they've got a big common area which they can cook in that's got a big oven. They can have dinner parties there if I want that can use that additional fridge space, freezer space. Um, an area where they can relax, um, is outdoor areas as well that they can enjoy. So I guess people are paying for, uh, separating from not just a studio, but say a one or two better where they're giving up that but coming in for a smaller private space but more, more communal spaces and getting that access to that. And people are really enjoying that trade off.

Chris: Want me to, okay. So I work in coworking spaces and I have done for five years and their perception has changed over the years as they've got better. Right. You know, and like same with coliving, I think, you know, version one is x version two the only way to get, you know, either to charge more, charge more, you've gotta have more services. Right? Correct. Or if someone else wants to disrupt, your option, they're going to try to undercut you on price, but you know, can they do it profitably, et cetera. So, you know, coliving, I think over over the coming years we'll get better and better. And you know, I do think that, you know, a lot of people will think just getting a studio apartment will just be so much pain & effort, but what am I getting for it? If I can move into a coliving space for this and get even more benefits and less risk and less money, et cetera. Um, you know, I can't see it kind of stopping, but a lot of coliving, you know, you don't want to live in kind of high rise areas. They want to live in more established areas. So I can say that that's kind of more of a strategy for you guys. You're going into more kind of, you know, established kind of family areas like Paddington and Stanmore rather than kind of high rise areas.

Ed: Yeah. Well, I think for us when we're looking at property, the big thing for us is the amenity and that walkability index, we want to be near, uh, the train stations, public transport. We want to make sure that we're, we're close to, um, infrastructure. Like where's the nearest hospital? Where's the nearest at university? Where's the commercial hubs? Where are people gonna work? A, a big part of it as well as how far away are we from the nearest gym? Where are people going to get the coffee in the morning? Where's the supermarket? All of those things are really important to us. So unlike student, which are all just looking at universities, um, and I think that market will slowly become saturated, particularly with the big players. You've, you've seen Urban Nest and Igloo and these groups get very aggressive Scape as well. And that, yes, the student market is increasing but we don't have those limitations. We take anyone, we're not about students at all where we're very much open and our locations, we can go anywhere provided that we've got that, those solid metrics where people want to live in the amenity then then the, you know, the sky's the limit in, in the, you know, options for us of where we can go. And probably the more tier three locations, our outer ring, fringe locations, we'll probably do smaller scale sites, more inner city locations where we know there's high demand, you know, we'll do 150 plus room so we can do bigger scale areas. And then when we've got those bigger scales, we're also looking for adding additional amenity, making sure that we're still keeping that quality community feel in those buildings.

Chris: I was going to say the bigger you get the less community sometimes. Yeah as well. Cause it's kind of counterintuitive. You know, you just see someone coming and going, you don't know who they are so you don't make an effort. But if there's only 12 or 20.

Ed: That's where you create micro communities within the larger building and that's fundamental to what we do. Community living is, is the fundamental part. So you've got to do creative design in, in the larger scale ones to ensure you're still delivering on the community aspect.

Veronica: Now, the money side of things. Yes. Obviously. Um, you know, you're investing in it so, well I guess how's UKO funded, like? Do you have investors invest in your business? I mean in terms of the future of these for property investors for instance, what sort of opportunities will come from that? And then I'll want to get to the actual numbers if, oh, I don't want your numbers, but of interested in our, how it becomes profitable.

Ed: Yeah, well we, we're primarily a lease business. We do own a number of sites and we do do developments ourself, but primarily where a lease hold business. So we're working with developers every day of the week. We've got sites, primarily new generation boarding houses and their thinking for them, what's their opportunity costs and that is to rent them by the room through a local agent who doesn't understand coliving. You potentially have those social impacts. And I think there is still a really negative stigma around boarding houses. Um, and I think one of the huge mistakes of the New South Wales Government was actually calling the 2009 for housing, the new generation boarding house set the new generation boarding house set. Cause really what it is, it's for us particularly, we just talk about coliving and it's very similar to the micro apartments that they've done in New York and uh, it's just micro living. And so for us, definitely it's about working with local developers who've got these sites. Um, putting a head leasse in place, managing them better and we're able to generate a high yield and a high return for the owners because we're able to develop and give, offer all these additional services for our, for our residents.

Ed: And what's the least, do you, are you taking out on these properties?

Ed: Um, it varies. We like having options up to 30 years but um, you know, initial term five years and, and, and we extend, I mean we started with a business called Furnished Property 17 years ago. The founders at Alex & Reece out of Uni were uh, leasing properties, um, furnishing those and then, and then subleasing those properties and um, well before Air B&B ever existed or was even thought about and they really scaled that business up and did tremendously well. And so this has been a, a sort of second version of off that back. They've got tremendous amount of experience and they've also got the hotel group Very You and Punt Hill now. So they've got that hotel knowledge and that hospitality knowledge to really ensure that you delivering on what you say you're going to do.

