Episode 120 | The property front-line and who can you trust? | Michael Yardney, Metropole Property Strategists

The front-line pushing on and the experts weighing in, who can you trust in the current market?
In our first podcast mashup, we collaborate with Michael Yardney, founder of Metropole Property Strategists and host of the Michael Yardney Podcast. From buying, selling and advising we hear about how the “front-line” of property are dealing with the Covid -19 pandemic and we sit down to discuss which ‘experts’ should you listen to and how you should be timing your property movements around the current economic climate. 
Stick around as this will be a packed full of relevant information for those currently seeking, purchasing or those wondering if now is the time to dip a toe in. 

Here’s what we covered:

• The difference between a good and bad investor

• What are current investors thinking?

• Which is a better yield or growth?

• Which expert’s market predictions can you trust?

• Better yield or better tenant?

• How are banks assessed during the Covid-19 pandemic?

• Why the property market will survive the pandemic

• How will industries adapt?

• Will there be greater globalisation or greater localisation? 

• Will owner occupier demand increase due to the virus?

• What properties in Melbourne that will thrive in the pandemic?

• What is a good development?

GUEST LINKS:
Michael Yardney’s Property Update
Michael Yardney Podcast
Metropole Property Strategists 

MENTIONED EPISODES:
Episode 114 | 2020 Fool or Forecaster report
Episode 115 | Eliza Owen

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au 

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Buy the book - AUCTION READY How to buy property at auction even though you’re scared s#!tless: www.getauctionready.com.au
Use the coupon ELEPHANT for your 30% listener discount.

EPISODE TRANSCRIPT:
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode is recorded on 9 April, 2020.

Veronica Morgan: 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, cohost of Foxtel's location, location, location Australia and author of a new book called auction ready, how to buy property at auction. Even though you're scared shitless.

Chris Bates: And I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website as well as download our free fool or forecaster report. Which experts can you trust to get it right, the elephant in the room.com. Dot. AAU.

Chris Bates: Please stick around for this week's elephant rider boot camp and we have a cracking Dumbo, the weight coming out

Chris Bates: Before we get started, everything we talk about on this podcast is generally 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 buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking today.

Veronica Morgan: Sing it up a little and doing our first ever podcast mashup. What the hell is that? I hear you ask. Well it's when we interview another property podcast host and they interview us who will be covering more about the psychology of property buying any particular the three ways that investors are thinking right now and which is the one that will save them best. We'll also understand more about timing the market, what signs to look for that will indicate things around on the turn and why confirmation bias looms be in times of uncertainty. And Chris and I will give some more on the ground insights into what's happening right now with lending listings, real estate agents and buyer activity. So who is I'm mystery mashup cohost today we're meeting up with Michael Yardni property strategists and commentator author, founder of Metropol and host of the Michael Yardley podcast. Thank you so much for joining us, Michael.

Michael Yardney: Welcome Veronica. Hi Chris.

Chris Bates: Thank you Monica. Great to do this with you cause we really appreciate your podcast and all your learnings and I've read your books. I was hoping when I was going through the books to say, Oh I don't agree with that. But I originally couldn't find anything I didn't really agree with, which was I'm sure is really nice actually. Because I think in the property world a lot of people do have strong views that are potentially aren't the right thing.

Veronica Morgan: Yes. I love that. I'm always a bit worried when we started podcast, Oh we all in agreement and so anyone can tune out cause like how boring is this one gonna be. But the, the fact is unfortunately there's very few voices in the property space that aren't sort of trying to get rich quick or trying to you know, chasing possible dreams. And I guess we're all pragmatists when it comes down to it. And I think when it comes to property and certainly in the wake of and the impact on the market, being pragmatic is actually probably the strongest thing that we could ever offer our listeners and our, and our clients at the moment. Would you agree with that, Michael?

Michael Yardney: Well, I think the other thing is perspective. So I've been around a little bit longer than you, but I've had a head start. I, I started my investment in the 1970s, early 1970s and I got through a recession in the early 1980s. I actually don't remember much about that. I got through and then there was the stock market crash of 87. And I know you're both Sydney based. I was actually in Sydney with a friend, Michael Warren at the time. I remember where we were standing when we heard about the stock market crash and he was very heavily into the stock market. We got through that. I got through the recession we had to have in the 1990s and the birds flew in the swine flu and mad cow disease in size and the global financial crisis. So I remember being scared at each one of those, but maybe being a little bit scared less each time. Veronica. So I think the other thing that we're bringing is the fact that we've actually survived.

Chris Bates: Yeah, I agree with that, Michael. Because, you know, I think experience is something that you don't really value it until you've got it I guess. And you know, you're kind of, when you're starting out you think our experience doesn't matter that much. But I think over as you get more experienced, you know, how much experience matters because your learnings over time are compounding. And I know just going through the JFC, working and living in London just having that experience and that going through that I guess recession allows me as an advisor to look at things a little bit differently to a lot of advisors here that didn't really get to experience that like it was in the UK. So I think experiences is a huge is so important. I think in terms of what you do, Veronica, I mean someone who's for example, had two years buying property experience. Yes they might be great and had two solid years, but they haven't got the same as someone who's been buying property for 15 years in that market. They just can't possibly have that same knowledge.

Veronica Morgan: Look, it's very true. But what I often find with people is that he can have 15 years cumulative experience or you can have one year, 15 times. You know, there, there's plenty of people who don't seem to learn through the experiences, although they don't take time to reflect on what has happened and, and, and really be critical in their thinking. And I think that this, you know, I don't mind tough times in some regards because it's a great way to sort the, you know, the, was it the wheat from the chaff or you know, it's a great way for the AAN particularly in property and you're seeing in the South side already, you're going to see people who are really not in it for the long term. They're not really in it for the right reasons. They're going to, they're going to go by the wayside and they're going to go and find another industry that's easier. You know, if there is one,

Michael Yardney: I think what you're talking about is your advisors and the state agents here. We're not talking as much about investors, but that's the problem, isn't it Veronica? That there's so many mixed messages. At the moment and the last good year we had it, well, good. Nine months I guess brought a whole lot of these new so-called experts who had done it weekend course and they're suddenly buyer's agents. You know, we, we both work have a buyers agency. It actually takes longer to get a course to be a nail manicurist than it does to be a buyer's agent nowadays, doesn't it?

Veronica Morgan: Well, there was a bit of a joke around it was easy to become a real estate agent then a barista. My joy, I do like really good coffee. So maybe there's a point in that, but but no, I think from the investment point of view as well, the problem is that there's such an appetite amongst the general public in Australia to invest in property and to look to property as being an investment vehicle of choice. Right? We sort of culturally predisposed that way. And so, but we also like to think that things can be easy and there's going to be easy riches. And so therefore when you've got good times, you've got an industry that attracts people. It's a particular type of person, both on a client side and on the advisors side, you know, to think, Oh this is, this is easy, I'm going to go and look for easy riches.

Veronica Morgan: And it's times like this where we hopefully weed out both types of the investors who think that they're going to get easy returns. Well, you know, now the reality check I guess, and the advisors that are preaching that you can get easy returns. So you know, I guess we sort of going as slightly philosophical direction with this one in the, in the sense of why do we have these cataclysmic things happen in life sometimes I think is to try to reset, you know, get the reset button happening. And maybe that's something that needs to happen in the property market.

Chris Bates: Yeah, I mean I guess it's the thing we're really keen to talk about today's from an investor's point of view. How are they thinking right now? Like what are they, you know, what mindset, what's affecting them? And a lot of them is probably taking inaction. So Michael, what are you thinking that investors are thinking right now? And is that productive or is it going to hand string them?

Michael Yardney: Well, Chris, I love what Veronica said a moment ago cause some people do see it as a reset and others are seeing it as the end of the world. Some people are living in the here and now and can't see beyond today and other people haven't got a long term time perspective. And depending upon how they think, I'm finding people are thinking in three different ways and only one of them is productive. A number of people are seeing it's the end of the world and it's terrible and the business is going to go broken. My property portfolio is going to drop 30% because it used paper, scissor and Harry James come from America and he said it's going to drop 40%. And those people are panicking and the fear language, the using it means they're not going to make it. But, but actually maybe I should go back a step.

