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The Melbourne Market Just Flipped - Jeremy Iannuzzelli & Steve Ash — Transcript

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0:03Just because an area's got heat and it's
0:05been pipped by many professionals that
0:07wow this is a hot market, you've got to
0:09invest. The numbers are going to just
0:11make sense. Don't worry about what the
0:13economical outlook looks like. Don't
0:15worry about what postbudget looks like.
0:17Don't worry about what type of property
0:18it is. It's going to make money. That's
0:20what a lot of people will be telling
0:22you. That's what you'll see across a lot
0:23of social media platforms. That's what
0:25you're going to see with a lot of fancy
0:27and smooth marketing. But Steve I've
0:30known lovely gentleman Steven Ash I've
0:32known for a number of years. He's uh got
0:34a banking background um and moved into
0:37buyers agency. You would have seen him
0:38in a lot of podcasts himself that he
0:41runs together with a lot of other
0:42people's podcasts. He's a lot lot of
0:44databackdriven information when it comes
0:46to making decisions of areas. Um kind of
0:49goes against the grain a little bit as
0:51well where other people may be zigging
0:52he might be zagging and there'll be
0:54reasons why he does it. So, I wanted to
0:56uh bring Steve his first time on what
0:58school should have taught you. Steve,
1:00how are we going?
1:01>> No, and I'm I'm doing really well,
1:02Jeremy. And thanks. I've been following
1:04the podcast for a long time. I think
1:05it's it's it's an awesome name and I
1:07think you put out awesome content. So,
1:08it's it's an honor to be on and we've
1:10obviously had that relationship for
1:11quite a few years. So, it's it's a full
1:14circle moment for me, you know, in front
1:16of a camera with yourself.
1:17>> Yeah, it's interesting. We we known each
1:19other for nearly over a decade now. um
1:22on a professional level and friendship
1:23level as well and it's been great to see
1:25your transition uh from the corporate
1:28banking space to now helping you know
1:31everybody in the in the property space.
1:32I know this has been a passion of yours
1:34for a very long time. We man I have to
1:37tell the truth I couldn't get you off
1:39the phone many times when you're talking
1:40about property. So it's exciting to
1:42exciting to see that you're following
1:44your passion. [laughter]
1:46It's exciting to see that passion. But
1:48today I want to really focus on and you
1:50know we talk about postbudget all of a
1:51sudden now like it's postco this is the
1:54the new event. This is the the the new
1:56downfall the new 30% correction that
1:59everybody's been talking about but never
2:01happens. But this postbudget has really
2:03changed the economic outlook of
2:05investing in general. It's it's really
2:08changed the the mindset of investors and
2:10how we got to look at certain assets
2:12whether it's in the equity space or in
2:13the property space. But today we are
2:15going to talk about the property space
2:17and I want to dive into Victoria a
2:19little bit closer because that has been
2:21touted by lots of professionals as the
2:24state where it is undervalued. It it
2:26didn't have the level of growth anywhere
2:28near a lot of the other states like WA
2:30or the east coast of New South Wales and
2:32and and Brisbane as well. It was
2:34starting its run. You know, pre the
2:36budget it was really ramping up. You you
2:38couldn't buy a property in in the
2:41investment belt of Melbourne. you just
2:43couldn't do it by the by the time that
2:45uh you know open homes were were being
2:47issued and scheduled bang the property
2:49was getting snapped up but it seems like
2:52it may have changed post the 12th of
2:54May. So mate what are you seeing on the
2:57ground in Victoria as a buyers agent in
3:00that space especially in that investment
3:02belt.