Chris: It's interesting because you know, if your got a property that is suitable for boarding houses and you're not getting the yield because you know, it's a house or it's a big block of land, then it does make sense to consider transforming that property into coliving or into a boarding house. But then you have all the problems with going down that direction, managing it and all that sort of stuff. So then if you have someone in a partnership, if someone like you know, UKO then you can basically improve your yield. You still own the same amount of land, so you still get the growth, but you actually increase your yield dramatically. Yeah. And more likely to sustainable yield if you've got someone managing it. And so this is what, uh, wait,

Veronica: It's also a type of tenant, you know, like, so for instance, if you, your typical house, a boarding house, and I know I'm venturing into dangerous territory here. Never having worked in one. I've only ever walked past actually years ago I did when I was at uni, I did, um, have a look at a bed sit in this hideous building in Balmain. It's still there and it's got these horrible little depressing little units in it, full of basically old drunks. And once again, I've gotta be really careful there, but, but you know, your stereotypical boarding house where people who can't afford to live, um, elsewhere or in a bigger place or in a better place or whatever, and it tends to have the more disadvantaged amongst us living there, which means that from pure investment you're capped in terms of your yield because they can only afford to pay so much ranks, particularly if they're on benefits.

Veronica: Yeah. Um, you know, versus refitting or refurbishing. And I know I'm going to get probably some flack for this because I'm thinking obviously there's Sepp 10, right, where you've got to preserve housing for people in need. But you know, obviously if you've got that type of tenant you're capped in terms of yield, but if you did something like this, we invested in the building, all the rest of it, then I would imagine then your yield opportunities really open up because you've got people with high disposable incomes that are able to come along and rent it. Right. Exactly. Right. So I just slowly wading through murky waters there. But anyway,

Ed: the other thing is, well you're looking at some of the worst conditions in Sydney for 15 years right now looking at it.

Veronica: Really cause vacancy rates are going up.

Ed: Yeah, exactly. So worse worst rental conditions, from an investor's point of view. So from an investors point of view, you've got terrible rental conditions. People are really struggling. They can see right as you say are or are really high and and have been for quite quite a few months and year. And I think there will be a little bit of time to amend that. But for, for us, our vacancy rates are incredibly low and people, there's huge demand. We just fill up very, very quickly our properties because there's, there is demand for that quality community living.

Veronica: And so what is the convenience in the community that is attracting people to it?

Ed: Flexibility as well. So, and, and really it is there's cost savings as a part of that because you, instead of going and renting that one bedroom apartment or whatever, you, you're able to that go to the studio, this, the small rooms and, and then get the benefit of, of the common areas. But coming back to your yield and people in Sydney and you look at unit blocks that are trading in the market, uh, even houses, you know, you're looking at 3% yield on some of those cases. Interest rates now dropped to record highs as our record lows as of one, you know, 1% and people are looking for how they get quality yield in their investments, stock markets at all time highs and people are questioning whether that's sustainable. So for us, you know, a lot of these developers are developing, they sites with six to even up to 10% yields depending on where they buying raw or DA approved or, and their build cost. And, and so it's, it's great for people, particularly when they've got our operators like us, they're having this commercial residential, the benefit of commercial lease. All the benefits of the commercial, uh, with an underlying residential property and the benefits of residential as well. And, and the compression over time of, uh, of residential rates.

Veronica: I noticed it, the two sites you've got, you got one in Stanmore on Parramatta Road and you've got one Paddington on Moore Park road, both very busy roads. Yes. So is that, does that keep the cost of the actual property itself down and that make it more um, financially viable? I mean, I don't know. Is that a coincidence?

Ed: Probably mostly coincidence. I think busy roads generally, um, would probably be better because you busy roads, you are near amenity, coming back to you know, you do see a lot of those busy roads near the train stations near the public transport near those, those areas. So where, or us, you know, the double glazing and the things that we put into the building allows to, to limit the impact of busy roads. Yeah. Um, but for us, often those busy roads are around the amenity, which is where we exactly we want to be.

Chris: And is that easier? Probably to get council approval. I imagine, you know, because you're stepping away from more the, you know, the residential, the family's kind of battling out, stopping it there. The main road kind of anything goes a lot of the time. Yeah.