Michael Yardney: There's a lot of uncertainty at the moment. We're finding that with our clients or with our friends, with our family. But I'd like to share a couple of certainties just for our listeners right at the beginning, we're recording this in April, 2020 and I'll give you a certainty in 12 months time. We are going to be at April, 2021 and I've got another certainty some way between now and then there's going to be what I call a survival line. Now, I don't know when it is, six weeks, six months away, I don't think it'll be six months. And once we cross that survivor line, desire and greed, he's going to overcome fear. But at the moment fear is a holding a lot of people back. So to answer your question, Chris, a lot of people are thinking about fear at the moment and those people who are in that panic mode and not going to make it across the survivor line.

Michael Yardney: And that's a pity. And as Veronica said, that's happening in industries as well. And some industries are going to have to close down some businesses to kind of close down. But then the bulk of people I'm coming across these sort of hunkering down the, the the, the preppers or some people call them the buying the pastor and the, and the rice and they used to buy toilet paper but now too, a lot of available again and then just hunkering down and they're just going to get through and they'll cross the survivor line. But what I'm finding in businesses and a lot of our higher end strategic investors, those who have been through the cycles before, they're using this foundation period between now and the survivor line to get set to take advantage of the market. So they're getting their finance in place. Christie coming along to you and you, I'm sure you're seeing it with your clients too, some of them actually getting set with the right structures, the right, I'd use the right plan and they are gay to take advantage because once we cross that survival line, these can be great opportunities aren't there?

Chris Bates: It's interesting you say that because I think you're right. Differentiating between the say the more experienced one that's kind of seen it before and then the first time sort of investor. I agree that the first time investor is extremely nervous whether they're a first time buyer or they're a first time investor and for a lot of them, you know they've only got a little bit and they don't want to waste it and the last thing they want to do is enter the market and see it fall. So they've got a lot of anxiety around their decision for them, 100% they're going nowhere near the market. It's very hard to get first time buyers to buy firstly and secondly in a time like now to go against the grain. The other investors, I think it's, you're right, I think you've got the either high net worth investor who's done it before. They're seeing it as an opportunity, but also the investor that wished they did it in the past and the market ran on them and now they're like, Oh actually this is my chance to get back in. So I think I'm getting those people that are the experience, one who's potentially looking to buy another one or the one that wished they bought that left it too late. But now see you watching now I could buy in a better market.

Michael Yardney: We all hear that it's important to be fearful when others are greedy and greedy when others are fearful. But it's really hard to do that, isn't it Veronica? How are you finding it?

Chris Bates: It is very hard to do that. It's interesting because we do have that very recent history of 2018 is really the time to buy in Sydney anyway. And yet most people fail to recognize it until after the event, which is what always happens. You know, we will only know in the rear vision mirror when we pass either the peak or the trough of the market. So some people, as Chris alluded to there with some investors realize that they missed that opportunity and so they're not going to let this put them off because they see this as, as another opportunity. Others, however missed it because they fail to take action when there's opportunity and they will again fail to take action. Now that there's another opportunity and you can't help some people because they will always revert to that, Oh, not going to sit down there.

Veronica Morgan: The hunkers hours hunker down is, is that even a word? So I'm seeing it with my clients, but I've also got to be very careful how I advise my clients here because the simple fact is with investors at the minute, okay, so my owner occupier clients, I'm saying, you know what? Stay the course. If you need to upgrade your home, you need to upgrade your home. If we find the right home for you, then there could be some more favorable conditions in terms of negotiating, but keep your eye on the big picture. We also need to have conversations around if you need to sell, how would you time that? What's the implications in terms of your sale price? And so we're looking at the big picture in terms of their total situation, but a falling market. I say to my upgraders is a perfect conditions for upgrading.

Veronica Morgan: Please do not waste that opportunity if that's the case, but we're also facing potentially no stock so then this could be a moot point. But the investors in the conversations we're having with investors has to be different right at the minute. Now we never buy for yield, never. We always buy for capital growth. I always direct our clients who just want yield or they don't have enough money to actually buy a quality asset. I actually direct them to a financial planner to look at other alternatives for investment. I'm not property or bossed, right? But with our investors who can buy are in a position to take advantage of this market. We've also got to be very careful because we don't know really the next six months whether they might have to stare down the stare down a whole period of time where they've got to completely fund that property without any rental income potentially or certainly with vastly diminished rental income.

Veronica Morgan: And when you're looking at Sydney is, you know, a 3% yield when we're talking about rent only here, but the 3% yield being a good thing, which is has been in recent times. I you've got to focus on capital growth. I said, why would you buy the asset? But B, you've got to be able to fund the shortfall. So, so really property investment in my view is a rich man's game. And I hate to say that, but, but for all those people that are wanting to, to, you know, replace their income, will you need a big income to actually invest in property in the first place. So this is the time for those people with that big income to have to make sure that their buffers are in place, they're buying the right asset, it's an opportunity. And the pricing of that asset is such that if they do need to actually fund it for six months with no income from it, they can and they see it as a good opportunity, then that's a very different conversation to an owner occupier who finds the right home to buy and buy now.

Michael Yardney: Well, I know cruciates up into clients with financial buffers and so therefore you're right Veronica. But it's also having the right finance strategy. So we similarly have a philosophy that our clients have to buy time. They don't just buy property, they've got to be able to buy the time to ride the ups and downs. So our clients who have set up correctly now, even if they are losing a bit of their income, even if they are losing some of their rent or their own jobs who've gone down a bit, they've actually got their offset accounts, their redraw accounts that the money that they've already in two lines of credit to actually see them through because up til now they've wondered why these guys so conservative, why are they allowing me to use all my money? This is why that's the insurance policy.

Chris Bates: Yeah. I think with the investors, I think, I think investors who have currently got property are more worried about the people who have bought multiple poor investment properties. Let's say they have that prior to coming to us and they've gone to see someone and they've got four or five, you know, three, $400,000 properties and they're in areas where potentially their, their tenants can't pay the rent and they've got four or five properties that are on leases and they're not going to get any rent. These investors, the ones that are going to be really hurting new investors though most of the time if you've already got it, if you buy an investment with a tenant that's going to end up Lacey's going to and sometime in the next 12 months and if it hasn't got a tenant going to market, now you can be really selective on the type of tenant that you are leasing your property to.

Chris Bates: For example, a client who was going to sell a property in Bondai, you know, they didn't get a great sale price so they didn't sell it. So what they did is they put it on the market. But yes, they got $200 a week less than they would have, but they peaked a really good tenant. That's unlikely to have problems with the rental at the moment. So I think even if you do want to invest from a investor's point of view, new investors have, can protect themselves a little bit by actually picking a really good tenant rather than existing investors have, can't go retrospectively and rethink their tenant. So I think yes, you need from a rental point of view, but I don't think,

Veronica Morgan: I'm not in agreement with you there Chris. I agree.

Michael Yardney: Not Veronica kind of cues the right property in the right location. The kid is the least important of all the factors. Cashflow's important. It keeps you in the game, but it's the Capitol broke that gets you ever on the car.

Veronica Morgan: Yeah. No, but I think what Chris is sort of Ilir to be idealistic in terms of that. How many tenants are actually out there actively looking? The tenants are in the box seat at the minute. I know this personally because one of my properties unfortunately that my tenant was looking to buy before this and actually did buy just before this and has now vacated. I've had a number of okay that a couple of applications, either a really bad one that I rejected and I've, and they've come back to me now and I've rejected it a second time. I've had one that was a really good application that I accepted and of course I wasn't the only landlord to accept their application and somebody obviously given them on don't no discount or whatever and and snag them. My property managers showing the property and I, and I've reduced the rent so

Chris Bates: Rent a lot. Like that's the thing. If you, if you put a, you know, a 25% reduction on rent, you make your rent really cheap right now and you get, then you will increase your applications. If you increase your applications, you're more likely to get better quality tenants. And I personally think that's the best strategy right now. If you've got a really good property, put on a bargain rent and then get a really good applicant.

Veronica Morgan: Well I tend to agree. I agree with you. But what all I'm saying to you is that then it comes back to the cashflow position of individual. And it's really deep. Look, I bought that property in 2012 right? So that my borrowing is, is pegged to what it was worth. Then my borrowing is not paid to what it's worth today. And so I've got a fund that, a much smaller loan that I would have to, if I bought that property today and I can more, I can easily withstand that rental reduction than somebody just buys a brand new, you know, or buys a new investment today, there's not many people that can go, right. Well, I'm happy to take a one and a half percent yield on that because already even it's 3% yield, you're significantly out of pocket when you borrow 105% of her an investment property.