3:02>> I think that's a great summation of what
3:04you what you've just said because like
3:05the kind of sentiment around Melbourne
3:08Victoria but particularly Melbourne in
3:10general has been so negative. We had a
3:12bit of a peak in 2021 and we obviously
3:14had the co you know world's longest
3:15lockdown that exodus of people going to
3:18other states as you sort of kind of
3:19alluded to other states and other cities
3:21particularly Brisbane Perth doing so
3:23well in that particular time that
3:25Melbourne kind of just had that was in
3:27the doldrums and what we were starting
3:28to see about I would say probably you
3:32know kind of mid to late 2024 was a bit
3:34of confidence coming back into the
3:36market. You sort of seeing markets that
3:37hadn't grown for a long time. We all
3:39know that property investing there's
3:40markets with market asset classes with
3:42asset classes etc. And so all of a
3:45sudden we're seeing um those areas that
3:47had stagnated for so long and and for
3:49myself as an investor I I I like to see
3:51stagnation in the market. I've seen
3:53other commentators out there they look
3:54at kind of you know 10ear performance
3:56rates at 10 11% peranom. Um that's not
3:59really what we want to see. we want to
4:00see sort of see obviously demonstrable
4:01growth but we want to sort see
4:03stagnation and and Melbourne had had a
4:05lot of that and that that's kind of all
4:07of a sudden all we saw was you know
4:09migration remigration coming back to
4:11Melbourne um and then these markets
4:13starting to warm up again and more more
4:14and more first home buyers coming up
4:16because they're extremely affordable
4:17some of these markets like Frankson's
4:19the uh poster child did did really well
4:21and we saw that growth like that 150
4:24200k growth in no time whereas if you
4:26look at the overall median price for for
4:28Melbourne it was pretty flat And so now
4:31we've had this kind of this negative
4:32sentiment change. It's actually taken me
4:34a little bit by surprise. And I think
4:36maybe we just live in this property
4:37bubble, this sort of contrarian sort of
4:39view type bubble whereby just a couple
4:42of bits of bad news and everyone's
4:44flinging or flying to the exit doors.
4:46And that's actually what's happened. So
4:48there's a couple of things at play here
4:50is is that houses are the contrarian
4:52play in Melbourne at the moment because
4:53of the negative gearing changes because
4:55people are worrying about holding costs
4:57and rah rah. So there's a few things we
4:58can pack on that. And then secondly,
5:00what we've seen and I think it's gone
5:02against probably what our elbow really
5:04wants to do is it's a flight to
5:06affordability for both where first time
5:09home buyers already doing that with the
5:10changes back in October the first but
5:12now they're competing because all all
5:14basically investors have shifted their
5:16strategy because they want to go cash
5:17flow now. They don't want to be 30 grand
5:20sort of or so come July 2027 out of
5:23pocket. So they're looking at kind of
5:25like options where potentially they
5:26might be able to get a 6% yield um and
5:28where it's actually quite cheap buying
5:30price and they can maybe stack two or
5:31three assets on top of each other and
5:33get their exposure that way and seeing
5:36these markets with tight rental growth.
5:38So we've got these two things at play a
5:39contrarian sort of view on house markets
5:41now and then secondly a flight to sort
5:43of like cash flow and capital growth and
5:46cash flow. So, so that what we're seeing
5:48and it's been reflective in the data a
5:50little bit is is the unit market and the
5:51attached dwelling market, the villa
5:53space, etc. performing quite well. Uh,
5:55and then the houses really and it's not
5:58in the data like so you are right I'm
6:00I'm a heavily de data driven sort of
6:03buyers agent but we're also big on
6:04fundamentals and talking to agents and
6:07we talked to a number of agents each
6:08week but we've actually started seeing
6:10real softening and some suburbs dropping
6:13five even 10% over the last couple of
6:15months which is quite crazy so it's it's
6:17a bit volatile but I'd say those are the
6:19two points I'd like to just just just
6:21raise there Jess
6:22>> well I've never seen negatives and I
6:24know we've had, you know, Iran war and
6:26straight of hormuse and oil shock and
6:29we've had, you know, but the the leak of
6:32the budget and then obviously the budget
6:33as well. We've had a lot of knocks, but
6:36I've never seen ever in in over 15 years
6:40of of being in the profession now closer
6:42towards 18, I've never seen that. Even
6:44being an investor for that period of
6:46time as well, I've never seen sentiment
6:48change so quickly and then actually
6:50translate into into a drop as quick as
6:53what I've seen. Never seen it. Now, when
6:54I talk about drop, I'm not saying crash.
