Ep 601 | Rules change, But the Fundamentals Don't - Chat with Lachlan Delahunty

In the Regials, people forget. Regials can fall up 100%. The easiest way to make those assets valuable and attractive. These buyers agents that guarantee returns and the risk are so shuttered with that. You're tuning into the Property Couch, Australia's number one property, finance and money podcast, featuring the Titans of the industry since 2015, where trusted by tens of thousands of investors on their journey to financial peace. This show is powered by more. Thanks, I'll be using Welcome Back to the number one property podcast in Australia, the Property Couch. Welcome back, Couchers. We're thrilled to have you along, and we do have a big show today. I've got one of my regulars on the couch here, Shane. Welcome back. Welcome back. And we've got a brand new special guest, Lockland Della Hunty. Welcome, mate. First time in. It is. Thanks for having me. Now, before we learn more about Lockland and his backstory and what the value he brings as one of Australia's leading property experts, I want to talk to you about a couple of housekeeping matters. The more negative gearing calculator and modeling analysis tool is going off. So you can now do modeling. Remember, negative gearing is not gone. It's just a deferred benefit. So we've built this calculator inside more that allows you to model that analysis in terms of if you did have negative gearing, what the cash flows look like. And if you didn't have negative gearing, what the cash flow impact will be. And then you can also do side by side analysis. So make sure you check out that tool because a lot of people are still thinking negative gearing is gone for existing property. It is not. Also, I want to share with you, due to popular demand, we have extended the replay on fact versus fiction, which is a webinar I did a few weeks back. And because also people are demanding the slide deck, you can now download the slide deck as well because it is an extensive, extensive look at what drives property, not only through the cycles, but over the long term in terms of scarcity and land appreciation. So you can now download that slide deck. Where can you get it at theprob��ouch.com.au/webinar. And that is available to you. So check those two things out if you want to continue your education when it comes to property investing. Now, Lockland, let's give you a better introduction than the first little g'day at the start. So let's learn a little bit about Lockland, Alhunt. He is the founder of Folio, which is a national property advisory firm helping Australians build high performing property portfolios. Folio is head based in Western Australia and Perth with a national footprint across the nation. With over a decade of experience across valuation, our valuations, I should say, advisory and acquisition, he brings a wealth of knowledge from a data driven strategy first approach to property investing, which is what every professional organization should do as opposed to these hype, hyper bowl buyers agents who say they do that, but don't really do that. Lockland is a qualified value and license to state agent. And you have been involved in more than two billion worth of acquisitions. We're going to ask about that property transactions. And he's also the cohost of the Folio property podcast where we share practical insights of building wealth through property investment. And I did appear on that podcast recently back on the 24th of March, where we did talk about the potential changes to capital gains tax. We did said we didn't think they were doing about negative viewing, but they did. So we're going to come back for that. But mate, that's an impressive resume you've got there. We thrilled to have you on for the first time and getting knee-deep into your story. But before we do that around property, we always like to start with your money story. So you grew up on a farm in country Victoria. Tell us what that was like and did you talk about money over the dinner table during that time? Yeah, so the little town on From's Matau are in country Victoria halfway between Melbourne and Adelaide. And all the other families on the farm, we moved into the town for most of my upbringing and money was certainly a conversation, right? That's one thing you know about farming cycles. They're more exaggerated than residential cycles in the sense that drought years pretty much bury a lot of farmers and a lot of families, right? So you really see an insight into the good times when there's plenty of rainfall and you can go through decades of drought years which will cripple businesses, families and so saving and the importance of making sure that you never get too ahead of yourself when you do have good years because you never know when the next bad one is about. And I think as we're going into the property cycle now it's sort of reinforces that right. It's all about all seasons and we've probably come off a longer summer period when it comes to property investment for the last five years. And in the farming world it's no different but a drought or a winter's never too far away so money for us in the family was always any dollar we got make sure you save it because you'll need it for that sort of next drought. So how many sort of couple of other siblings? Yeah, good old brother and sister. Yeah, a big goal for my family was to get them to university, something a mum and dad never got the opportunity to do. And rather than stay home, like a lot of people do in the area which is fantastic to stay on farms or stay in the township, they will be going to academic education first and their whole goal in their life was to save enough money to put us in the university which they achieve that for all three of their kids. Yeah, okay. And so you know in terms of given that obviously farming is is you know a lot of an idea to control as you're talking about in terms of rainfall, that's the critical thing but you're also managing debt levels in terms of putting crops in and those types things as well but how did your parents talk to you about you know the benefit of saving and did you go off and do other jobs or were you near a town where you could actually earn a pocket money or anything like that? Yeah, well that was it. We're in the township itself and dad sort of made sure that we all went to work at a really young age and I guess put the the understanding you don't really understand the true value of money unless you earn it right. So whether that was paper runs or you know I was umpiring at the local footy or water boy or any sort of you know. So you're a glutton for punishment? A little bit yeah yeah definitely it was in from a young age for working six days a week, doing a post or a male run during the week at five o'clock in the morning, running me push-buck around when it's raining and then on Saturday you do the scoreboard and a water boy for the senior game so you just didn't stop and then you really got an appreciation for what money is because it's hard to come by and then more importantly when you do get it it's not going out and buying all the fancy things that you don't need it's it's putting that to use and that was sort of reinforced really young that you never sort of abuse you always appreciate the value of money and the scarcity of it and what it can do if you do save and put it to work and that was a thing we'll put in in a bank account at a young age and then getting interest on that and then the year would sit down and see how much interest was accrued and that sort of compounding sort of story starts to I can't think of a better upbringing in terms of understanding the value and effort and exertion that you need to understand the value of money because now you have an appreciation for it and a healthy respect for it in terms of what it allows you to do I think that that is a perfect backstory you know the the next generation of kids that are coming