Chris Bates: Well great. But the second thing that drives your cashflow is interest rates. And so at the moment we're getting three year interest only investor rate at about 2.8% so if you can, even if you're getting a small yield right now, your number one expense is interest. And if you can hedge that for a three year interest only investor rate at 2.8% your cashflow and you can get interest only your Catholic cost for the next three years isn't much. And so even if you get a smaller rent which is fully taxable, it's not going to impact you too much. And I think the thing is people, investors are so concerned about the rental impact over the next six to 12 months, but then not understanding that even if they don't get any interest six months, it doesn't mean they shouldn't buy because this isn't going to last forever.

Veronica Morgan: No, it's true. It's true. But the thing is that because of uncertainty, like there's not many people that are going to stay down the barrel of not many investors are going to sit on the barrel of potentially not renting that place out for six months taking out a big loan, even at low interest rates, you know, thousands of dollars out of their pocket every month and they got the specter cause there's so much press at the moment about prices falling. So then you have to sort of come back to, well what are you going to pay for that property? How can you work out whether that is a significant enough discount to give you the comfort that you're going to take that heat. And so that's the conversation I'm having with my clients. If we can say yes as a package, this looks like a great opportunity because of all of those things. And absolutely I think, yes, go and buy a property. But it's, you've gotta be very careful that it's got all those elements. That's all.

Michael Yardney: So what you're doing, Veronica, is taking a holistic view and you're not selling something, you're selling your services, but you're actually not talking people into getting themselves into trouble. And I think that's what part of our services and yours are actually protecting people from themselves. But it's interesting to three here, three property professionals like us talk about the here and now. And we've really got to remember the longterm big picture because there's that thing in your mind called the reticular activating system that filters out all the news. You know, like in the old days when you used to drive, we don't drive much anymore. If you drove to work, you wouldn't see all the white Toyota's. But now that I've mentioned that you see all the white Toyotas, so your mind looks for your infrared activating system filters for things that you're, you're looking for. So if you're going to look for bad news, you're going to see it. But if you look for good news, there's a lot of good news out there in the medium to longterm isn't there?

Chris Bates: Oh they liked your survival line points because I think it's a real ease and that's what we need in life is we need concepts and frameworks to allow us to think about what's happening is survival light constant. And if you are come up with that yourself, Michael. But I think it's a very good, because what it does, it kind of talks about something called peak pessimism. And at the moment, you know, when peak pessimism hits, then we started getting a little bit more optimistic each day and actually know what we actually are going to be able to go outside again. Actually, you know what, we are going to go to work.

Chris Bates: You know what, you know world is going to come continue again. And I don't think we've hit that yet. But the problem is once you hit that line, things rebound really fast. And this is what happened in 2019 once Labour didn't win the election, once RBA did three rate cuts and after changed the rules, the market took off. And so this is a thing, if you wait for the survival line, you're going to potentially be too late to the party. And so I think we all want to wait till the survival arm. We always want to be told that we're going to be safe, everything's going to be okay. But the problem is if you wait too long, you're going to miss it. And I really liked that mind. Now it's the same as investing in shares. A lot of people wait for the bottom, but once they hit the bottom they go, Oh, it's actually moved up and they've already missed differently 20% so it's a really good concept.

Michael Yardney: Well, we've been through similar situations before where we've recognized that it's just too hard to time the market. I love your annual a fool. And I'm sorry, what's the name of your special report that I just read again this week? Forecast or report. So your forward forecast or report showed how even the best minds in property don't get it right? Because every year there's an expected. Now, currently there's a whole lot of people coming out saying, I told you so the property pessimists are out there. No, they never knew about Corona virus. They kicked the can down the road. They said we probably were going to drop 40% 10 years ago and seven years ago and five years ago now the JC I told you, but, but the answer is if you listen to them, then you would have missed out all those great opportunities. Much the same as if you did this now.

Michael Yardney: So Chris, what we need to do between now and that survival line is get shit. So I agree with you Veronica, you gotta be really careful about committing at the moment, but you've gotta be shit and you'll be three months ahead, four or five months ahead of those others. So what's getting said, working out a plan, getting a strategy, educating yourself, but listening to the right people, getting your finance pre-approved. But that's a bit of an issue because if you're not going to go ahead for a little while, maybe it's a bit too early to do that, but understanding and knowing what you're going to do when it happens. So Christian Stone, they're getting financed, pre approved. How are the banks treating us at the moment? Are they open for business?

Chris Bates: Just in the last two weeks I was having a good chat with my business, find a band around this because Ben's always dealing a lot with the banks, understanding where the policies are and speaking to the banks and it's almost going back to like it was in 2018 thanks. Assessors are either getting told from above them. You know, we want to take risk as a bank. Look to approve applications, right? Exceptions, let's get the loans through. Unfortunately, we've seen in the last two weeks, the banks, assessors are looking at things completely different. They're looking at where they're working. They're looking at their bonuses, they're looking at their cashflow, the type of property they're buying. All this, you know, and that actually having to do detailed questions around how is covert affecting you, your employment and your, and your bonuses and everything like that. And so it is completely changing. There also is a big risk right now, for example, if you're selling a property, you're not confident that you're going to be able to have enough time to buy another property fast.

Chris Bates: So if you're, if you're upgrading, so what you want is a long settlement now. So you might sell a lot of contracts, I don't know, 100% if this is true Veronica, if you've seen it, but more likely to have, you know, 12 weeks, 90 days, these longer settlement periods on South contracts. Now if you're buying that property, what we started seeing the last week is if you can get that loan approved when you buy us, if you buy on Saturday, we can get that loan approved in the next week and you have these formal loan contracts in the past that's been enough. But what banks are going to do now is is two days before you settle in 90 days time, they're going to call up your employer and check. He's still working. Now, this hasn't happened before because they know that unemployment's happening in the bank saying if you haven't got your job at settlement, that loan is going to be, you know, avoided.

Chris Bates: So it's another risk that buyers have to be thinking about. And I think it's just what we're saying every day, credit policies getting tighter rather than looser, which is exactly what happened in 2018 so pre-approvals right now, if you were preapproved pre Corona, that preapproval is invalid because what bank policies have changed and you need to really go back to that bank and check is your situation still valid? Because they will, they'll assess you under new policy or who they begin.

Michael Yardney: Recently it was actually my daughter who sold a property to a first home buyer at auction a couple of weeks ago. She sold an enrichment of hers cause she was buying another one. She's the odd people there who are non-discretionary who actually have to shell because they bought a board because they've sold and she sold her first home buyer and it was mentioned Sidley in 30 days and unfortunately got a letter from the solicitor a couple of days ago.

Michael Yardney: She's had an hours cut back and the bank's not going to afford her alone. Can she delay settlement? So there's a real issue of that happening at the moment. Even if unemployment goes to 20% at a percentage of people still are employed, a lot of people are getting this job, keep it allowance now. But it gets, we have to understand what is the individual person's situation, what's their, how security job. Cause there's a lot of industries where job security is still pretty strong, isn't it there?

Chris Bates: Yeah. I think there is, and I think the banks know that. That's why it's so kind of case by case and they're really saying looking at your job and saying, well we don't see much problems there if you're working on contracts. So this is a one that we're having problems with at the moment. A lot of it, which is some of the highest paying jobs in Australia. Um email, a lot of consultants, a lot of compliance, legal, they go in on 12, six months contracts and because they've got great experience, they just go get another contract every six to 12 months. In the past, banks would just automatically approve these people. But at the moment, if that contract's likely to end in the next three to six months, the banks can't be confident that you're going to go out and earn that money. And with responsible lending, people who are in contractors, they are having problems. So I do think is matters because if you're looking to sell a property what you need is people with a lot of money and a lot of borrowing capacity at the moment. A lot of people who earn a lot of money, their borrowing capacity isn't a certain because they're not looking at their, their bonuses, they're not looking at contractors, et cetera.

Chris Bates: So you just gotta be conscious that borrowing capacities could in the short term be reduced, which means that buyers of your property can't borrow as much. So if you're looking to buy your competitors can't potentially borrow as much, but you can still because your, your job safe. So you might have a one up. See it's just a case by case basis and borrowing capacity has a huge impact on the market because that's really what drives prices together with interest rates I think a lot of the time.

Michael Yardney: Well I think this leads into a good question for Veronica. Certain sectors of the market, again just suffer more than others. How do you see that happening?