Ed: We don't, we don't go in R2 zones. So the low density residential zones, which some developers have targeted, and you've seen the New South Wales government come out and actually change the SEP and change the guidelines around our two zones to limit that because of feedback and from, from communities and I agree with that stance that they've taken. Yeah. Yeah. But the realities, those high residential zones don't have the amenity anyway, so we don't, we don't want to be there. So we generally in those are three or four zones, even commercial zones. Um, as long as it has, has the, a good public transport and good, good links there.

Chris: Yeah. And you said that everyone who was saying, you know, people are going for the amenity and the convenience, but it's not always, it's not for affordable reasons. You know, I'm sure when you do, you look at your incomes, they're not doing it because they haven't, can't go afford to rent a one bedroom studio. They're doing it because they get all those other benefits. And yeah.

Ed: We're not doing affordable housing at all. It's about creating quality rental stock and creating flexibility in the rental accommodation. I mean, the State government do not have a SEP for integrated living where in the future where you're going to have the changes where people can, in single buildings you've got, you know, the childcare centers and the gyms and all the amenity in the single buildings and people can.

Veronica: Developers are doing that. Yeah, some of them. Yeah.

Speaker 4: Yeah. Well that's normal. People are looking, looking at that now, which is a great idea. But from a planning perspective, your R4, R3, like, I mean, mixed use is probably the best option to do that in, but there's limited, limited, uh, opportunities. And, uh, particularly in R4 zones, you've got developers out there that say, we don't want to lose out floor space. We don't want to lose our GFA by putting communal area in because that's going to take out an apartment. And one of the benefits of the, the boarding house SEP is it actually mandates that you have to provide the community, which is a core part of our business and that community areas and common areas. So, um, for us, I think what we should be looking at is how we do facilitate more common areas, even in and our R4 R3 zones, and future developments and how people can interact and create that, um, that interaction between the residents.

Veronica: I was wondering, you know, you could probably have them for single parents, you know, and like, so then, you know, they got, they can all help each other out with child minding and stuff and have nights out and you know, you could, or older singles who are retiring and they don't have, um, a partner, you know, and so then they've got whole community then they can start holidaying with, I mean, you can actually see this sort of rolling out into a whole bunch of um and I've just picked singles there. I'm sure a couples of couples as well, you know, so.

Chris: I mean a lot of couples will share with others, other couples. It's not a craziness. I'm sure there's places in the world where it's always been that way. You know, if you've got examples of kind of, well, multigenerational living as well, you have a multi generational, have you got, you know, where around the world are already embracing this on mass.

Ed: Oh, where are they not? Right. Um, so yeah, you look across the u s you've got some very big players. Um, Common and a good example. Um, we got Collective, uh, even We Work bought out their, We Live brand. Yep. Um, so there's some very big players in the US , the UK as well. There's a number of big players, Midici & Quarters I talked about earlier. Um, in Hong Kong you've got Weave coliving, they did a large raise, um, backed by Walburg Pinker's. Uh, so it's, uh, it's really good to see that expansion and we think, as I said, we're a bit late to the party here. And

Veronica: do you mean you as in UKO or, you as in, us Australia?

Ed: As Australia, yeah. As Australians and oh, we think there's huge opportunity across Australia to deliver that really quality, um, that quality housing stock.

Chris: And are family's going into these ones overseas. Like I know a lot about, let's say Europe, you know, northern Europe, you know. Yep. Sweden, you know, Copenhagen, those sorts of things, you know, families kind of share, you know, facilities, you know, they could be, you know, all the houses don't have like a courtyard. You know, separate little fence, they've kind of got a big open green area and there's the shared barbecue facilities, et cetera. So, is that, have you got examples of where countries around the world are actually, families are doing this because you know, a lot of people will say, Oh, this is great for singles or, but as soon as kids come along, you're not going to want to do car living, but actually...

Ed: I think we are starting to get into more multifamily build to rent, uh, in this conversation. And that's what they're trying to facilitate in those developments. Um, there's a lot of tax issues with build to rent in Australia, which is why it's not taking off. Um, and I think the federal and state governments need to look at, at those tax issues if there's going to be a change, um, from a large scale perspective. But, uh, I'll give you an example. In, in London where, uh, in Wembley Park there's, there's two properties side by side. And in one it's, it's a build to rent where they've got a lot of these common amenity. They've got a lot of these, um, common areas as well for families. And the other one is a traditional unit block where there's rentals in there, but a lot of own occupiers as well. Even on the rental, you're getting a 12.5% premium in the traditional build to rent where they've got that common area and common amenity over the standard block next door where they have basically got, um, owner occupiers and investors in that building. So there's definitely a premium that people attribute to their common amenity and all those things that you've talked about. Uh, and, and that's, it built a rent multifamily.