through Australia is quite a fortunate country and we don't necessarily have you know those types of pressures in a lot of households but I think it is an awesome grounding for people if they can get themselves a part-time job and then understand basically where all that money's coming from mate so that's a good story now before we go on to the topics that I want to get into today two billion dollars worth of property acquisitions so take us through your property journey so how did you get into this space and then obviously that led you into obviously setting up folio over in WA so take us through your professional journey into being the property investment advisor that you are today so I did the course here at Deakin University real estate evaluations and specialised in valuations when I graduated from Nanogutta drill with JLL in in Rezzy valuations that progressed into more development and commercial valuations and what I've seen realised is being a value it's you don't get a lot of appreciation for what you do it's typically bad news and if it's good news you don't hear anything from it no one it was just thank you no they don't like surely it's worth more than that exactly that's the conversation you go back and have another look at how much to bump that valuation up actually yeah it was all those conversations in the order I was finding is that after the fact after the purchase my advice becomes a little irrelevant when if I had have got some pre-purchase of advice I'd tell them don't buy that asset or that development site's just not going to stack up on a feasibility don't buy after the fact it's too late I said you shouldn't have bought that asset so then I sort of led the advisory team at JLL they did have a department really buys agency so when in there and set that up problem was you know big company like that a lot of red tape at a national footprint that wouldn't communicate together so left there went to a small advisory firm where it was sort of boots on the ground and national presence which was really important because at the time I was in Perth 2014 it was very clear that it was peak cycle and things were just overvalued and it was you know there was more people leaving the city than they were coming and prices were you know going up and up and up and for me I didn't feel comfortable investing in that market at that particular time yet the firm JLL that I was in was instructing me to do so and I just went against my grain if I can't if I'm not putting the money where I'm investing into the same market that I was required to advise my clients it just didn't sit well so I left that firm to go and aligned it wasn't aligned at all and that's sort of my ethos is if you know the first purchase in any market that we invest in is going to be for myself and fellow employees and directors. So then that led to a smaller firm that sort of was more aligned in being able to invest in markets driven by data and purely by data which was outside of your backyard and then fortunately Perth become a market that was attractive again in 2018-2019 which enabled us to sort of capitalize on the market that we'll probably most familiar with bit up until that point we'll invest in in Adelaide Brisbane, you know pretty much every market around Australia besides Western Australia and then for the last sort of five six years Perth has been a really good market for our clients. Yeah, beautiful. So let's sort I want to get through you know highlighting what we want to talk about today from a perspective. We've got a few things that want to get through. Obviously I want to talk about the tax grab, the the federal government's tax increases in negative gear and capital gains tax. I want to talk about what we think investors will do and what they should do. I want to talk about the recent collapse of Dash. As a buyers agency and these buyers agents that guarantee you know returns and the risk associated with that which I've talked about before but we've now say it playing out. Then I want to refer back to the importance of asset selection and then I want to have a bit of a discussion around what we do around passive active strategies and whether we still think the passive strategy and the active strategy is still good. So it's just great to you know Bryson I used to talk about iron sharpening iron and so there are a group of professional buyers, agency businesses out there that we have a lot of respect for that they're not in a hyper bowl merchants that they do spend a lot of time in the data and do the right thing around that. But anyone can make data sing as well and so we're also seeing certain buyers agents select a certain patch of data and then tell their story to to get the volume of transactions that they want as opposed to whether that's the best long-term view in that particular market. So let's start with obviously the first question which was around post the capital gains tax and negative gearing reforms. What do you think the initial well what's been the feedback from people asking you questions about what they think they should do? Is there is there this flight towards oh we've got to chase cash flow and we've got to chase you know these new yields or new property? Hey folks Ben here I hope you're enjoying the podcast. Now if you want to take your property finance and money knowledge even further check out the new mind knowledge in more we've packed mind knowledge with over 120 plus free resources from free reports to educational video series to fact sheets on demand courses and heaps more. Get started today at the propertycatch.com.au/myknowledge. There definitely is and I think there's just never been more uncertainty in the market right now I always talk about certain you can drive markets and sentiment can drive markets in the moment there's complete uncertainty because people are trying to work out what this looks like and the easy sales point and I think that's what the government's done they're essentially giving free marketing to these house and land sprucas is you know cash flow has become arguably more important but what what I'm really scared of is is the flood to these house and land packages and that's already you would have seen the number of Facebook ads just explode the story around you know how you get cash flow and benefit from negative gear in the ironic thing is that the properties that they're sprucing that say they're going to get negative gear in benefit typically don't get a lot of gearing benefit anyway because they're either mutually or often sometimes positively get it if they get a tenant you know you go into these areas where there's mass supply of house and land packages which are 80 90 sometimes 95% plus invested driven so they create these ghettos that vacancy rates explode into the five six seven sometimes double digit sort of vacancy rates and what people failed to understand is that's fine it's you know a flood of investors going to the market but if you are an investor in that market you've always got to look at your exit and you speak about your podcast all the time Ben is you want to target the most broader audience you can when you're selling that's typically an occupied we're going to get emotionally drawn into the asset these ghettos of investors all be it they get some benefit with you know capital gains and or negative gearing when they purchase it but when they go to sell that that's not it's not secondary it's not secondary there's no purchaser for that there is so the buyer pool is now like zero because own occupies don't want to live there because they you know become ghettos and they're driven predominantly by investors not typically probably we want to raise a family not always but in some cases and investors are not going to buy there because they don't get the benefit so that's my biggest concern the easiest way to make those assets valuable and attractive to own occupies is to make them cheap so you don't