Veronica Morgan: Yeah, I definitely agree with that. I think that you know, for instance, when the share market just tanked a couple of weeks ago and automatically we started seeing people who were in a price bracket say above 3 million, they might be more exposed to the share market then people with a lesser budget. It's sort of a bit of a job, broad generalization, but so the conversations with those sorts of clients and those people who are selling as well, very different to somebody selling a less expensive property or to a or why is it looking at buying a less expensive? Probably. So that's sort of one thing. It's so exposure to other markets and whether you were planning on, on selling shares in order to fund a property purchase, which a lot of people were, and so they, suddenly, their budgets were, were constrained because of that. So that's sort of one segment of the market.

Veronica Morgan: Certainly we are seeing that there's a couple of little pockets of potential vendors that might be under stress. Okay. But, and first and foremost, a ex-pats who might want to avoid paying more capital gains tax. If they sell after June 30, so there's, there's a little bit of a late run, people that had left it a bit late and you know, figured that out a bit more time than they really do and they're like, Oh no. And so there will be some pressure from some people who might take a haircut on the price because they've owned that property for very long and their tax bill is going to be much, much bigger if they do a hold it over that date. So potentially there, there'd be some opportunity, I think to the Airbnb thing's interesting. There's a lot of people that have pursued that short term letting 'em strategy, and I hate the word strategy when you apply it to such nebulous things.

Veronica Morgan: So they've got an investment property that may or may not hold its own and stand on its own two legs as a traditional investment property. They may also be under a bit of financial pressure because potentially they might have only bought it in recent years and now they're trying to get that onto the, the typical, you know, your normal rental market. So that's, that's contributing to yields and vacancy rates going up and yields going down. So you might find some of those people are actually considerable financial pressure. I might just decide to buy group Wood's going to sell it rather than let it be vacant. So there might be some opportunities there. And then look there, there's sort of areas that we deal in either a, you know, good deeds. The business that I have there, you know, we, we focus on the 10 K radius of Sydney CBD, so that's low and offshore.

Veronica Morgan: He's in suburbs in a West outside those areas when you're dealing with high density residential apartments, which we don't buy into brand new buildings and off the plan, you know, there could be potentially a lot of stress there. There could also be a lot of stress in outer areas, suburban areas where there's been less house and land packages. And that's more about the homogenous nature of the owners. And also there's the, everybody's on a similar timeline whereas if you're a more established areas and in any given street in any given block of apartments that has been established for some time, every single person's financial situation is completely and utterly different. And there's no sort of single factor that is going to tip them all onto the market at one time. And so, yeah, and that's another reason for, for looking to buy in these areas cause they had much more robust when these sorts of things go go down.

Michael Yardney: What you've said reminds me of the conversation we had right at the beginning of this podcast, how our philosophies are very similar. So I couldn't have said it better. So I think a grade homes and investment grade properties, and that's not investment in stock, but investment grade and not going to fall as much. Clearly the upper end of the market's going to fall. It always does when the stock market crashes. But, but and the outer suburbs are going to suffer more as well because a lot of people are going to have fewer hours and they can't work remotely. They can't distance themselves, but there's lots of suburbs where people who've got multiple streams of income like the in Eastern suburbs that you're talking about in Sydney and in the better suburbs of our other capital cities where people have got multiple streams of income, they've got chairs, they've got property portfolio, they've got wages, they get dividends and so they're still going to be okay and there are still going to be some discretionary sellers and buyers who move out of the market.

Michael Yardney: But there'll always be those people who have to still sell, still transact because of death, divorce, the having babies moving jobs. And I heard something clever that you said on one of your previous podcasts, Veronica, that the property market closes down every year for about four weeks. At Christmas time, solicitors go on holidays, bank sort of closed down, estate agents go away. And when we come back after a closed down, the probably market doesn't crash. What will be a bit different this time round is lack of confidence. So we really got to see how long all this goes on. The longer it goes on, the harder it will be to regain confidence. But there are preceptors for this. When the market closes down for awhile,

Veronica Morgan: Of course there are, I mean if you even look back into Eliza Rowan, we interviewed her every Sunday and she did the score it out of KU where it really did look back. It sort of went back to the 1980s, I think looking at economic crashes if you like. So the stock market crash and the various other economic crushes and whether or not the property market responded in the same way and it's not uniform in the way the property market actually responds. And that's fundamentally because it's a consumption item, you know, that we all need to live in property. At some point, life gets in the way and we go, Oh bugger it, we're just going to get on with it. And I think that's what we saw happen at the beginning of 2019 after, you know, 18 months of prices falling.

Veronica Morgan: People came back after Christmas in 2019 basically saying, you know what, even if it's not the bottom, I don't care, I'm actually ready to get on with my life. And I, and I was really looking at thinking, well this pretty much, you know when things kicked off again after the election, it was like two years of pent up demand. And you could even argue there was two years before that because a lot of owner occupies, it evacuated the market while the investors were just so dominant. And so you could argue this four years of owner occupied demand that had built up and that's why we shot out of the gate straight after the surprise election outcome. And, and it was owner-occupied driven to not invested, driven. I think that's really important because that's about people getting on with their lives and needing homes. And so I see that at some point when, how long, how it, you know, the, the shape of the curve, all that sort of stuff. You can argue about V shape, you shape, whatever. You can argue it's going to be long and skinny or short and sharp. You can argue that till the cows come home, fundamentally the market will start getting active again at some point. And I just think that everyone has to remember these, these two will end.

Michael Yardney: This is a viral line I was talking about Veronica. We're basically greed or, or desire is going to overtake the fear. So let's remember the fundamentals. 70% of properties a bit less than that are owned by owner occupies and they're not going to give up their homes at the moment. They're not going to sell desperately. They'd rather eat dog food than sell up their homes. But the answer is the banks aren't asking them to. The banks are not creating it. There's no forced sales at the moment. And the won't be forced sales from investors either because of the bank holidays as well. Yeah, you're not going to get out of paying your mortgage, but they're going to be able to delay it. So I can see a crash occurring like some of the do's sizes because we're underpinned by that large percentage of owner occupies mortgagees.

Michael Yardney: Our sales aren't going to occur because investors are not going to get themselves into as much trouble. It's no doubt that some investors have over committed, but we know that core logic says there's a $7 trillion worth of properties values in residential real estate in Australia and overall there's about a 28% loan to value ratio because a lot of people don't even have debt against their home and a lot of people would actually pay down their mortgages faster than they've needed to. So the is a segment of the market that's over committed, but overall the fundamentals are strong with owner occupies usually in good financial condition. We've got a rising population that probably won't rise as much in the next year or two because immigration is going to slow down. We didn't come into this with an economic crisis yet. Eric Honami wasn't working as strongly as we would have liked, but this was more a health issue creating an economic issue rather than the other way around. And our banking system is very sound and fortunately compared to other countries, we actually came into this a, a government came to this with the almost a budget surplus on the basis that they can now afford to borrow it. What's the government's borrowing at quarter percentage to fund all this? That means that we're probably going to have to pay some more taxes down the road, but I can see that we're going to get through this guys.

Chris Bates: Yeah, I think you're right. The government's we've very fortunate that government has it as in relation to a lot of the other development countries around the world. We have got very low government debt and so the government can go on these beans and borrow a lot of money and still, you know, really at the end of it, we won't have a huge kind of credit card bill, which a lot of countries around the world, I've got this bigger debt and even, and rates are very low so they can afford it. So I think that's very good. And I think it's interesting when we talk about what's actually underpinning the property market. And a lot of it is migration and a lot of it is population growth. And yes, we might get this 12 to two years where 12 months, two years, where is not as many units, university students, there's not as much tourism, you know, et cetera. But the reality is that's one of the tools that government will actually increase to get us out of this recession. They'll actually potentially open our borders more and they'll actually try to encourage more migration because that's one of our tools. So I think longterm, I don't think the migration thing's going to change. We may get a couple of years slowing down, but after that it'll go back to business as usual and we'll try to encourage people from all around the world that Australia is a place to live.

Michael Yardney: Well, there's a queue of people wanting to come here and they get to see us as a safe Haven because life is going to be different moving forward from this. When my parents came, I came here at age two or three in 1956 they used to have to pay people to come to Australia. Remember patents are Palm, they may, they get, they pay you to come. Now there's actually a, a queue of people wanting to come in and we're very, we can be very selective. So you're right Chris, that's a way helping grease the wheels of industry and get things going again. But in the short term there's going to be a rising unemployment. And so I can see that we're not going to need to bring as many people in, in the short term to fill up the jobs that maybe Australians who they're going to not be as selective in the jobs that they're taking. They're going to take the jobs that are available.