Chris: Yeah. So I think we've got to do this. The banks, again, I probably have to come on board. It's a similar to modular homes. Um, you know, you know, there's an polled amazing opportunity for people to move into building away from old construction techniques where you'd do the, you build it all on site, you got problems with weather and staff, et cetera like that.

Veronica: Why don't we do this factory and get shipped.

Chris: Yeah. And why don't you actually do what you can do this better, right? There's more efficient ways to build houses. Then the old way of building houses butts. The problem with that is you've got these amazing people that are already doing these, but they can't get bank finance because the bank can't control the build because it's built off site and if the builder goes bankrupt, they will lose all their money. Right. Whereas if the house is built on site, the bank's not as concerned because they can sell the asset like our half finished house, pointless anyway. So banks haven't really come on board for modular home. So while they could have exploded across the whole country, banks haven't come on board. It's the same thing as these, you know, if if banks come onboard for coliving, they'll have to re change their rules and I'll have to come up with policies. Then investors can go invest in coliving. And so I think that's going to be an interesting thing because investors at the moment, like banks won't want to go anywhere near it out of it because unless you can, you can't have one of those big sites.

Veronica: You know, you can't really invest in it.

Ed: At the moment, I think it's an education process, absolutely fit for their investors. But saying that the, I mean the banks have come a long, long way in now understanding this asset class like five years ago, as you say, they didn't touch it, didn't not want to know about it. And now we're seeing a number of banks, we've got relationships with a number of banks and they're actually calling us to say, hey, this person's walked in the door, they've got a head lease or they've got, they've got a property, could you take a head lease of the property so that, that helps our exit. That reduces our risk from a bank perspective and a, so that's really good that they're actually turning around and saying, we are interested in the asset class, but if you can come in as the operator, we see that the major risk and therefore we can work for a win win situation for the banks win win situation for the developers. Um, and for ourselves in, in building up the model.

Chris: Yeah, exactly. It's so lucky if we could shift, you know, investors that are going and having to buy, you know, bog standard, cheap boring studio. One bedders, two beds. We've already got enough of those. And then I could go and buy, you know, in new developments that have got coliving, but they're smaller apartments and they haven't got all the facilities of studios. That's when I think the game will change because you won't have to go to the big end of town. But you know.

Veronica: But how would they buy it and would, would it be, would it be a property trust and that actually buy shares and yeah, property trust. Who, where they actually go and buy that. You know, would you just strata it.

Ed: I mean, I mean there's a single title of properties you can't stridor them. Um, so it's mostly what we're seeing is they're, they're single investors, super funds, um, even high net wealth individuals, developers who are looking for cashflow and they're looking for yields. What we haven't seen in the market is, is large institutional investors come in and say, this is an asset class we want to be in. And I think when that happens that the market will explode. But that's just because we haven't got to the scale yet to do it. So we are working on that and uh, we think so there's a lot of opportunity in the future of, of being able to, um, develop our model.

Chris: So you said around the tax problems that governments creating with moving to a build to rent. Yup. Model. Um, whereas in other countries around the world, like for example, US, it's very common, you know, you can rent for life in one building and you don't have to ever worry about the landlord selling it on you. Yeah. What's the problems that governments kind of needs to remove there around tax?

Ed: Well, the two big ones are GST and MIT. Okay. So, um, firstly on GST, our whole tax system is actually based around speculation and actually selling properties. So developers are incentivized to sell not to hold their stock, right? So if you're a developer, we've obviously got the GST, you've got to, um, pay GST. Whereas if your overseas, if you're holding the stock, you've got to absorb that. So you're almost 10% worse off by holding rather than selling. Cause when you sell the stock you can claim back GST on your construction.

Chris: So one way would be for the government to say is to remove the GST on developers building holding stock. Is that what you're saying?

Ed: Yeah, that that's one way they could do it. I mean I see that build to rent, I'll get a different view of it and people don't agree with me but I see that build to rent, um, needs to be looking at single title properties because then you're not, you're going to be getting treated like proper build to rent where they are for people to rent longer term. I mean you've had a look at a number of players that have come into the build to rent. We'll say we're doing build to rent in Australia. Like there's a number of players that come out, some big players and I won't name them

Chris: Mirvac?

Veronica: But Chris will...

Ed: I didn't say it but you did but you did, take that as an example. Their whole exit is about holding for a period of time. And then Strata sell down on and say that is build to rent. That's just a hold for a period of time while the market is terrible and you've got to deal with the rental.

Veronica: So do you think that's a pivot strategy ?