you you you're at risk of not getting the capital growth out of it as well as you would get closer to conmeration cities and capital cities in areas that have diversity and scarcity around their land supply correct and that's what I'm really concerned about yeah and I think you know when you unpack the story here you know we've we've analyzed the the Queensland market with over a million transactions from 2000 to 2015 and we looked at the the time of build right so effectively what you're what you're trying to do is you're trying to study where the new subdivisions are occurring because obviously that's where this stuff is going to be built yep because they need to do it in volume and you know they're selling you know volume investors into these locations right so that's to your point around potential risk of oversupply in the ghetto but you've got to understand and this is the you know we've been talking about this for years but I think it's timely to remind people that you've got the land value and then you've got the improvements on top of that and we've been talking about the best ratio is between 60 to 80% on a free standing house usually our entry level is around 60 is a good time to get in now what we're seeing in these particular transactions is that the improvements are higher than the land value right now what happens in these areas is because there's an abundance of future supply because you're on the fringes of the city you the first 10 years of returns are under performed because there's no scarcity on the land so the land's not appreciating so you're not getting that initial capital growth in those first years so what what the analysis showed is you were typically getting around three and a half to four and a half percent in that first decade and the existing properties which you're trying to sort of say like for like in the established areas that might have been you know developed 10 20 30 40 years earlier they are getting between five and a half and six and a half percent so the variation there is around one and a half to two percent per annum over that first decade and compounding two well of course yeah and you know and so the reality is because what's compounding it's not the improvements their reliability I mean you know they paint paint and curtains don't go up in value over 10 years no they produce the income but the thing that appreciates is the land and and how does the land appreciate and this is what I've spent so that's why that fact versus fiction is the long webinar because I spend effectively an hour and a half explaining to people what you need to be looking for in regards to scarcity agglomeration all of these types of you know Ricardian rent theory all of these things that just clearly bring together the understanding that there is that that businesses and humans will pay a premium for the productive use of land and land is judged on its productive use and so if the commute time and all those other amenity factors aren't there then the reality is it just doesn't move as well and it's not as desirable and I'll pay a premium if I go into those areas which is what you study and what you know about asset selection correct the the quickest analogy that I draw to when I get a call which I was getting plenty of them over the last few weeks about I think we might have to go and you build it's it's like buying a brand new car you see the day you drive it out the garage is it's high-sum best use in terms of its value and then it depreciates typically 15 to 20% over not yeah go back and so I made a mistake I want to sell it back to you no problem at all he's 20% less than what you paid yeah it's like buying a house and land package and then as soon as the people hear that they go well I don't want to do that of course you don't so there's no benefiting getting cash flow if it's worth less than what you paid for exactly and in these new estates just down the road there's a brand new house that's going to get built 12 months after your speech they're just desirable they keep all many it does create this artificial inflated to market yep because they're because unfortunately the the uneducated investor who is going to be seduced by guarantees and things and I how often have you been talking about how often have we talked about that that running something and as a loss is not a smart investment right and and and so at the end of the day you why are you doing that well the only reason why you invest in residential property for the long term is the capital appreciation combining growth yep that's right the rent keeps you in the market and as you get that growth then what happens is and as you pay that down the future passive income that you're going to get off that property is a product of its value and and what people are willing to pay to be in that area yep so you know if I want to be a renter in a prime location because of the school zones the amenity the you know the social and demographic pooling that happens because I want to be around like-minded people. And it might be the case that I'm getting an inheritance from my grandparents or my parents because we know that there's $5.4 trillion of that coming in. That's getting past. So that's going to get past through. So I might choose to rent in Hawthorne as an example because I've got the kids in the best private schools or public schools or whatever it might be. So we know that that is going to play itself out in terms of, there will still be demand. But what will happen here is there will be a hollowing out of the centre, you know, in terms of- because you won't be able to build the volume of house and land packages or you're going to be living in the city, whereas you're going to be living in a two bedroom or one bedroom apartment, which is off the planet. And a grand living. So even those have no scarcity associated with it. Exactly. And that's the next thing. It's good. You have to land package on one extreme and you've got- you've got the plan apartments which is even also not to do with the amount of- talk about scarcity. That's what draws values. That's the first place where you lose that scarcity when you've got not just tens or 20s of houses getting built. You're getting hundreds and thousands of the same product. And if there's a rush to that, the quality is going to be reduced. You know, they're going to push them through quicker than they've ever had. And we've seen that Brisbane in the mid-2000 and tens where they just poor quality oversupply. And then the markets fell 20-30% in that unit apartment space. So it's- And who's the- And who's the legendary buyer for that in terms of desirability? I can mount a case for fringe city living with land because that's a great Australian dream. That's what we've been told our entire lives is house and land. And if you're only access to that is fringe city, there's potentially an owner rock purchase for that. But there's very- there's a very small market of purchases whose dream is a one better in the middle of a city and a high rise with 500 units in it. Oh, so resale of that is just so incredibly difficult and risky. Well, we're, you know, again, in the fact versus fiction, the numbers were quite one in four of the, you know, off the plan apartments in Sydney produced a loss over five years. And I think it was like, you know, in Melbourne, it was almost like six out of eight for that, you know, that boon period of the builds during that time. And that was BIO Schrapner who did that analysis. And we look, that's nothing new for our community. But if you're new to the community, you should know that we are just anti-medium and high density. There was just no scarcity in that. The only exception to the rule is if you've got absolutely uninterrupted exposure to a landmark or something that's totally unique, which you, which will mean that it just can't be replicated. Well, you know, and the definition of scarcity. Yeah, exactly. You