Veronica Morgan: Well, it'd be interesting to just, I just think on the globalization side of things, I think that we will, just as human beings, we're going to have to look at the way we have been doing things in the past and the risks that have been associated with that. So we've all gone globalization and that's contributed to add our wages not rising as well. So I think that we're going to have to, you know, the manufacturing sector is going to be looking at things differently. We're going to be looking at quite a lot of, you know, travel's going to be different. There's going to be ways in which we actually look to ourselves to pull ourselves out of this as well, rather than necessarily just looking to bring people into this country. So I'm quite excited just to see, I guess what comes to the washout of this and, and I guess it comes back to that idea about survivors, you know, those hunkering down versus those looking to the future versus those thinking that that things are never going to be the same again.

Veronica Morgan: So that's going to be horrible. So one thing is for sure, life will go on and we will survive whether we've got, you know, everything we entered into it with or not, we still will be alive at the end of it and kicking and screaming and doing whatever we do. So, and that just brings it back to property being such a fundamental part of our lives. And so yes, if prices all fall then they all fall. Or if you know, there's opportunities in that for some people and it's all about your mindset as well. And definitely the upgraders and it's what I'm always banging onto people about when when the markers do fall go take advantage, you are going to be able to get more than what you could possibly get in a rising market even though you feel more confident to trade in a rising market. So there's this sort of mindsets that I think a lot of people have to start looking at. Not just buying property but everything that we do and if we do be or if we get a bit more creative about things. I mean

Chris Bates: I'm actually quite hopeful of forests as a society. I've just been reading a lot of articles which you know, a lot of investment professionals have been writing around the changes that have big crisis, whether it's the depression, global financial crisis, 90 87 stock market crash. They all have an impact on consumer behavior and how after those crashes, we all look at things a bit different. We validate, you know, check our expenses, how we're spending money, how are we getting value from them? And we always reset, which is what we spoke about before, but there is going to be changes to consumer behavior. And I, I, we don't know yet what they're going to be because you know, subconsciously, and they're going to have, you know, maybe we, you know, go on holidays more, maybe we, you know, spend more money on our homes. And that's the thing I'm, I'm a bit unsure about, but you know, having to spend six months in your home, let's call.

Chris Bates: So you change your attitude on how much a home means to you and how much importance space et cetera. And what this potentially could do is, you know, really, you know, encourage people to potentially say, you know what, I really do want to have a place of my own, or I really need more space. And so what you're potentially going to get is more owner-occupied demand. And more people pushing and having that as a goal, which potentially could create, you know, longer, even more people. So when you say 70% of people, only home people even more could go down that direction. So it's just going to be interesting what happens to the property market intensive consumer demand changing.

Michael Yardney: I think people are going to want different sort of homes because I think one of the things that's come out of this is we are, we are all three of us are working remotely at the moment as our staff owes our businesses. And up till now bosses probably were a little bit nervous, a bit scared. I've got 60 staff and they're all working at home now. In the past I used to only allow a few because to be blunt, I wasn't convinced that if I let the others work from home that they'd be as productive versus efficient. So I think now we've actually realized maybe we don't need as much office space. Maybe we don't need to, to, to work the same way. Having shit that people are also going to realize a studio apartment doesn't work for me anymore. I need a study in New York. I need a separate bedroom. I need a an area too so that I can lock the door and the kids aren't going to annoy me as much. So I can see that some people are going to want to have that front or backyard and others are going to just make sure that they've got a bit more space. So I think it could well change the way we live, Chris, because war of us are going to work from home in the future even if the coven, even when covert goes away.

Veronica Morgan: I've totally agree and what I think is going to be very interesting, I think as some people are going to come out of the, out of the Gates, like a Greyhound at the, at the track, you know, at the end of this going, that's it. I'm in the wrong home and I need to get out of there quick. Smart. I think I'm calling it now. The end of the tiny house movement

Chris Bates: Pushed. It's all this show on this show. I'm calling it. Well, I mean, what they're saying is a lot of the reasons why we haven't had stopped the spread and it's too early to say these sort of things, but you know, one of the benefits of Australia versus say places like Italy that are in very high density environments and China and India and things like that possible in India. So if for example, you're living in an apartment right now and you are ridiculously fearful around leaving that apartment, your attitudes about living in your apartment are going to change whether you're renting or you own. Just that fear of this virus. Now have I ever woken up and felt that I could die from a virus before? No. Have I thought like that over the last month? Well, yeah. Like you know, I'm someone who's more susceptible with really bad asthma.

Chris Bates: So I think, you know, things like that will change as well. So it's, it's, we just don't know how much fear or will drive our behavior in the future and maybe our attitude towards debt potentially. If you're going to lose your job, what are you most fearful on right now is paying the mortgage, paying a credit card bills, paying the car lease. So that fear out of this will potentially mean that you won't buy that new car. It might mean that you might not want to upgrade your home cause of debt. It might mean that you might cut your credit card spending cause that that's what was really keeping you up at night. So there's all these things that are going to come, which we just don't know yet, but there are going to be big changes to consumer behavior.

Michael Yardney: Interestingly, I was speaking to Simon Kirsten, my Ho's a demographer and he pointed out to me that the density in Sydney CBD of apartments is as high as it is in Woodlawn when you work at how many people per square kilometer. I didn't realize that. So maybe people aren't going to live in those high rise Lego land towers as much either.

Chris Bates: I'm be happy about that.

Veronica Morgan: The, it's interesting though because even talking to some employers that about how they, their teams are functioning, working remotely and, and introverts I'm enjoying it and I look, I don't want to say, I mean I'm obviously an extrovert and I'm actually enjoying it, believe it or not, but, but a lot of introverts are like, yeah, bring it on. I don't get bothered all day long. I can just quietly do my thing. Some extroverts are saying, well, I would crave the social connection. I'm really missing the social connection actually going into the office and, and it's a bit of a mix. One of my teams is definitely an introvert and she went into the office the other day and even though there was no one else there, she just loved the idea of being, being in the office. I think that it's going to change. There'll be more, maybe more choice.

Veronica Morgan: You talk about, you know, employers being more trusting of their team as she getting the job done at home. But I think some can choose to actually go into an office and others may choose not to. And so there'd be different structures around all of that so that the distance from the CBD will become less of an issue for some people. Obviously office spaces. So will they become residential? What would the, how would they be repurposed for instance? And that's, that's something that could potentially and that was happening actually in Sydney for sale for a period of time. Their office buildings were being rezoned and redeveloped as residential. So yes, I think there'll be a bit of a movement. I mean, commercial real estate at the moment, you know, that that's sort of looking to be quite a vulnerable segment of the property market. Retail, retail, you know, so there's a lot of changes to be had there as well. So these are buildings and will those buildings become residential? That changed opportunities? Who knows how it will be re we need to get an urban planner on, see what their vision is on this.

Chris Bates: So Michael you do a lot of your work across the country cause you know, you've got lots of buyer's agents and property management, et cetera. But I know you know the Melbourne market really well. If I kind of targeted on the Melbourne market. What are some of the types of properties that you think really stand the of time in Melbourne? Um and what are some of the, you know, I guess the options that you would consider investors to look at down there because those learnings can be replicated in Brisbane and Sydney and things like that. But if you just think about the Melbourne market, what are some of the types of things that you think just really do really well? Longterm?

Michael Yardney: I'll answer that but I'll correct you if I may please Chris. Cause no, they don't translate to Brisbane and Sydney. We have offices in Melbourne, Sydney and Brisbane and I don't like the look of Brisbane houses. I remember a couple of years ago, Pam and I were driving down and we said, isn't that ugly? Why have they got all that space underneath the house? Maybe that's where they store their bananas. But the local students like that joke, but that's what they live in. And if you come to Melbourne, we live in different sort of accommodation and it's different.

Michael Yardney: But in Melbourne as statistics go back 40 years and it's shown that over the last 40 years on average, houses have performed seven point grown on every 10.9% and apartments 7.4% per annum on average. Which is leads some people to say, well you know, properties double every 10 years. No they don't. Half of them didn't and half of them did. But having said that in general apartments haven't done as well in Melbourne in the last decade because of the oversupply of new stock. So we like properties in the inner and middle ring suburbs of Melbourne, close to transport, close to amenities, close to lifestyle. We like investing in the gentrifying suburbs. And while apartments definitely have a role, we like really units, which is something that was very much, if you can't afford a house, we like investing in units, which was something that was built in the sixties and seventies for retirees.