Ed: Absolutely, that's my view. But I think what we need to be getting to is that over time we, they're single title or if they're all build to rent, you can't sell them down. They are longterm rentals and that they can be held and and developers are incentivized to hold that stock for rentals.

Speaker 1: Interesting. Because you right, you actually are creating real long term rental stock rather than for five years. And then it could potentially all go to owner occupiers or that's right.

Veronica: Also Developers incentivized to hold it. They might have to make sure the build quality is a little bit better?

Speaker 4: Exactly, exactly. Which comes back to the discussion, you know the Opal Tower, the Mascot and a the latest one in Zetland. Yeah, exactly.

Ed: So if, if developers are thinking we're, we're holding these, these asset classes and coming back to speculation before, where, if everyone's incentivized to sell, build quickly, quickly move on, then it's about building it cheaply as possible. Push, push the cost down. And then what follows from that? Um, so look, there's people they need to look into that. Um, and the second one was the MIT.

Veronica: What is MIT?

Ed: A managed investment trust. So for overseas investors and big players coming into the market, you've got, uh, you're paying at a much higher tax rate, double the tax rate, investing into residential projects. Then if you're in investing into retail commercial, right? Probably the 30% tax rate rather than 15, 15% tax. But,

Chris: and I believe that we're trying to do something there that the labor,

Ed: well, Labor government had that prior to the election had come out and said that they were going to change that and that we're going to amend that, um, the Liberals have not made any change or any statement with regards to changing that, um, impact, which would just be interesting why you've got different tax rates for different asset classes. Um, but I'm not a, I'm not an accountant. I'm not a a tax expert by any means. I'm just relaying information. So yeah.

Chris: In your background, you've done quite a bit of development in the past, you know, lots of different types. What have you, you know, just out of curiosity, what sort of type of developments have you done?

Ed: Yeah, so I mean I started off, um, after the Olympic Games coming back, very little money looking at how I can get into the property market. And um, I think there was, there was two ways I realized that I could do that. One was finding a partner, a JV partner that would invest and that didn't sit well with me cause I had very little knowledge and so I didn't want to lose someone else's money going in when I didn't really know what I was doing. Yeah. The second part was, the second part I realized was I could actually option property, so find properties, um, that, you know, I could go out, work with the land owner, give them an option fee, and then add value by way of amalgamating, DA applications, rezonings and, then, um, on selling that. So yes, that's sort of how I got my start.

Chris: Can you just explain the option process, how it actually works? Because we actually haven't spoken about this in 80 episodes and it's, it's actually really interesting. It's not, it's fraught with danger, but there's massive rewards if you do it right.

Ed: Yeah. Well, my whole part of that and, and I, um, for me it's about creating a win-win outcome. You have to create a win, win outcome with the owner. So in, in all cases, in all cases, I am looking at giving the owner more than what their property is worth. So let's say your property's worth $1 million. You've got it your real estate agents have given you appraisals at a million, but instead of $1 million, I'll give you say $1.1 as an example, but you give me 12, 18 months. And in that time I'm then going to go spend money on a DA application, do the work and um, and then work, work on that. And in that time, then I'm adding additional value so that I've got an option fee up front. They can go for a holiday, do what they'd like to do, I'm adding the value in that time and then, and then on selling that so works amazingly well in a, in a rising market, which we saw during that when I, when I started. But even in a, in a slowing market, it's, it's a very good because people, um, but that uncertainty and that risk about their properties are dropping and we can, we can still go add good value and, and um into that.

Veronica: So you probably got more willing participants in a slowing market.

Ed: Yeah. Well, it was, it was really interesting because in a, in a, uh, in a time of a rising market, you've got so few people that are willing to look at it potentially. And then every time you've got something, you can sell it straight away if you're looking to onsell. Yeah. Um, but the reverse happens in a, a slowing market. You've got heaps of people that are willing to do it and then very few people that are wanting to buy. So for us, it's just as I said, creating that win, win, win, win outcome. Um, and we're very much looking at at now developing out that. And I'm all, I bought the Katoomba Golf Club, um, a few years ago, so that's been a pretty large development. I

Chris: On an option?

Ed: No I've purchased. So the old, Clubhouse of the Katoomba Golf Club went into liquidation in 2013 unfortunately. And so that had a, a master plan for 48 DA approved townhouses.

Ed: And um, and then the old clubhouse, which was a beautiful, beautiful building, um, but was just vacant. And so I'm, I bought, bought that and turned that into a restaurant and golf driving range and gym. And now we've got a meditation center up there. And then we, I'm doing the development and I sold some of those townhouse lots, um, developments. So that's just finishing up now, um, as well. But definitely trying to get out of, for me personally as well, trying to get out of the Rezi I've done in the past, um, and move very much into coliving.