know, if you just Google the toaster building that's, you know, looking at the Harbour Bridge in Sydney Opera House, that's a perfect example of no one else can build me out from here. It's relatively low, six or eight stories and so that's that building will come to prime premium because international, you know, traders and all that will love living there. It's right in the heart of town. It's got everything. So there are those exceptions through. But if I go far from here between, right, 150 metres into the middle of the CBD and I build a tower, you know, and then that tower does have views of the Harbour and the city. Well, that's going to be the premium side of them looking out, out of the other way. That's going to be solved. But then what happens if, you know, in 30 years time another tower gets built and I lose my view. Right. So that's the risk you have with those types of those types of things. So, Lockland, what should, you know, if that's, you know, we're trying to teach people to avoid those types of things, what should they be doing? What's the contrarian? But once you're actually unpack it, what's the, what's the logical view of what people should be looking for? So when you wear your, your data hat, what are the things you're looking for from an asset, appreciation and asset selection point of view and location selection point of view? What are the, what are the things that you normally look to unpack? It always comes back to fundamentals and no matter, no matter the new story or the inflection point of what the government's done or where interest rates are, it always comes back to the fundamentals and that's what you look at in a long term and you know, you've been around longer than I have been, but there's been so many different periods with different cycles and you know, you've been through a GFC or dot com crash. COVID, what stands true is the fundamental and that's first location, then you land component and then your asset in that order and location does, you know, 70% of the heavy lifting and now probably does 85 to 90. Land component does the remainder and then your asset type where it's become more relevant and then it was pre budget, I think it's trying to generate more cash flow out of the quality assets. So that might mean bringing forward that renovation that you're going to push down the track because you know, you didn't want to put too much pressure on buying a home and then paying stamp duty and then doing a renovation. Well, now it makes sense to do that at the start of the asset because you're going to get increased the cash flow for the longevity rather than doing it at the end of the assets life cycle. So, but the fundamentals haven't changed in terms of targeting location, land and then asset, but just with more of a focus on how can we generate more yield because all of it, you keep the candy on the road for negative gear in terms of that benefit to cash flow these assets over the next three, five, 10, 15 years. It's become more relevant than it was potentially pre budget and more important too. Yeah, I mean, what look, I mean, maybe there are some smart people in treasury because this is probably why they forecast that there's going to be 35,000 less dwellings, you know, off the back of these settings. Now, if this story is about, you know, if Labor is selling a story about supply, supply, supply, and this is helping to drive supply and they're thinking that the incentive will go that way. Our job is to warn people about that risk because the smart money will still stay where the land appreciation is the strongest. We've just done some recent analysis and we're trying to do more of it as we get more access to the right data, but the cost per square meter of land. So we've been able to, you know, sort of track that in the capital cities and it's obviously clear, right? I mean, the closer to the agglomeration center, which is the economic engine because a lot of people then don't realise they go, well, that's residential land will eventually turn into mixed use land, which will then eventually be re-zoned. And so the city will then swallow up some of those types of things and where it doesn't swallow it up is in what we refer to as the scarcity concentration, which is the regulatory capture that happens around, you know, stopping the zoning changes. So you get that land scarcity, a middle park, elbow park, those types of things, they're just like, they just will not let anyone, you know, change the rules because they want the streets to remain those. And that's the scarcity and that's the desirability. And people love that because there's no big through traffic in those areas because there's no big artillery roads going through it. So the land is absolute prime. And that's where it gets that, you know, it gets graded as being, you know, highly valued by all of those competing for it. And it's not replicable. So off the back of that. Yeah, they can't do it again now. Yeah, no. It's all protected forever. And driven by own occupy activity who we know, you know, that's what regulates these markets. It's own occupies because they make up in these areas, 90, 95% of the total buy pool. Yeah. And you know, that's what we talk about in terms of getting the commercial capital that starts to roll in there, right? So how does it roll in there? All of a sudden they say, okay, well, on the street that we're allowed to build the restaurants and bars and coffee shops and all that, we'll do it, right? Because I'm going to get the foot traffic. I'm going to get the premium. So the restaurants are nice. So it just gentrifies those areas. So you can see, you know, in the prime areas, that gentrification happened decades ago. But then you got areas like Garibald and Sedden and all of that, where these villages, right? And that did, that was probably two, you know, 20 years ago that started. But then you got North, good and all of that. Like you just see it and you're coming along. It's all coming along, right? And now that's moving out to Preston. So, you know, high streets having a Renaissance and Sydney road will have that Renaissance as they keep building. And then, you know, they'll keep making investments into that because they know they can't, you know, basically, you know, rezone R1, Rezzy, you know, and that'll stay where it is. But what they might do is you'll turn that into a duplex or a side by side on whatever that may look like and you get a few of those popping up. But that just then means your land value is what's, what's getting greater. Every time someone is investing in that, your land's getting regraded, you know, and you're it's being regraded based on the amenity in terms of what's attracting me to that area because all of a sudden I've got good schools. I've got, you know, that, that idea that I'm around people that have similar like-minded views and beliefs as me. So it's very livable. Yeah. I feel safe in that. I'll pay a premium for that. And I'll get an emotional attachment to that, which comes back to that broad, you know, the three things we always talk about is Inauropia. I feel we say economic activity, human interest and human behaviour that all rolls into that particular story. So I reckon we've covered off on that. I want to get your opinion on regional because I'm a little bit more concerned about what I call self-reliant regional centers. I get a sense of the challenges that I see in those markets because it's not the same principle. By what I mean by that is when you're talking about land scarcity, there's no land scarcity added in a regional area. There's not enough population growth, right? No, that's right. So sustaining through. Yeah. So how does the land appreciate in those areas? Well, what we know from the research is that it's the cost inflation to build because the land to asset ratio is completely invest. So you know, you normally got around 25 to 30% of the value in the land and then you got