6:56You know, a drop, a pullback, it could
6:58be a 1 or 2% pullback, which, you know,
7:00can be a lot for some, but for most
7:02people, that's just the normal course of
7:03investing. But I've never seen how quick
7:06that's happened before. And whether
7:07that's been a lot of people waiting for
7:09this to happen, they've been willing it
7:11to happen, or it's just the way the
7:13market is now, um, Steve, it's just it
7:15things move and move quickly where we're
7:17almost looking at property in the same
7:19lens as as the equity market. things
7:21happen very quickly and you got to be
7:23quick to react. Would you say that
7:25comment's fair or or would you say maybe
7:27there's other things in there that we
7:28need to be looking at and reviewing?
7:30>> I I think your comment is very fair and
7:32you know we be as you talked about at
7:34the top of the episode we've been
7:35talking about property for a long time.
7:37I have and I think it's really advent
7:39social media and the influencers and
7:41everything that's going on and and I I
7:44just think what that's done is that's
7:46brought obviously a lot more people in.
7:48there's a lot more people seeing how
7:50it's property investing is fantastic.
7:52Obviously, it's changed my life, changed
7:54your life. Um, and I think a lot of
7:56people come in and maybe, you know, I
7:58don't want to disparage or it's just how
8:00it is. Like, a lot of people just aren't
8:03maybe geared up for that investing hat
8:05on. It's very hard to go against the
8:07tide. Like, I mean, it's one thing
8:09saying I can like if you talk about the
8:11stock market, if you take the GFC in
8:132008, stock market came down, I think it
8:15was about 57%. It's very easy to say I
8:18can handle that draw down. That's no
8:19problem. But if it's what when you got
8:21skin in the game, it's your actual
8:22retirement savings, your grand kids
8:24inheritance on the line, it's very
8:26different to living through that. And so
8:27what we've seen now is is what I think
8:29with the advent of influence social
8:31media, the the growth of bars agent,
8:33more and more people investing in
8:35property than ever before, trying to
8:36stack assets on doing certain strategies
8:38that as soon as you get that slightly
8:40negative news, it's like, oh, the
8:42world's ending. Uh we're still talking
8:44about dwellings. still talking about um
8:47like Melbourne, world's most livable
8:49city for a number of years in a row.
8:50Well, and and other cities across
8:52Australia, Australia, very desirable,
8:53but but place to live. So, the
8:55fundamentals are still pretty solid. You
8:57know, there's not enough homes. There
8:59the demands there, but I think with with
9:02with the advent of people coming in and
9:04it's just oh my god. And I've seen it in
9:05the business like you just before this I
9:08was talking to a client and he's I don't
9:11know if I should say it, but anyway, I
9:12will say it. He's selling all his
9:14properties.
9:14>> Say it. Say it.
9:16>> He's selling all of his properties, four
9:18properties because he's just he's
9:20adamant there's going to be a crash. And
9:21I'm like, come on, mate. Like, let's
9:23look at this. U let's be rational here.
9:26But that's kind of like that's an
9:27example of of of kind of just a very
9:30small subset of what's happening. And I
9:32think it's just easier to put your head
9:33in the sand when something like this is
9:35going on. And it is it is it is funny
9:37how sentiment changes. But it's
9:38definitely this wasn't happening before.
9:40This is generally when you and myself,
9:42[clears throat] we'd be licking our lips
9:44and starting to go, okay, right now, now
9:46there's the good chance to get some
9:47bargains. This is the time to be buying
9:49and be greedy when others are fearful.
9:51That classic Warren Buffett quote, we
9:53could quote Ray Dallio, we can quote
9:54Howard Marx, whatever it might be. But
9:56now's the time to sort of look look for
9:58opportunities, but that's not what we're
10:00seeing. People are just like, "Oh, I
10:01just sit on my hands for a bit." The the
10:03classic one is like, "We'll wait for the
10:04dust to settle." And we thought about
10:06getting this sort of um doing a social
10:08media post or getting a duster and just
10:10um you know just waiting but it's just
10:13it's I think social media exacerbates it
10:15in a nutshell is what I'm trying to say.