Chris: Gotcha. So on your, just why, cause you've got a lot of experience around the development side. What were some of the things that you noticed were the reasons why we've got all these Opal, Mascot things, you know, have you seen any gaps in the system that you think that?

Ed: Um, private certifiers probably, you know, who having builders with relationships with their private certifiers, so the builder able to choose which certifer they use. I think that is a issue that needs to be looked at. Yep. Um, but I think coming back to this, people are incentivized because they're selling the stock. Yes. There's that seven year warranty. But you know, if the building's more than oh under three, so under four stories high, yes. Yeah.

Veronica: You've got a situation where built is it always incentivize to sell their stock older?

Chris: Well I think we've, we've got to get the code conflicts removed and you know, line it up a bit more. Yeah, that's right. Yep. Yes. Right. So back onto the kind of the coliving, I mean, have you guys got sites on the go and how, how big do you think this will be by a couple of years time?

Ed: Yeah, well the sky's the limit. We think, um, you've got a huge market and more and more people now are I choosing to, um, buy later and you've still got reducing home ownership rights. The rental market is drastically increasing. You've also got a situation where a large number of people in our age bracket are living at home. So not only are we seeing a very, very strong pool of rental renters, we're actually pullying new renters into the market because they were living at home and say, no, now I don't want to live at home anymore. I want to live in one of these properties. So that's a really good to say and really positive. Um, but I'd say that this is an opportunity for in the hundreds of hundreds of thousands of studios and rooms across Australia and across , even New Zealand and um, Asia, Asia Pacific. I think there's a huge opportunity and, um, just people are really crying out for that affordable, um, convenient accommodation.

Veronica: So are you looking specifically at saying ok well, individual owners or a company that owns a building for instance, would come to you and then you'd take a head lease or are you starting to look at other models for funding it? I mean, like for arguments they could, people did foresee that people ultimately buy a share in a coliving building and they may be able to upgrade within the building for argument's sake. I mean, I don't know, but what sort of visions have you got in terms of funding it and funding the growth?

Ed: Yeah, so we've got a lease model where we work with private developers, so we sub building relationships. Um, we're looking at a number of properties now in, in Brisbane and in Melbourne and expanding out into these other capital cities.

Veronica: But they're still, you know, when you say private developers, they're still only a certain type of person that has enough money, you know, effectively to be able to take part in this. So I'm just wondering whether there are, you know, there is a vision for other investors to be able to, or to change in the investment class if you like.

Ed: Yeah, I mean, I think what would be really interesting to look at over time is, is why's that I'm bringing out the people into the market, whether that's company title, um, there's also financing issues with relation to that. So I think over time we will say that as the market expands, more players will look at how, how that they can get involved in this market. Um, and I think, yeah, my mums and Dads, it's not a mom and dad investor strategy because as you say, you do need a lot of capital to invest into it. But there's still a huge number of developers around Australia. Huge number of landowners around Australia and even even mums and dads who own land who have been sitting on it for a number of times, we got a lot of equity in that land. I can, I could do a joint venture or I could, I can still get the development applications and we can still work with them in a number of different ways.

Chris: Hmm. I mean that's the really interesting, so where you work for example, where a leasing, they were signing up long leases and then they've got funding and the other starting to buy the building and then they're now doing by basically joint ventures. They're saying to the building, look, your building would be better if it was coworking. It ticks all the boxes for what a coworking space is and will increase your yield from, you know, 6% to 10% and we'll take it out for 10 years. And then if you wanted to sell the old building after we come in, instead of selling it for $60 million, you will now sell it for $100 million. And so we want you to pay for the fitout, which is going to cost, you know, $10 million. It's kind of like, well, they know they've got a good value proposition. They know they can fill it with their marketing machine, why wouldn't you kind of let We Work and We Work can basically, you know, take arbitrage in that situation and take advantage of the the building owner. And I think it's kind of the same thing in kind of coliving if you've kind of got the ability to fill it. And that's going to be your challenge I guess is just making sure you've got your marketing right, you then just need to go around and kind of find all the opportunities, I guess. Is that kind your, your problems more on the supply side?

Ed: Yeah, absolutely. Yeah, definitely. And that that is a meeting new developers and meeting new People. And I mean We Works an example, because I got large institutional capital, I think if we can, uh, bring that into the market, then great opportunity. But you're looking at now a lot of big players, um, particularly shopping centers I know aWestfields have come out and said it in a number of other players at retail for example, looking at how they can look at air space over existing commercial buildings.

Veronica: Now they might be talking about filling the actuals existing space they've got isn't retail really suffering?