rest in the improvement. So to your point, you're accelerating that new car. It's just buying that high price. So that has to accelerate down. And how does that show up in the land, though? You because how you how buyers agents sell these self-reliant regional towns is they sell them based on the fact that you can't you can't build it, you know, you can't replace it. Replacement costs. Yeah. The replacement costs. So that's that's the model that they have to use. Well, that's not an economic moat. That's not an economic flywheel. And if I'm only moving even five or six thousand people out to a town that's got, you know, 50, 60,000 people, they say, well, look at the percentage of population. It really means nothing in the sense of the land scarcity. Correct. It does drive that growth. So you run a little bit more risk when you're going into those markets. Have you noticed that in your in your data as well? Without a doubt. And if you look at the long-term population growth on these areas, it's really important because COVID was, you know, an anomaly, right? You saw a flood to regionals. Yeah. That work from home, lifestyle that, you know, it was talked about could have been here for a decade, was here for a couple of years. And then we've seen that migration now come out in the data that is flooding back to the capital cities. Yeah. And sitting here in Melbourne, a huge part of that's coming back to Victoria here in Melbourne itself. So they've used this artificial period of time where there was some population growth into the regionals and then fed a story around like, you know, you've got to go in, it's the highest growing markets in terms of population in the country. You need to invest and you're buying well below replacement costs. Well, that's just not true over the long term. No. And now we're seeing negative interstate migration out of these regionals back to the capital cities. And the unfortunate thing is a lot of the activities being predominantly investors. So they've got to the price point where the locals cannot afford to buy that asset vacancy rates are on the rise. So where do they relocate to if they can't afford to live out there? Like, what's the push for them? Well, if there's no migration coming to these cities and there's only investors now looking to sell, you're going to see significant price falls. And I'm concerned, you know, there's talks of in some capital cities, but that city it might be down 10% in the regionals. People forget, regionals can fall up to 100%. I'm over in Perth, Mandra post sort of that JFC boom. And the mining boom. Yeah. Yeah. Mandra come off in some areas 110, 120%. So these regionals fall dramatically. You know, you look at capital cities. So people might say that's impossible to go back behind zero. So just explain what you meant. So I'd had a run up and then it fell from that run. Exactly. Yeah. Exactly. Huge run up where it did W almost that growth. So there might have been 400 up to 800 and back to 360. Exactly. Yeah. Behind below what it was originally trading at before the boom. And that's important to articulate, right? But with capital cities over the long term, you won't see those at that level of volatility. You know, I think the worst and capital cities performed is, you know, 10, but negative 10% over the last sort of 20 or 30 years where these regionals will fall often 40, 50, 60%. And quick, because there's no buyer. There doesn't exist. This is the whole point I make around thinly traded markets. Property is heterogeneous, which obviously means that no, no, no two properties are the same. There's always some even on, you know, on a street, you might have one property that has a westerly aspect and one has, you know, north easely aspect or whatever it might be. And one looks over a park and now the one looks over a group of houses. But it's on the same street. But even you can't judge those two bits of dirt the same way. There's always something. So it's always heterogeneous. I mean, actually, he's a little update, a little anecdote. I've over the journey of this podcast. I've talked about the property that I've, my very first property that I bought when I was 21 or 22 or whatever in Bunderer in the court that I grew up in. Well, recently that property sold a couple of weeks ago at adoption. Yeah, it went to auction, right? And Melbourne's Melbourne's depressed market, right? It is. And, you know, there's certainly some challenges in the Melbourne market. Now that house hasn't really, I look at it, hadn't been renovated much, just basically still three bedroom, one bathroom. It has a, it had an extension when I bought it on at the back, which is like the pool room, the classic extension on the back. So AV Gennings, three bedroom brick tile home, right? Now they were quoting seven 80 to eight 50 and it went for nine 91. Now, and now the court that it's in, it's a, it's a good size call. You can cook, you can kick a 40 in it and play a good game of cricket because that's what we used to do when we grew up there. You know, we had about 13 kids in the two course. We were talking about your grand magraa run up before we went to air. So, so the, the, here's the point. Now that goes against what's happening in the market, right? That is a stunning result for, and, and all that needed was to emotionally charge buyers who wanted that court location. They just sort of fit for purpose for them and they're like likely own occupiers. Exactly. Well, let's hope it's owner of, I mean, if a, if a buyer's agent's responsible for that result, as an investor, they need a job. Yeah. Contestually to that pricing for Bunderer in this climate, the top end of that range is largely accurate. It should be somewhere amid to maybe a high eight, and that's it. Well, I mean, it should not be more than this. There's university hill on this other part. Bunderer is a massive suburb. It's huge. It's got about 16,000 problems. But that particular address was a bit, it was about right. Yeah. So this one's, and this one's the whole part of Bunderer right near Wattonia. And now, obviously, you know, this is the mistake I said, it's costing me about half a million dollars. I bought it for 120,000. I sold it, I think for 165. And now it's not, not, not, so okay. There's a little bit of a left of money on the table. There it is. But that, but that, that's, that's, that's, that's, that's, that's, what, but what, you know, what are we trying to prove to you? We're trying to prove to you that it doesn't take much to form a market. And if that market is formed by investors and they're buying in these regional towns selling a yield story because that's potentially what they're doing. But they're, again, they're being very selective about the data that they're saying, this is what's going to happen. But then they create the market like it's a, it's the mean stock of residential property and Australia is this, is this whole idea of the, so I'm with you, Locale, in terms of, I'm, I'm, I'm saying that some regional markets I would be saying, you know, they are not by hold. You need to be thinking about trading in and out of those markets. Yeah, you need to be, you could be, you could be exposed with a, with a serious correction. And all these people who think that they've made paper profits. Here's the other kicker. Come the 1st of July, 2027. That's when you get to lock in the value. So if they, if they lose 20 or 30 percent, or even let's call it 15 or 20 percent now, that, that artificial inflation, that, you know, the day that we're recording now, they think that they're probably, they're actually, that they may, they may not be able to lock that profit in after they're reset their capital base back here. And so they're going to be paying, they're going to, if they do sell it, they're going to be paying taxes on a higher, you know, on a lower-go base. It's like, so I think there's a, there's a sting in that particular tail as well. Definitely. I