Michael Yardney: They pull down the old mansions and build single story dwellings that were detached, that had a small front yard, had a bigger backyard, and they're now very much liked by a young families because you haven't got somebody above you behind you. And they have the land component. And so they perform like houses, which in general perform better than apartments or townhouses. The last census showed that there was an increase of 11% increase in people living in townhouses. So in Melbourne we call them townhouses. In other States are sometimes called duplexes, where there's modern accommodation on big accommodation. On a compact block, you pull down an old house and build two townhouses both face facing the streets, no common area. And that's very much like by owner occupies. So like Veronica, we choose properties that have got strong owner occupier appeal. Not that we want to sell them, but we want other people to buy property, similar them to them around us to push up the value of the property.

Michael Yardney: So how we decide where to invest really depends upon people's budget. So if you've only got 600 $700,000 when you're 10 years too late in Sydney, you probably five years to like nobody. So we'll suggest people buy a house for that in Brisbane. But, but if they can afford seven 5,808 we can get a good villi unit. If you can spend over a million dollars, we can get a townhouse. And for those clients who got more than that, we actually do the townhouse developments for them. That's where my background was many, many years ago. And still, we're probably involved in about 55 developments for clients. We don't get involved. It's not their money. We project manage. So not our money. We rent management for the clients. We pulled down an old house bill two townhouses and they keep them as a longterm investment and they're great investments because they make the developer margin.

Chris Bates: Let's, let's talk about that one. Cause we haven't spoke about too much about developments on our podcast. I mean you know, we have had a little bit of a conversation. Yeah. I think it's a very, you know, in terms of the things that can go wrong on that. I think if you like any investing, if you understand what can go wrong really and you think about all the risks and you do things to mitigate those risks, then you think about what the return is. Most people do it the other way around. They go, Oh can I potentially make, and then they try to put their head in the sand with the risks. So if you could just talk about things where all that experience with development, where it goes wrong because I think that's what's most important here for people thinking about it.

Michael Yardney: Good point. Cause I asked clients, where do you think the big risk is? And they talk about interest rates or the finance or whore, the town planning not coming through. And I say no, the biggest risk is you. How many developments have you done before? None. So I say if you ask me is doing a townhouse development, a medium density development, two, three, four risky. No, cause I've been involved in hundreds. But if you ask Michael is building a high rise apartment tower? Risky? To me it is because I've never done it before. So really the risk lies with the investor and and the desire to be like the big boys and get involved in development when they really don't know much about it. So there's a element of what the client knows. But you can mitigate that risk by having the right people around you, just like you do when you have a buyer's agent level, the playing field and not getting involved in development.

Michael Yardney: So there's market risk. So if you got involved in the development and it came out, now all of a sudden you started two years ago and all of a sudden the market's changed and moved against you and you couldn't find a tenant or you couldn't refinance, that's a problem. But may I say that we always get our clients to have sufficient finance to hold onto it in the longterm development is not a way to make money or living everyone, all that. Many of the people who come to us want to do development because it's trendy, it's sexy. And they will want to do it as living know. To me, property development is a way of adding value and buying your assets as wholesale because there's not enough margin for the middleman, which our clients are. When they use us as project managers and use outside builders, there's not enough margin for them to buy, renovate, and sell or buy developed themselves, and if they just do a two townhouse development, the bank seat is residential, so they shouldn't do it big.

Michael Yardney: They can. They buy an old house close to use by date. That's the first in a good suburb and there's nothing wrong with that. Buying the worst house in the best streets are great investment strategy anyway. Then over the first year we get development approval for them through the council for something that's going to be appropriate for the target market for that area, so you've got to then build the right product for the area. Again, it's a risky if you don't know what you're doing there and then you've got to own it in the right ownership structures and get the right finance upfront so you've got to get all the right people to upfront to do it right. Then at the end of 12 months, we pull down the house, we get a fixed time fixed price contract from outside builder who will actually build it and at the end we project manage it and then they've got two great townhouses.

Michael Yardney: But if all of a sudden and the app clients like as there was one who had signed a contract three weeks ago and he's a Quantas pilot, development's on hold, it doesn't matter. He's got an old house in a good street with a tenant in, it hasn't been pulled down. We haven't got rid of the tenant. So you've got to have a little couple of stops along the way. But one way out is okay. I mean he's not going to have to, but if he got stuck he could sell it. He bought it two years ago, he'll go, okay. Or at the end of the project if the finance doesn't work or what the world isn't right for you. You could sell one, you could sell both but you shouldn't do it for that purpose. You should do it to manufacture capital growth, so the risks are finance risks, market risks, development risks.

Michael Yardney: We have never not got a two unit development through council now that's a double negative. We always get them because we do the feasibilities and the work. What we can do in advance. Bryce, my son who's been working with us and now director of that division for eight years has been involved in hundreds of these and previously my business partner, Gavin Taylor, who's narcotic by degree, he's recently retired. He was running that division. So you need to get in knowing what you're ending up doing and understanding the risks and then there are building cost risks. There are market risks, there's interest rate risk because one of the biggest costs over the two year development process is interest costs. Because for the first year you've got an old house and there actually isn't much income coming in because you don't want an ice house because you're going to pull it down.

Michael Yardney: And then for the second year there's no income coming in while you've got all the expenses going out. So you've got to do proper feasabilities upfront, realistic ones. So big mistake people make is just doing a bit of sums on the back of a piece of paper on a napkin as they say and thinking they know what they're doing or fiddling the figures to make it work because you want to get involved in it. No, that's wrong. So there's lots more risks and maybe we could do a whole podcast on that, but does that give you some overview? Chris?

Chris Bates: I really liked two things. You said. One you're building to keep you're not building to sell because I think you're missing a lot of the benefit. If you're building a great development and it's a great capital growth property, then you know, you're trying to time a buyer sell and the cost that is there really that much money to be made in it after capital gains tax and et cetera if you potentially were to hold. And then I, the second part that I think it's really smart. Yes, getting a team around you is a no brainer, which most people don't do, but you should do, which I think, but the second thing you said was really about picking the right top of property to match the market, the target market. And I think if you're thinking about that on two levels, not from a rental point of view, but from a capital growth point of view, if you can build a really solid development that will stand the test of capital growth longterm isn't just a chief and chief who are developing integrate area, integrate location that they're not going to build lots and lots of lots more of them, then potentially something you should really consider.

Chris Bates: But I think a lot of people go the other way, Oh, I can buy a cheap block of land in the outer skirts. I can build a cheap product on it, I can do six of them and then try to make this big profit and it just doesn't work from my view.

Michael Yardney: So we like in a middle ring suburbs, really middle ring now because they're the areas that are gentrifying the inner suburbs of our capital cities gentrified last cycle and we like those gentrifying areas with good schools. And our competition for those old houses tends to be other developers. They're out of the market a bit now, but actually a lot of home buyers who want to pull down the old house and build their second or third home there so we don't like your suburb as you correctly say, where there's lots of competition. We like the street with is a mixture of houses. An owner occupies not a lot of rental accommodation but we keep them to rent and there's a huge demand for those for rental properties because most developers do them to sell. So people want to, people rent today, Chris, not because they can't afford to buy, but they do it for lifestyle choices.

Veronica Morgan: It's interesting though, you know, I've come across over the years, many, many would be investors or investors that feel like they graduate to development. They feel like, you know, that they've, they've earned their stripes in buying all these other stuff. And then it's like now I want to become the developer and ease for them it's about income replacement, which basically means that they need to actually sell these things and my alarm bells go off. And because I pretty much don't have any of those people as clients because they don't like my message. So therefore they won't come on board with us. But it's sort of interesting what you're talking about there as he exactly what Chris says that is brought to light. There's about the buyer to the buyer to develop, to hold. You know, that flies in the face cause that's that longterm thinking that you need in order to do it versus a short term ism.

Veronica Morgan: That usually is what leads people to think that development is there. Their Holy grail is going to basically be the thing that makes them rich. And, but I also, I also think to myself, I think, Oh, but it is a lot of effort to end up with a property. You know what I mean? Like it and I have renovated property, I've done three and I've got another one of my houses. At some point I will renovate and not not redevelop it but but renovate and turn into substantially bigger home. So I know the value of that myself. I know the value in of being able to add value without having to ink or add to your portfolio without actually increasing your stamp duty or your land tax liability. And this, there's definite benefits in actually adding value to two houses that you already own. But it is for some, for a lot of people, they're too busy in their day to day job to go through all of that. Now I get the, you outsource that, but like it does amaze me that some people have an appetite for it.