10:17>> Absolutely. Everybody is a is afraid of
10:19catching a falling knife but the the
10:21knife will hit the ground at one
10:23particular stage and then you pick it
10:24back up and you move on. And it takes
10:26balls and everyone says, "Oh yeah, I'll
10:28buy in the next crash." And 99% of
10:30people don't, right? They always think
10:32that it's going to go a lot worse. And
10:33yeah, there's there's a lot of things to
10:35happen for things to drop and never
10:37rebound. And you always got to look at
10:38history. History always says that when
10:40things drop, they they drop they do drop
10:42sharp, but there's a rebound quite
10:44quickly. And I think we've seen a lot of
10:45governments now over the last 20 years,
10:47you and I, Steve, where bailouts always
10:50come. Now, it's not going to be forever.
10:51I'm sure there'll be one time that there
10:53there won't be something there to bail
10:54out everybody. But for the most part,
10:56you know, governments have kind of come
10:58to the rescue. GFC, Royal Commission,
11:00the banks really stepped in. and Appera
11:02really stepped in to kickstart things.
11:04Co was the biggest money printing
11:06exercise across the globe and look how
11:07much money was sloshed around the system
11:09for that many years and there's still
11:11lots of money slloshing around the
11:12system. But coming back to um Victoria
11:14itself now you said something that I
11:16have reiterated on this show before
11:18about the top end of the market. They
11:20may now not look at those more expensive
11:23properties because the negative gearing
11:25um is quite high. They still have
11:27capital to invest. They've still got
11:28borrowing capacity to invest, but they
11:30are now having a flight towards say more
11:32affordable assets, which is what
11:34Albanese is trying to do and charas are
11:36trying to do. Aspiration in in younger
11:39people getting in the market into those
11:40more affordable areas, but what they've
11:42done now is taken a huge portion of the
11:44market who were not investing in those
11:45affordable areas who now will be. Are
11:48you having conversations with not only
11:50your clients but also seeing that
11:51firsthand of those higher priced uh
11:54properties where people had the ability
11:56to afford them now coming back down to
11:57peg into that middle lower market range?
12:00>> Yeah. And I think you've hit the nail on
12:01the head completely there and that's
12:02exactly what's happening. So I would say
12:04of our client base before budget I would
12:07say 75% were buying houses.
12:10>> Yeah.
12:10>> Postbudget I would say 1% buying houses.
12:15Everyone is buying the units. Obviously,
12:16we're, you know, not to plug the bars
12:18agency in what we do, but we're
12:20obviously experts in in finding good
12:22unit deals, but that is the being the
12:24shift of sentiment. What we've seen is
12:25borrowing power has been slashed by the
12:27budget where they might have been able
12:29to borrow 750, 800, now it's 650. Um,
12:33and really just looking at the household
12:35budget and thinking, no, no, we can't
12:36afford to to to carry this 27 to 30.
12:39Particularly maybe with rate rises still
12:42going up, it's hard to sort of forecast
12:43that at the moment with everything
12:44that's going on. But that split just
12:46within the bars agency probably tells
12:48you everything you need to know, Jeremy.
12:49Like um the massive change pre and post
12:52and even those pre that 75% a lot of
12:56them have changed their briefs after
12:57budget cuz we couldn't get it done. It's
12:59the craziest thing I've actually seen in
13:01property trying to get deals done on
13:02budget night by 7:30. I think we got
13:04three or four done. I I don't know. It
13:06feels like Yeah. Not not to criticize
13:08anyone, but the way that was released
13:10was was was pretty disgusting. I think
13:12of having to put put people in and make
13:15those just calls so so quickly before
13:17the budget. But we're seeing that
13:18certain shift to to sort of cash flow
13:20and affordability. Those markets are
13:22going to do pretty well I think over the
13:23next couple of years.