think it's important, which you highlight all the time, the difference between a regional that's close to proximity to a major CBD. Something that's commutable. It'd be that long-term album versus a gladster, a high-light one, individual that is essentially a mining town. And we see these, but it's a port-based, you know, story there. You're right. And I hate to say a lot of these firms, it's essentially a period of its game in the sense that the founders of these companies will go and then buy our product first, artificially inflate the markets with their clients. And it's the last client that they've bought for that gets stuck with this asset that unfortunately, there may not be another buy for it. And yes, the idea is you want to trade out of these assets. And we're a buy-and-all business, buy quality asset, hold for the long term, but not if it's a sea or degrade asset. And that's where we sort of highlight these regional as-sean degrade assets. But the problem is it's going to be very difficult to trade out. I think post this budget because you're seeing these regionals come off, you're seeing vacancy rates rise. And you know, you may have to get out potentially a loss in some situations. And that's really hard to see and see clients go through that because it causes a lot of pain and stress on their financial situation. Is it fair to say that if you see, regardless of some of the guarantees, which is a separate issue, which I'm sure we're coming to it. But separate to those things that some of these sprookers put out about an area, if their offering is yield and tax benefits, that's actually not an investment strategy. Those are not things that you would bank your money on in the long term. No, but to lock on to point, what they're doing is it's classic investor hyperbolic. It's like, I got in here, this customer got in here, and they're probably gone up by $60,000 and six months. What do all investors want? They want to best return, they can possibly get as quick as possible. And so that's that's that then they get sucked into the sale, into the, into the marketing pitch. And then they create the volume of demand to manipulate those regional markets, because they're so thinly traded. And they're such small markets that it's easy to go in with 50 or 100 buyers. And if there's half a dozen of these, what I call new age buyers, agency businesses that artificially agree that they're looking at the same data and saying the same thing, like, "Oh, look at this, days on markets coming down, vacancy rates are really tight, you're really we're gonna go into that market too. And then so it's cheap. And it's cheap. And you know, they sell it on, well, you know, but as we also know, it's access to credit. So they did the trust lending, which got them the opportunity to get the money because it was basically a low-doc or a no-doc loan. So they were able to go in and buy multiple. And they're thinking they've done really well. And but now this and using, imagine being that buy-on. Destrope valuations to prove the value is correct. The value is correct. To go on up to be able to recycle. Yeah. Fake equity because it doesn't exist. It's not real value when the banks themselves have these desto mechanisms that artificially inflate the value of the property. So it's not real equity that they're using to then trade in by more. So they're the ones that I'm most fearful because they don't have the incomes to support a winter. And a lot of these markets are coming in winter here. Yeah. And it's only going to get colder too. It's only going to get worse before it gets better. And they're going to be overexposed at debt levels. They can't afford to manage and now go into a situation where some of their assets and potentially majority of their assets could be in a negative equity situation. And that's when you become a prison to to your debt. Imagine being the last person to buy in mandra at 800 before it went back to that 360. Switch the lights off for what 14 years? How long did it take before it got back to parity? Another 15? Yeah. So it switched the lights off. And then so and then it's all the same. And then it's all the same. Even lost the social. Yeah. 15 years. We're running for Arthur at the gentleman on who bought one in graph for a million dollars. This is back in 2008 right in the boom and mining town. And he sold it for 1.2 and he riding was on the wall. He goes, I needed to get out that person. He sold it to trade it for three years later for 350,000 dollars. Right. I mean, we're 40. If these things do happen, they do happen and we get to see them. That's the problem. Yeah. I mean, but unfortunately, yeah, because look, there's low barrier of entry to become a real estate agent, right? And there's effectively no regulation about what they can and can't say on marketing. Yeah. Financial planning businesses. We can't do anything like that. We can't sit there and say, we got we got our clients into the video and we made them a 4,000% return. You can't do it in two days. Yeah, you can't do it. Right. So these guys get away with it. And to your point, they spend tens of thousands of dollars on social media, which is our perfect segue into a business. And as I've said, I've never, you know, I think in abundance and I want, you know, we get other businesses on this podcast, right? Who compete with our own business. And that's fine because we want the best businesses to look after clients out there in the marketplace. But and I'll never, you know, name a business unless it's been publicly declared as something has happened to that business. And I'm speaking in statements of fact. And what I'm talking here about is a dash dot which is a buyer's agency business that had a meteoric rise in terms of their awareness. And, you know, I think reportedly over 1800 properties or whatever they bought over a very quick period of time. Well, a few weeks ago, they announced that they were going into a voluntary administration. So again, all statements of fact, the number of properties they purchased, please double check that in terms of that. But here's the issue that I have in terms of obviously it's now coming out that they charged an upfront fee in a lot of cases. So those people are potentially lost there up front and not got any result out of that. Now I don't know what's happening with those with a, that, you know, they're going to try and refund their money or whatever. But they inside their contracts, not all contracts. I can't guarantee that on all contracts. But we have a version of their contract because someone has come back to us and said, "I'm being burnt and we want to work with our business." That's fine. And here's the contract. And inside their contract, it read that there was it. They had a guarantee that if the property didn't perform 10% above what they purchased the property for in that market, then they would refund them their money. The full amount. The full amount. And the reality is, is they're no longer in business. And so you've got to ask yourself the question, now again, I don't know the truth here. But why did they shut up shop? I mean, ultimately, if you've done that type of work and you're charging that type of thing, I know the margins in buyer's agency for good businesses and poor businesses. And I know that there's, you know, these people were spending a lot of money in terms of social media marketing. But obviously also they haven't run it a loss and they haven't necessarily done poorly in terms of their own potential, the owners of the business that is. So what's going to happen to all of these people who to your point, if they're bought in regional towns, and there is a revaluation in those markets. Well, there's one definitely coming in July next year. Yeah. So the reality is then is what's going to happen? They won't be able to go back and get their money back. You know, so it's a warning for anyone, isn't it, Loclan, around