Michael Yardney: Well some people want to do it Veronica because they see it's sexy. They wanting to replace their day job because they've watched the block or they've watched those other TV shows. That's reality TV and we know reality TV isn't true and in fact they didn't make money out of the block. It didn't work. They did. The TV producers did because the aim of that was to actually make money out of a TV show and sponsorship, not out of the development. But yes, the most common reason young people come to us for development and like you, we don't take them on as clients just because they want to buy, sell, flip doesn't work. On the other hand, we have a lot of time poor professionals who actually like the concept of manufacturing capital growth. And I see you in the next little while where there may not be as much capital growth because inflation is low because interest rates are low because wages growth is low. This is a way of adding capital growth, manufacturing capital growth, forcing capital growth. But yes, it's not easy and you have to understand all the risks and you've got to get a good team around you and you have to have a longterm perspective and you need much, much deeper pockets than you think you do because a bank's appetite for risk is much lower as Chris would recognize and you actually have to be able to, to fund it. And so detailed feasibilities and detailed finance strategy at the beginning is critical.

Veronica Morgan: Well it comes back to that property investment is an elite sport. It really does come back to that, you know, that trying to do it to replace your income is just is fraught with danger. And this is just yet another example of about, and rightly or wrongly, rightly or wrongly, I'm mean, I don't really want to get into sort of a, you know, equality or galitary and argument here, but it is the fact that that people who can't afford to lose often get in to these sort of projects and it really, you have to be able to fund it. Like you said, you've got to have the money in the first place. You can put me in the first place to fund it.

Chris Bates: I think the other thing you do, which is really smart here Michael, and I think it's when you said that conscious pilot that was, I was like yeah, tick cause that for me, one of the big things you can do to manage your risk factor, what you said there is that he bought that property. And it wasn't a knock down house. It can still rent and it's still a good investment in the area even if you don't do the development. And for me that's one of the best things you can do. If you go, I'm going to buy this derelict house that it's nice to knock down, I can't get a tenant and then you, your situation changed and you can't develop it, then you've got to try to sell it to another developer. Now developers leave the market, which they potentially do at times, which they did in maybe 20, 19 and 2018.

Chris Bates: You can only sell it to, there's no buyers. But if you buy a property where it does suit home buyers and your life changes and you have to sell it like that Quantas pipe, well that's fine. You're yourself to another developer. If they're not there, you'll sell it to a home buyer. So I think that's another big key risk factor. But Michael, if you were saying not that I guess keen to go down that route, if you going to buy and you've got a budget, you know, roughly a million dollars in Melbourne, like what some of the things that you really like in Melbourne in terms of suburbs. Cause I think it's interesting for clients to picture that, what some of the areas that you would look at.

Michael Yardney: Okay. So for $1 million, you're now out of the apartment range. And so what we actually tend to do is we talked about Villa units before and so you combine some of the better Bayside Villiers, including Brighton, the suburb where I'm living in, they didn't build many of the units. But, but you buy an old one. So these were often lived in by older people who have now gone to a nursing home or unfortunately some have died and so the old near run down and they got the Brown skirtings and the old kitchens or those orange mosaic tiles. And what you do is you pull it, pull out the kitchens and bathroom and you put new carpets and curtains and split system air conditionings. You pull up the carpet and Polish the floorboards and all of a sudden you actually got a nice dwelling in a good suburb and they come to you.

Michael Yardney: You can pay seven eight $900,000 for those plus 60 70 renovation and all of a sudden you've manufactured some capital growth, you've got some depreciation allowances and you've got a wide range of tenants liking them. Similarly around the million dollars you can get in the Southeast and the suburbs or in some of the inner Northern and Western suburbs, townhouses. So rather than develop them, you can buy them and there's actually nothing wrong with buying new ones. It built for owner occupies. So we don't buy new or off the plan, like same philosophy as Veronica, we don't find big blocks. But at the moment there are some developers who were hoping to sell to owner occupies and owner occupies are out of the market now and all of a sudden you can buy something cheaper than you could a little while ago. And it's instance you, you're getting depreciation allowance. You got to find good tenants. So townhouses or Villa units with renovation potential for that sort of price range in Melbourne in Sydney that you'd only be getting a two bedroom apartment in Brisbane. You'd be buying almost a whole suburb. Not really true, but you'd be buying the best house in the suburb.

Chris Bates: I agree with the base. I'd fill the units. I think you know, the reality is the land are you in those areas and when you buy a feel like you buy a big portion of land because there's a Villa units on quite a big block. Whereas, and that's the thing where it was, it's higher density. It's not that high density, you know, really, you know? And in those areas there's already a cap on how high you can build so that you're not going to see all these apartments go up. So I actually think they're really good, but my only worry with those as investments then I could be proven wrong here, which is, which is fine is they, it's very hard to convert a two bedroom Villa to a three bedroom Villa. And I just, how do you get the, the family market, I guess the family market potentially, you know, that's one of the strongest demographics I think. Do you need it or do you think they're good investments on their own?

Michael Yardney: Okay, so firstly they're irreplaceable. That's one of the things I like. They have a high land to asset ratio, which is one of our underpinning strategies. And today you couldn't replace them. So if you, somebody bought the whole complex of five or six Villa units and they pull them down and build an apartment block or something like that. So you're basically buying something that's irreplaceable, which, which is nice. But the answer is no. You can't go higher. You can't build it the back. You can't make them bigger because owner's cooperation won't allow you. And town planning won't allow you. Just like if you bought an apartment, you could do it up, but you couldn't change a two bedroom apartment, two or three bedroom. The owners corporation wouldn't allow you either. So you're right, you've got a targeted appropriate market for that area. So it won't be a family.

Michael Yardney: But interestingly, it'll be a beginning family. Now, a couple of years ago, my daughter bought one in East Melbourne. And I remember I went there and she didn't like the idea. She thought, Oh, this is old person's stuff. And when we went there, she actually saw this was a complex of really units and outside one was a rev four card. She said, that's not an old person's car. So young person's car. And then we look outside another of the Villa units and they had their parameter pusher there and she said, Hey, that's a young family as well to the people who had moved into that complex, replacing the older retirees where young beginning family start a family. She couldn't afford a home on their own with a big front and backyard. So the, his family's there, but it's not established families with three kids. You're right Chris.

Chris Bates: I, I think that's a really good point. And I think you're right. Like it's the establishing family. No, maybe one child or maybe in two child. So they really have to get out. It's still got really strong for downsizers because it's single level, you know have lots of stairs and it's near the beach and et cetera. So, you know, you're right, there are other demographics and it's just about really making sure you target that, you know, making you buying an ability unit that really families want to live in. So a lot of Villa units are on busy roads, so you wouldn't potentially want to buy those Villa units. You know, she did this other things. You need on top of just find really units, which I'm sure your team do. It's just really important to, to really know your target market and make sure that they're kind of that affluent sort of area. It's so funny hearing this conversation about Villa units cause it's such a Melbourne thing and I think there are a lot of similarities in the Sydney and Melbourne property markets per se in

Veronica Morgan: Terms of the 10 K radius in terms of, you know, scarcity, you'll appear at homes, et cetera, et cetera. And obviously they're very expensive and they're beyond the budget of what we're talking about here. But the Villa units things, there's so few of them in Sydney and, and not many of them are in that sort of inner or middle ring. They tend to be not a hundred percent outside, but they tend to be a bit further out as well. So it is so funny hearing these conversation. So I'm thinking all right.

Michael Yardney: Yes. So the advice team in Sydney, advice team in Sydney, Veronica, do the same as you. So we'd at that price bracket be buying an apartment. But if we'd will be looking for something with a twist. So it wouldn't be one in a big complex, it'd be one again with a highish perceived land to asset ratio because if you've got 10 apartments there, you've got a 10th of the block of land in could you in Bondai in CLA Valley and in the Western suburbs, the great locations but not on the main road. So I like the fact that there's a lot of these developments on the main road, which you till recently in live and revived those strip shopping centers they did at the moment, but they'll come back. So I want to be close to them but not right close to them. I wanted to be close to the trains but not too close to them.