13:24>> Now I I'm trying to paint a word at the
13:27moment called bridesmaid assets instead
13:29of bridesmaid areas which we all know
13:30about for you. You're looking you know
13:33in the in the multi-dwelling market the
13:36units and the town houses and all that
13:37stuff that you're looking at. Have the
13:38areas changed? Are you, you know, are
13:41you going further out um, you know, more
13:43regional or are you still staying in the
13:45areas where you were maybe buying houses
13:47for people, but the briefs changed where
13:49you're now looking at units and
13:51townhouse? Cuz people think, you know,
13:52okay, I've got to change my my brief
13:54now. Instead of investing in
13:55metropolitan, I'm going to go out six
13:57hours west.
13:58>> Um, how are you attacking that um, from
14:01a strategy perspective in Victoria?
14:03>> Well, you probably know me. I'm I'm not
14:05a regional player. I don't have any.
14:07Well, I might have had one once a long
14:09time ago before you pull it up. I think
14:11you're the only person who might know
14:12that one. I'm a metro investor and for
14:14for my own clients, I can't invest
14:15anywhere which I wouldn't put my own
14:17sort of money on into. So, the the
14:20amazing thing for me, I've obviously
14:21seen how well the unit market's done in
14:22Brussy. Um, and so there is the
14:25opportunity to get into blue chip
14:26suburbs and get very good good rental
14:29yields. Now they they've compressed a
14:30little bit in the last few weeks but but
14:32we were getting a roughly around 6 to
14:346.3% in the likes of St Kilda uh
14:37Balaclava Brunswick um Warthorne amazing
14:42suburbs and and and you still can get
14:44the deals there and so for for my money
14:46for you're talking about different
14:47bridesmaid assets you've obviously got
14:50your units your townous and your villas
14:52now so the units in in these areas I
14:54think you know you can still pick up
14:56around that roughly the low fives to
14:58sort of high fives. I mean the classic
15:01one we bought with in Balaclava like we
15:03bought this block this unit 500 grand
15:05over the road there's a house5 million
15:08so massive price disparity on the street
15:10there was a Porsche parked in the block
15:12they had this fancy coffee shop down the
15:15road where they're charging $100 a kilo
15:17of coffee beans I don't drink coffee so
15:20um but but what it does it's bougie so
15:22so so you can tell that that you know
15:25that there's a big disparity here and
15:26there's a good good good option over the
15:28last 7 to 10 years. I look at 7 to 10
15:30years, not one year, that that this this
15:32these markets going to do pretty good.
15:34So, so that's one type of asset. Second
15:36type of asset, town houses, they'll be
15:38pretty popular, but I do worry about
15:40construction risk. It's not something I
15:41personally look at, but what I wanted to
15:43talk about is the villas as well. And
15:45so, villa like in Melbourne, you can get
15:47villas on pretty decent land content.