guarantees? How can I, how can I make a guarantee in any type of investing? There is no guarantees. And anyone that's going to promise you that, it's a red flag straight off the right away. And that's a big red flag. That's massive. And there's a few things to take out of this. Firstly, there's been a spiking buyer's agencies post-COVID, right? And looking back to anyone that's listening or going out into this space, it's do your DD make sure that the business and all the founders of that business have been around for a couple of cycles at least, particularly before COVID, because post-COVID has been a boom of speculative buys agents and dashes. Everyone looks like I agree with you. Right. Second to that, these guarantees are getting thrown around so loosely. And here's a perfect example where they won't be ever held to account for that guarantee. So there's firstly, the pain is what caused from people that have potentially lost huge deposits in terms of upfront fees and or want to, you know, a refund for those guarantees. But where I see the huge problem out of this, you've got to have potentially thousands of clients that have bought assets all over Australia in what we say, potentially some questionable markets. Now don't have your advisor, you know, your specialist in that field of property to lean on when things get tough. And it's like, you know, you go to an accountant, say you're a small business, you know, my mum and dad, for instance, they rely on their account so much for their decision making around their business. If they would have shut up shop and go into a voluntary administration, the damage that would do to my family in a short term. And then the median turn to try to unwind all that advice that they've got to go get and find another account and it becomes an adjunct. And then they're trying to trust someone again. That's what I mean. So if it's cost you 27,000 dollars of your harder money that you've saved after tax, however many weeks or months or years they took you to get into that fortunate position, then you go and buy the asset they leave. The advice is wrong or misleading or or not stood up to what it was meant to be. And now they've got an asset that is worth less than what they've paid for it. And they've got no one to go to and this is my point of mind boggling. You sign up for a property advisor, not just for a purchase, well, it shouldn't be a buyer's aid. There's a lot more to it. I had to manage your portfolio. That's what we talk about a lot. It's not just about what you buy. I'd say you manage that over long term. Now they don't have that person to go to. And if it was the wrong advice in the first place, these people are going to be left in the dark and it's concerning because these typically, broadly speaking, are some of the most vulnerable, right? The more sophisticated investor probably sees through their marketing campaigns and sales techniques. It's more, I look at Mum and Dad, there'll be more vulnerable to this type of program where someone says, "Here's a guarantee, we have marketed really well. We've got a really aggressive sales techniques to say that you must buy an original because your retirement, you're not going to have enough to retire because you haven't set yourself, make them feel really, really guilty. And on the basis of that, you need to buy two or three regional assets." And the typically some of these firms, that's what they do. The unfortunate thing is that they're the most vulnerable in terms of their serviceability may not hold up. And now we're in a rise in hitches road environment. And we're potentially deflating house prices. And they've got nowhere to go because the person that they thought was the expert in the field is no longer in business. There's a lot to unpack here and I'm sure we'll be picking up on this particular topic in future episodes. But the interesting thing here is that these buyers, agency business, they will shut up shop. They're no different than the sprucas of the first generation spruca, which were the house and land package guys and all of that. I've seen countless businesses that have had their run opened up to sell house and land pack. And then some of them even charged lifetime membership for like $8,000, $9,000. And then as soon as they got tough, they just shut everything up. Now the sad bit around going into voluntary administration is what about the entitlement to the staff. They're all so unfurl. Now again, I don't know what's happening with Dash.in terms of that. But that usually is what happens, like in terms of so the creditors will try and work out whether they can at least meet their superinuation or their entitlements around annual leave or whatever that might be. But these are businesses that said they spent millions of dollars on investing in technology and software and modeling tools and all these types of things. And that could be true, could also be true. So they've got no recourse to the buyer's agent. So then the next question is who do they have recourse against? Because the next, what's going to happen is they're going to look after the mortgage broker. And the mortgage broker does have an asset that's their trial book. So the reality is if you've worked with a Dash.Doc and you've worked with a particular mortgage broker and you can see that there's been a referral fee or some may that's been paid between those two in terms of, you know, that they've got into bed together. I think those mortgage brokers should be highly panicked about now because the reality is, and they won't be able to just quickly shut up shop because they've got an asset behind them. - Yeah, they've so turned it off. - So the reality is, if they do go into administration and try and shut themselves down, the creditor should be able to then go and recover that in the next couple of years. So, you know, this is not a legal advice, but the reality is, is if someone has given you advice around credit or whatever you've done, and there's been an incentive in terms of being able to do that through a cross referral payment or whatever, and all you, you know, you've been coached into that, then that would be my next line of inquiry. If it goes bad, because no one wants to take accountability for their own story, but at least these vulnerable investors who don't understand what's happening, they probably have recourse in that respect, whereas in businesses like ours, we do extensive modeling. We do, we understand risk profiles. We go through that whole process. We do, you know, multiple plans over the short term medium and longer term. So, from a responsible lending point of view, we've avoided getting people into trust lending and all those things, because we know what's going to come. And this is the reckoning for these types of buyers, and especially if we do see a regional wreckage, that this will happen. Like this, make no mistake. They will want to blame someone, and they'll go to their, they'll go to Afkorel, they'll go wherever they can, in terms of getting, you know, remediation in terms of what's happened. So, this is a reminder for anyone who is playing in this space. If you're working as a cohort, and you're doing this type of work, you want to be very careful in terms of how it plays out. So, you know, you've been warning, not just our listeners, but the broader market through your different roles and access to the media about this for at least the last two years solidly. Oh, well, that's only because you've been around for two years, but I can tell you it's been almost 15 to 20 years. I mean, as the chair of the property investment professionals, I was the one who was expelling their cowboys, who were trying to leverage their brand against the associations, you know, to get to get trust. I'm on part of Picker or Pippa or whatever it might be. And so, yeah, we would weed out those ones and, you know, their first line of attack is throw lawyers at us in terms of, you know, natural