Ed: But that's my point. Yeah. They're looking at putting potentially co living and residential above their retail precincts to create that integrated communities and then building up that. And I mean for us, right, not replacing the retailer or re purposing the existing retail space or you mean extending height, bringing more people into correctly hopefully put more traffic through the retail, right? Yup.

Chris: Yeah. Cause your shopping center is only five, six levels. You don't want to go shopping and say, you know, I want to get some shoes and go up to level 18 and then back down. So usually was wondering

Veronica: I was wondering whether the shoe shop will become an apartment.

Chris: No, probably some time take out the top level. But I know like supplies like Chadstone in Melbourne they're doing that. I know when I'm in the city, you know, around the new David Jones or the old building, David Jones. Um, there's it's beautiful old heritage building, but there's, you're right, there's all these air space above it, but it's just empty. That could be made into amazing commercial or residential. And so, but you've got to make it quite cool. So they've made these kinda amazing beehive kind of development above the old David Jones. So, you know, you're right. Like that's kind of the opportunity for a lot of these companies is how do we kind of make get better yield? How do we maximize our returns on this asset? And a col iving is one of those options.

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

Ed: I guess your property Dumbos are always good to start at the beginning.

Veronica: And, uh, we like to work up to them?

Ed: No, no. What I mean by that is the beginning of my, my journey. And I remember the first property I actually bought with a, a friend in Lismore. Um, it was, I think we bought it for $260,000. It was returning $450 a week. We thought, oh, this is a great yield, great return. And, um, we, we, we bought it and it was a Queenslander and they had a property up, um, you know, four bedroom house. And then underneath there was, um, got a little studio and we bought it thinking, cause there were two separate tendencies and that was great. But very quickly, the, after we bought it, the, the council told us that that studio underneath was illegal and shouldn't be there. I've got to get rid of it. And, and then so that reduced out, you know, we didn't, we didn't know that before we bought it, but that's okay. But I think, what did you actually go and look at it? Yeah, we had a look at it. We had a look. Um, but I think what's more important than that is, is really, I mean, the lesson you could take out of that is that I guess you should be checked with the council of all of that. But I think the better lesson was actually that the way I see real estate is that real estate investing in real estate is like just jumping through a series of flaming hoops. There's always problems. You've got dealing with councils, you've got dealing with, you know, you're doing renovations, maybe going into a tough negotiation when you're buying a property or selling a property.

Ed: I mean, there's so many issues with, with investing in real estate, it's about how you are able to cope with those issues and the learnings along the way. So in the end of the day, I think we made $3,000 when we sold that property each we owned it for five years or three years or something. And then, uh, but I look back and you say the time we spent on that property, it was nowhere near worth that. But the learnings we got, yeah, the learnings we got off that. And the process we went through that was priceless. And that's things we've implemented. And when I look at it, it's, it's, you know, you're never too, too old or too young to get into the market and, and start looking at it. And one of the great things about property is it's within your control. You're not investing in the stock market where you're hoping some CEO delivers for you and, and the people the company delivers for, and you're taking a punt. Property is directly within your control an asset class that if you can solve the problems and jump through the flaming hoops, then you can a, then you can effectively, um, generate a profit over a long period of time.

Chris: And it's, um, it's interesting. So you've kind of, you've taken a, uh, you haven't ended up too bad, right? You've got your money back. Um, you know, and you've got your maybe last five years. Yeah. I mean there's, you know, technically maybe not, but what you've done is you've thought about it, you've taken your learnings and you're going to apply those learnings for your benefit into other things. Right? Unfortunately though, most property investors just don't ever get the learnings from it. And they, what they'll do is they'll just rule out buying another property. And that's why, you know, 85% of property investors have one property. Yes. It's cause they stuff it up and you know, cause if they didn't stuff it up, they would go, oh that worked.

Ed: But everyone stuffs tit up. I stuff it up now. Yeah, you stuff it up. It's, it's a, it's about the journey and going on that journey.

Chris: Those people, you know, could, if they reframed it, learned why they made a mistake, you know, maybe there was a better option. You know, hindsight's an easy thing, you know. But if they could, they would maybe sell that property and buy one other good one. But a lot of people buy one property, it doesn't really work. They don't buy another one. They just hold onto this poor property and then just hope that magically it all turn round.