15:50And depending on on sort of the client's
15:52budget, you can get into some pretty
15:53good suburbs around the sort of 600,000
15:55mark. But if you go out and you look at
15:57kind of to your point maybe slightly
15:59lower soio economic areas I'll be
16:01careful how I pick my words with that
16:02that one where you can get very very
16:04good yields um around you know you're
16:07looking around about the 450 mark or so
16:10I think that's absolute gold and those
16:12assets will do pretty well. So th those
16:15within the attached dwelling space, if
16:16you will, those are the three sort of
16:18assets that we look at. We don't look at
16:19the brand new town houses too much
16:21construction risk, but the other two
16:22we're seeing a lots of bargains there
16:25and uh and clients are making good
16:27headway. Now, one last thing on that
16:29markets within markets um two months ago
16:33before the budget, no one was looking at
16:35these type of assets. We pull pull up,
16:37you know, to have a look at these
16:38properties. The agent was very very
16:40responsive like what can they do for us
16:42and you know like everyone talks about
16:45data here and everywhere. Um that's a
16:47really good telltale sol for yourself
16:50you know this is a cold market we can
16:51negotiate this good buyers market here
16:54and we're able to get some really good
16:55discounts and some really good sort of
16:57deal quality looking at that nowadays
16:59like they're getting 12 offers or so and
17:01some of the people who are buying back
17:02then they would have seen appreciation
17:04of 10%. And so I think that trend is
17:06going to continue if we're not quick now
17:08on deals like the agents not being
17:10responsive at all. It's completely
17:12turned like the pendulum swung the other
17:14way. And so there is going to be an
17:16opportunity and I think you know like
17:18while while we don't want to compare
17:19apples and oranges when we see what's
17:21happened in Brisbane and there's
17:22different factors at play the blue chip
17:24areas or the equivalents I'm talking
17:26about Paddington and New Farm etc. who
17:28have performed incredibly well over the
17:30last four or five years. Um I don't
17:32think we're going to see I don't have a
17:33crystal ball can forecast any of these
17:35sort of things but the downside's
17:36basically very very limited because
17:38we're buying well below replacement cost
17:40and so as value investors there's
17:42there's we're just looking to the upside
17:44and a reversion to the mean. So so
17:46that's kind of what I'd say across those
17:48brides bridesmaid's assets. So I
17:50strongly get my words out.
17:51>> Beautiful. And I love you know I always
17:52talk and bang on about the reversion to
17:54the mean. If something pumps up very
17:56quickly it will find a way to balance
17:58itself back out through stagnation or
18:00decline. And if something hasn't moved
18:02as much, it will find a way to get there
18:04one stage or another. Now I I
18:06[clears throat] want to ask two
18:07questions. And first question is going
18:09to be Victoria especially apartment
18:11markets always been quite synonymous
18:13with over supply. That word has been
18:15thrown around quite heavily in in my
18:18definitely from me. I've said it many
18:20times and I've definitely had a lot of
18:22consultants, property consultants,
18:23buyers agents and and just normal
18:25investors. They've been bitten by the
18:27overupp issue that has plagued Victoria
18:30a couple of times. It hasn't just
18:31happened once, it's happened a couple of
18:33times. What things are we should we be
18:35doing to mitigate any over supply issues
18:38that we might have when buying into say
18:41the unit market and what things do we
18:43need to be considering when going into
18:46the unit market as well? So, the
18:47mitigating factors, what things we need
18:48to be looking at to avoid it and when
18:50we're going and buying in there, what
18:52what should we keep tabs on as well?
18:53Yeah, it's a great question and and it's
18:56one of those classic ones where it's the
18:58real contrarian angle angle and it
19:00really was a contrarian angle when we
19:02started buying there sort of you know
19:04late last year because uh because there
19:07is so many I mean I've said it myself on
19:08podcasts you know about the over supply
19:10in docklands um and and South Bank etc
19:14like Towers and and and there was a lot
19:16of approvals coming onto the market now
19:18they they have have actually dried up
19:20but what what I'm going to sort of do
19:21talk about a few things now the First
19:23thing with the highrises etc. like
19:25there's there's there's a few there's
19:27there's obviously a few towers off the
19:28plan that you can buy. What you've got
19:30there is significant construction risk.
19:31I touched on that a second ago where
19:34whereby like potentially there could be
19:36a special levy come into come into
19:38factor at at some point and obviously
19:41holding costs etc. They're very cookie
19:43cut. There's not much differentiation
19:45between these these particular sort of
19:46units and you're crammed in there you
19:48got high body corporate costs etc. And
19:50we do know that these these towers are
19:52very heavily centered in certain areas.