Michael Yardney: So public transport is very important in Melbourne and in Melbourne we have TREMS so TREMS are a pretty important, our bus services are very poor. Trains are pretty important as well and much the same in Sydney as well. And Brisbane, it's very different. Again, we haven't bought an apartment in Brisbane fie years and years and not even established ones because that's not how people live. So it's gotta be what's appropriate. That's what investors are buying. That's investment stock, not investment grade. And so they've suffered people who've invested in apartments in Brisbane suffered terribly. But buying a house and in Brisbane is much easier. Chris, to do what you said, you can actually add a bedroom, you can change it around. Cause a lot of the homes there were built very differently to Melbourne and Sydney. They'd built out of a weatherboard out of a and they've got space underneath it.

Michael Yardney: Sometimes you can, if the height is right you can do things. And the other thing with Brisbane and we do developments in Brisbane is a lot of the box blocks of land are already pre subdivided. There was a weird way that they did things. So each car, each state has different regulations and so a lot of the blocks are actually already, they've got one house on two separate blocks of land that are 420 square meters each or the land is big enough to subdivide any way by. Right. And then all of a sudden you can actually subdivide and have two separate blocks of land and build two separate homes as opposed to townhouses, which usually have got some adjoining wall.

Veronica Morgan: Very much an active, an active strategy though for your investors, isn't it? Even buying a house in Brisbane, if you're buying a a weatherboard home, you know, it's not, you sit and forget investor that wants to buy a property like that is it?

Michael Yardney: Well, we have a whole range of clients like you do Veronica. So we have at the moment two people who have actually asked us to buy blocks of apartments. They've given us five each one five one $6 million. Interestingly, once a high end restaurant or in Sydney. And when I spoke to him I mean we could, two ago he told me he had laid off 200 staff and I thought, Oh well that's it. He's briefs off for awhile. He said, no, isn't this a great time for me to get into the market because everyone else is out of it. So yes, please buy me that block of apartments, which we found one off market for him. So there's people at that level and then these people who got one and a half to $3 million did we do the development for, but the majority of our clients are somewhere between 700 and thousand dollars and maybe one point $2 million. And we can't, we don't help everybody. Just like you don't, I don't know, you've got your patch. So we can't be an expert at everything. So if people want to invest in regional towns to other areas, I don't believe it works. So I'm not looking for more clients to just help them do whatever they want. If they are not going to fit in with the strategy that has worked for me that's known, proven and trusted, which is not going to take them on.

Chris Bates: Yeah, it's 100% aligned to exactly what, well, you know, I think the Brisbane, the Melbourne, the Sydney, it's 100% and that's, that's comes from me or you or your years of experience and seeing what works and what doesn't work. And we didn't go there today, but there's so many mistakes that you would have seen over the years and that's why you do, that's why you invest the way you do now. It's because you've seen what doesn't work. You know the apartments in Brisbane,

Veronica Morgan: I often say that with myself. It's like if I, if I hadn't made these mistakes myself, I wouldn't truly understand the pain of it and I wouldn't truly be able to see the warning signs and actually say to my clients, you know what? I can save you. I could point you in the right direction. And guide you so that you don't make the mistakes I've made.

Michael Yardney: Well that's what people are paying us for in these uncertain times. To give them some clarity, to give them some direction to give them better results. And it's a form of insurance, isn't it? Paying for services of a financial planner, a good mortgage strategist, a good buyer's agent.

Chris Bates: Yeah. The Michael I wouldn't recommend people to, to make the mistakes to learn the learning. So you know, go, hopefully speak to people that you have got that experience. I have avoid you to make the mistakes, but I mean it's been an amazing podcast with the Michael. We should definitely look to do another one in the future. So really appreciate your time and yeah, and, and having us on,

Michael Yardney: Well, maybe we should finish off with some good news because we are in unprecedented times. We are in scary times and I know many of our listeners are again, to be a bit stressed because we haven't got control. The problem is we can't use the external circumstances. We can't decide where we can get out of this lockup. But we've got to remember where we can control, we can control how we respond to them. We can truck control. Simple things like our social distancing and not taking unnecessary journeys. But let's learn to control our reactions and we are living in the best in the world. And even though we are having all these challenges at the moment, let's remember, it really is the best time in history. I wouldn't have liked to live a hundred years ago or 50 years ago. We're going to get through this. So there's good news happening all the time.

Michael Yardney: There are opportunities. So let's think like those people who are thinking positively sitting in their foundation to cross that survivor line rather than the pessimists who are thinking differently. Because how you're thinking is going to affect what's happening in your world. Your inside world reflects on your outside world. Your thoughts lead to your feelings, your feelings lead to your actions, your actions lead to results. So listing positively. Let's take positive action in guys. Let's look forward to a much better year in the second half of this year. Sounds like a plan. Thank you, Michael. Has amazing

Chris Bates: We want to make you a better elephant. Radha. And this week's elephant rider training is.

Veronica Morgan: All about the different ways that buyers have to be aware that agents are behaving in the age of no transparency. So we have a situation now where if agents are properly fencing laws, they will certainly in new South Wales, they can only be in the property, one agent, one buyer at a time. Now we do know that this is not strictly being adhered to but in the situations where it is being adhere to where you are one-on-one with the agent you can't even look through the property with your partner, but you're certainly not seeing whether there are other buyers at that open house and whether they are interested or not. So you've got to think about it when the market was back to normal or back in the days when the market was normal, you go to an open house and you could tell whether it was busy, whether it was popular or not.

Veronica Morgan: Now you can't. It's all behind closed doors. Same with auctions. Even if you do go to auction, you bid online and it's, or it's a streamed auction. You, you're trusting in a way that those other people that are bidding or really are there or that the people are there, that they are interested well or you trusting that they're not. I mean, at the end of the day, we as human beings, we do like social proof. We look to what other people are doing to for us give us confidence that we're doing the right thing. And certainly there's, you know, there's plenty of these in property. If you see that other people are interested, you're going to have more FOMO or more fear of missing out is also going to give you confidence to bid at auction. And I've seen this play out many, many times. So he, we're in a situation where that doesn't exist.

Veronica Morgan: So what does that mean? Well, that means that agents will try to manufacture the same sense of that happening. So if you're at an open house and you see those other buyers there and you start getting freaked out that you're going to miss out and you have to make an offer, well the agent doesn't have to work too much to create that situation, but they're going to have to create that situation in your mind so that you do make an offer and they do certain things. A lot of them will use dialogue and they will use ways in which they try to create the sense that there's other interests. And there's a big difference whether there is really interesting whether there isn't in the actual tone of the agent's voice. So just to give you a couple of clues, a couple of tips. You know, when an agent says something like, or another buyer is shaping up to come in with an offer of X, well the shaping up, preparing to all those sort of nebulous words, a clue to you that there isn't really another buyer there right at that, at that point.

Veronica Morgan: Another one is you know, I've, I've got an offer on the table. It's at the right level, but the, the terms aren't attractive to the vendors. So the terms usually meaning settlement period, once again, no serious bar, no serious vendor is going to let a serious offer go to the wayside purely because they want six weeks sediment and somebody else wants eight or 12. So these are things that are quite vague and they're deliberately vague, but they are absolute clue to a buyer that the agent is trying to create that sense of FOMO or trying to manufacture that Argyros social proof without really having it. Now on the flip side of that, when they actually say to you, this property, we'll exchange contracts today or we'll sell today, that's different because they're actually set saying they're giving a deadline and they're saying that something definitely will happen. So what I'm saying here is as buyers be on the lookout for very clear direct communication from agents, usually you can rely on that, but something that's a bit fuzzier, a bit less direct and less clear. I would be saying that's the agent just trying to put pressure on you rather than actually properly having another buyer that is going to compete with you.

Veronica Morgan: Please join us for our next episode when we interview Bart Mead, he's the head of valuation at J L L and we're talking all about valuations. Now it might sound like a dry topic, but it isn't. It's actually very interesting because all of us basically when we borrow money from the banks in some ways relying on that valuation coming in at the right price, all of us, if we are borrowing money to buy property, need to understand really how important the valuation is, why it's done and what impact it can have on us and the risks that we're taking. But in addition, we do discuss around whether buyers should get their own valuations done separate to the bank valuation prior to buying a property. And why would we do this? So if you want to understand about confidence risk and that dreaded bank valuation, then you need to tune into a very informative interview. Don't forget, we're on all the social channels. We're on Facebook, we're on LinkedIn, we're on Twitter, or you can connect with us on the elephant in the room.com today, you, the links are all there for you. Please connect and send us a message. We'd love to hear from you until next week. Don't be a Dumbo

Veronica Morgan: Now remember, everything we talked about on this podcast is generally 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.