Veronica: So are you going to remember the property some times these mistakes when you stuff it up, um, then you can't recover financially. So if you don't have the, wherewithall, or the earnings or, or other assets or whatever, to actually dust yourself off, learn your lessons and get on with it, um, you can't recover. And, and I think that that's the importance. And it's one of the things that we talk about, you know, with the Elephant in Room and when we want it, we do a dumbo every episode because, because we want to, they're cautionary tales so that, that people can understand the risks before jumping in head first. And you're obviously an entrepreneurial character, um, and you have learnt from that and taken that. And I think that's fantastic to look at it that way. I've, I've made plenty of mistakes as well. Let me tell you, and I've learned from it and my clients get the benefit of those, those lessons that I've learned, but the dangers out there for individuals who, um, particularly if they're being sold to by spruikers or you know, there's a lot of mistakes that can damage people finances pretty irrevocably, you know, so, and I think that that's what I'm,

Chris: yeah, and it's what we want to and help prevent, yeah. So I mean, there's a financial cost generally for the bad mistake and that could be losing x amounts, you know? And a lot of the time that's not that bad. It's usually, it just hasn't done anything, you know, it's just they bought an asset and it's onsite. It can go horribly wrong like mining towns and things like that. But you always, it's kind of like a similar tale sold it for what I purchase for it didn't go up, didn't go down, lost stamp, lost selling costs lost. But the biggest thing you lost, it was time. Yeah, you lost five years. But a lot of people lose 15 years. And then they've gone from investing when they're 40 and now they're 58 and you know, they can't afford to buy another property. They go into retirement? They don't want to take risk.

Veronica: They take too long to recover and realize the mistake they've made and get out of it.

Chris: Yeah. So it's just kind of, you know, accepting that maybe you haven't done the right thing or maybe there are better options but dealing with it today and not letting it just burn on for, you know, another five years, which you could easily have done thinking Lismore's going to be booming in five years time. So I have you looked back at the value of that property again.

Ed: Oh by the end of 24.

Veronica: You've given it a red hot go.

Chris: Yeah. Thank you very much it has been a great interview.

Veronica: Thank you. Thanks guys. Really appreciate your time Ed. Um, that's been rather enlightening. It's certainly a topic that we've, um, we've well close to talking about or we've touched on with a number of our guests over the last few episodes. Oh, last dozens of episodes. So to have someone who's actually in that space come along and chat with us. Really appreciate it. Thank you.

Ed: All right, thanks.

Speaker 3: We want to make you a better elephant rider. And this week's elephant rider training is just following on from our conversation that we had with ed about his dumbo example, which I love that example. Um, and that really comes back to doing due diligence before you buy a property, but also not knowing what you or knowing what you don't know or not knowing what you don't know and how that can lead you to make certain assumptions. Um, but really I guess the recovery from stuff up, it's really important, um, that we do recognize our stuffs up sooner rather than later. And you know, some, some, oh, ages ago, I think it was episode 9 perhaps. I think from memory we did an episode on really, you know, buying lemons or owning a lemon, what to do if you have a lemon in your portfolio. And it's really important actually. And we'll put the link in the show notes by the way, for that last episode. But it is really important that we understand how to identify if we've made a mistake and to recognize also that there's a thing called the disposition effect where we are unlikely to want to recognize that we've made that mistake. Quite often people will sell good assets and keep bad ones. I've heard it described as cutting your flowers and watering your weeds. And this is a real problem that a lot of property owners have. And, and obviously I'm talking here about people who have more than one property, but to look at the assets that we have and to be, um, I guess brave and assessed them in the cold hard light of day to say what sort of caliber of assets do we have. So what I'm talking about here is that recovery from mistakes is easier if we recognize we made the mistake earlier and we act on it. And I guess that's really what the boot camp is today is being brave enough to, if there's a needle in the back of your head that you've gone and made a mistake in a property. And most of us, you know, we do know that. I think we do fundamentally deep down in our hearts, no, when we might have made a pretty poor decision, bring it to the foreign investigating, interrogate it and really check it out because the longer you ignore it, the more damage it's going to do.

Veronica: Please join us for our next episode when we interview Eliza Owen who is a residential property analyst at Domain. Now Eliza is a spirited, passionate economist. I know you probably don't think of those two words and economists together, but absolutely fascinating conversation all about property data, how it needs to be analyzed. You know what sort of data she has access to at Domain, the behavioral side of what property buyers and tenants do and how that reflects in the data, the lead indicators, lag indicators, all sorts of really interesting stuff. Like usual. We traverse an entire range of topics and I'm sure that you'll find it very, very informative as we do.

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

Veronica: Or on Twitter, or you can connect with us on the elephant in the today, you, the links are all there for you.

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

Veronica: The elephant in the room property podcast is recorded at the Sydney sound brewery. This week's podcast was recorded by John Rhesk, editorial by Gordie Fletcher. Until next week, don't be a Dumbo.

Veronica: 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