19:55And so that's definitely somewhere we
19:57avoid. I think if you wanted to No, I'm
19:59not going to talk about that. This
20:00definitely it's always an avoid. If
20:02you're an experienced investor, you
20:03might be able to play something like
20:04that. But I wouldn't I wouldn't suggest
20:06doing that. But then the other thing is
20:07again, we're talking about asset types
20:09within asset types and markets and
20:11markets. And so probably the the the
20:13best thing to to to the best way to look
20:15at it is is that with the affordable
20:17sort of housing or unit market if you
20:19will um generally a lot of these will be
20:22trading at a discount to the highrises
20:24and then what the how much it is to buy
20:26the key in a high-rise. And so if you do
20:29have a bit of disparity there and let's
20:31say the plan they're selling for is
20:32going to be a lot higher than this but
20:33but say $850 and you're picking them up
20:36at say450500
20:38then there's a good sort of like you
20:40you're buying there's a good margin of
20:41safety there if you will and without the
20:43construction risk that you'll have on
20:45the other one. They're generally double
20:46brick reinforced concrete. Not much can
20:48go wrong with it. No underground car
20:50park any of these sort of things. And so
20:52we're looking at kind of those type of
20:54things. We're also looking at supply
20:55coming to market. We're looking at
20:56vacancy rates as well. Vacancy rate
20:58extremely tight. But the other point I
21:00wanted to make if if we look at foot
21:01gray. So foot gray is 56ks uh west of
21:04the CBD. So there are a few approvals
21:06coming into that particular area and a
21:08few towers. So um that are that are kind
21:11of going to be built over the next next
21:13few years. And so within the affordable
21:15foot spray market, what you've got is
21:17almost a two-tiered system. So, if
21:18you're if you're quick and you you're
21:20able to get those units around that 350
21:22to 400,000 mark, a two bed, one bathroom
21:25or one bed at say 250 or 300, if you can
21:28get it, the rent's going to be roughly,
21:29if you look at Center Link and kind of
21:31what people can pay, you're roughly
21:33looking at 450. And if you get 450 and
21:35350, you're close to a 7% yield. And so
21:38like if you have an off if you do have
21:40that sort of supply coming and the
21:42towers coming that's not the market
21:44that's that um the these renters are
21:47going to going to move into and their
21:49dynamics is going to be very different
21:51as we talked about the developers have
21:53to make money. So the the the price or
21:54the key is going to be sold at $850,
21:57900, I'm not sure. And so there's
21:59already that that kind of like margin of
22:02safety with the with the good buying
22:03that you've got for them to make sense.
22:05The rents are going to be 600 650. So
22:08there's there's there's there's kind of
22:10room for those the top end of those
22:12rents to come up. And so again, talking
22:14about different market or segments,
22:17we're buying in a completely different
22:18segment. So the research that we've
22:20done, we don't really care about that.
22:21We're we're we're still looking at very
22:23specific asset types and for people
22:25listening to your podcast if they want
22:27to get yield and and decent growth
22:28that's what they should be looking at.
22:30>> Now if we you spoke about markets with
22:32markets and more importantly you said
22:33assets within assets and people are
22:35going [clears throat] oh it's it's a
22:37house it's a unit. What's the
22:39difference? Well no there's you know we
22:40spoke about villas and town houses spoke
22:42about units but then units also have
22:44units within units. You've got studios
22:47you got one bedders you got three
22:48beders. If I'm coming into, you know,
22:51there will be lots of chatter about
22:53apartments, especially, you know, in
22:54Victoria and other states as well. But
22:56let's say we're specifically looking at
22:58Victoria. Is there a dynamic shift
23:00between the mindset of renters there for
23:02studios, one beds and two beders and
23:04three beders? So, I'm coming into the
23:06Victorian market. I'm looking at a a one
23:08better for $280,000, 300 grand, and I'm
23:11looking at a two better for
23:12[clears throat] 400. I'm drawn to the
23:14one better because of how cheap it is.
23:16But what are some things people need to
23:18be very careful about when looking at
23:20say one bedders, studios, three beders
23:23and two beders? What are the things we
23:25need to consider? And that's a a big
23:26question that a lot of people have asked
23:28me.