justice and all that. Like they are, they, you know, they understand what they're doing, and they're very aggressive when anyone pushes back on them in terms of what that story looks like. So, maybe I need to say allegedly in terms of everything that I say here, but that's the reality. So, if you're going to be working with businesses that have these relationships and the broker is part of facilitating that service for you, well, what did they do around responsible lending? You know, now that I'm just, I just did the credit and that's okay. Well, that's a right, you've got to ask the question. But if you did the credit and you paid that company to get the lead, well, you know, what have you done around your homework about the businesses that you're operating with? Okay. In our case, where, you know, we're branded under one name, we've got multiple services. People understand that there is an inherent conflict that's documented in our paperwork and everything that we do. And people understand that if they're going to be working with those parties, now it's still risk like in terms of what that looks like. But that's of course, that's the reality in terms of what we're playing here. I mean, I want to give you the final word. Campalaine has already gone almost an hour. What's, you know, if I'm coming to you and I'm sitting down, take me through the conversations that you would want to still be having about whether keep doing what we're doing has anything changed? What are the some of the things that we want to be looking at when it comes to investing in residential property going forward? It's a my personal strategy over the last decade has been exactly what we discussed before, blue chip locations with land content. And typically, you know, pre-budget versus post, I was a big land banker of old character homes, yeah, hold them, you know, for the long term. And you might have to give some up tick along the way. What might change now? Post budget is some of that gearing in terms of cash flow. So having a more of an active strategy for us has become apparent where we might, like I said, bring forward those renovations and/or subdivisions if it's got development upside. The location in terms of the data that we track on a national level and a local level won't change. The fundamentals still remain the same. It just means we're a bit more active with our strategy. So if we do have an asset in a blue chip location, we'll likely be a bit more active with the renovation and whether we reconfigure the floor plan to increase the yield. So cash flow inevitably has become more important for our clients. So we will activate those strategies and development instead of holding that for the longer term and I guess putting down the line in terms of when you're going to activate that subdivision, it may make sense for us to bring forward that subdivision, to bring on and create more land, which is supplies what the government intention was to do. But it'll be in location that is very blue chip and the reason for that, what the budget might do, make it harder for these locations to have a lot of rental properties, because it makes it harder for investors to land bank assets in own occupier type areas. So being able to invest still in these areas means we're going to get an uptick on rental returns, because there'll be a scarcity of those properties. And obviously they're going to become really attractive for long term growth. So our strategy won't change in sense of location and land still king. What has changed is cash flow is more important. So we have more of an active appetite for renovation and development. Are you anticipating rents to go up through the course of these tax grades? Particularly within the locations that we're talking about where there's being somewhat of a balance in terms of some investment coming in to provide rental properties. That will go, those land banking opportunities may not be as common. And the problem is this, where I think people fail to understand, some of these areas, it's the most vulnerable to get hurt. So if you're in a divorce situation, but you get those to the local school in an area, and you now have to find a rental property, it becomes really difficult, because rent may be 30%, 40% more than what it was 12 or 18 months ago. There's going to be a premium. And you can't. But you know, you're on a single wage and you can't afford to stay there. So do you have to move your kid from school? These are the things that I think the government really missed when they bring out these policies of who's going to get affected. And it's often the most vulnerable. It's the unintended consequences of picking winners and trying to change behaviour, but the reality is if people want the best locations with the best amenity or to your point being close to family and all networks and relationship breakdowns, usually mean we need two properties out of one relationship in terms of what that story looks like. So I think that, but I think they're great final words. And if I can just add in terms of one of the reasons why we get people like Lockland on the pod is because he's actually a professional valuer and he's also done his yards in terms of he's a apprenticeship around understanding fees, those feasibilities on land and investment and you know technical valuation principles that come into play. And what is he still saying? He's still saying the same fundamental things that the Bryson I and the team have been saying for years, which is at the end of the day, land scarcity attracts a premium because it attracts people who want to live there and they have the luxury of basically being able to pay that premium for those locations. So it continues to put underlying pressure on the square meter cost of that land. And that's what appreciates over time. Of course, there are, you know, the examples of the premium types of properties that sit on that, which bring that emotional attachment to it. And that, you know, the status of success that I want to show to everyone else. And you then just basically work through that hierarchy of land. So there's a hierarchy of land and then there's a hierarchy of properties within that hierarchy of land. And that's what we've been trying to explain to people all along. And so again, well done on everything you represent. Congratulations on obviously the great business that you're also running. It's been a delight to have you on mate and we might get you on in a year or so time and see how things have changed. But I definitely, you know, Bryson, I post budget, we're talking about this idea that there potentially will be some of those, you know, locations that you landbank in with a future improvement to try and get the full benefit in the negative gearing in terms of one into two. We're still trying to work out the detail about when, I mean, you just have to declare that one day that that's going to be. And then so do you get the negative gearing upfront or when does the negative gearing kick in when you refine it? So there's a little bit of technical information that needs to be clarified because if we are turning one into two, that's the way in which you're going to do it. And again, in established areas people where there's good amenity, there's good infrastructure, there's good commute, people will pay a premium for that, as well as obviously the agglomeration economy effect that happened in terms of the economic blog. So thanks mate, I appreciate that. And until next week everyone, I reckon we'll wrap it up. So bye for now. Remember, knowledge is empowering, but only if you act. Hey folks, opt to hear your smart money sidekick inside more. Just one quick thing before we sign off. If you're new to the property catch community, welcome. One quick tip to help you get the most value from the show. Our first 20 episodes cover the foundations we build on every week. 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