23:28>> Yeah. No, it's it's really good good
23:30good questions. But so particularly
23:31studios, you have to look at the the
23:33finance risk really and whether whether
23:34the the lender is going to finance that
23:37property. I think if it's under a
23:38certain square meter which it might be
23:4040 square meter for studio might be
23:41wrong on that 35 then you might not be
23:43able to get the finance or you have to
23:44stump up a bit much bigger deposit and
23:47then potentially there's there's
23:48obviously capital growth risk for the
23:49actual risk that you're putting down you
23:50obviously want to to make money there.
23:53>> So studios you've spoken about that
23:54finance risk attached to it obviously
23:56buying it and you might have the capital
23:58to get in but then someone else has has
23:59to have the capital to to buy it from
24:01you. So there could be some the exit
24:03strategy risk. How about one bers? You
24:05know, the prices between a one and two
24:07better might be quite different where
24:09one better looks quite attractive.
24:10What's your thoughts on the one beds in
24:12those markets?
24:13>> Yeah, it's a it's a good good question.
24:15I do like one better actually. It's not
24:17they're not for everyone. Generally,
24:18what we see with two beds, we'll talk
24:19about those in a second. The capital
24:20growers better, but for the one bedders,
24:22generally what we see is the rents
24:23aren't too dissimilar in the areas that
24:25we look in uh as opposed to two beds.
24:27And I but you've got to be very
24:29selective in the markets that you're
24:30buying one bedders in. You have to look
24:32at kind of how how
24:34Same with anything. Look at how many are
24:35on the market in the in the various
24:37suburbs. But to give an example where
24:39that there's a good example to
24:40potentially get a good investment and
24:42one better that's that's that's popular.
24:44We were looking at one in Turk recently.
24:46Um and the one better it was in very
24:49bougie block very good very good street
24:51multi-million houses on the street. Um
24:53the two betterers were going for around
24:55about that 700 buck and there was an
24:57opportunity to get the one better on a
24:58good with a good sort of um square
25:01meters. which was I think it was 75 m a
25:03nice kind of layout etc for around about
25:05the 510 mark and something like that I
25:09was pretty excited wanted to buy that
25:10myself um but that would what I'd be
25:13looking for you've got to be a bit more
25:14selective when it comes to one beds
25:16really look at those premium suburbs and
25:18the block and the layout etc and don't
25:20scrimp on on the square meters obviously
25:22you'd have the finance risk there and
25:24then with two beders that's really the
25:26sweet sweet spot that we're we're
25:27looking for the two bed one bathroom and
25:29these type of type of blocks very
25:31popular, you know, with young families,
25:34especially if you get into a good school
25:35catchment area or or just a close to the
25:38city, bougie, your rich kid, you know,
25:41I've got to be careful what sort of
25:42words I say. Yep. Yep. He's in certain
25:44areas um where where people actually
25:46want to rent in that area because you
25:48got the coffee shop, like I said, the
25:50you know, the Louis Vuitton bags, etc.
25:52But um but but but I think um with the
25:55two beders and one bathrooms again if we
25:57kind of look at what's happened in
25:58Brisbane, what we've seen is is is an
26:00outperformance in those in that type of
26:02stock. But the one betterers have done
26:04done extremely well too. And so but but
26:06I just think with the rental and and the
26:08potential capital growth and the
26:09potential rents for a two better, I
26:11think they'll outperform the one better.
26:13But I actually think there's great
26:15opportunities in both markets at the
26:17moment if you're very selective.
26:19>> It's it's good to hear. So the rentals
26:21are quite similar. not too far apart.
26:23Obviously, two better rent went in for a
26:24bit more than a one better, but there
26:26potentially might be the capital g
26:28capital growth um not I'm not going to
26:31use the word reduction, but not as much
26:33capital growth, maybe not as fast as
26:34potentially a two better because a two
26:36better appeal to many people. So, I
26:38think guys sometimes when you're hearing
26:39that stuff and you're making those
26:40decisions, sometimes properties are a
26:42little bit cheaper compared to other
26:44things for a reason. it could be a
26:46little bit harder to sell that target
26:47market not might not be there cuz in the
26:50end when you buy you you know ideally
26:52want to make money but someone else has
26:54to to pay you more than what you paid
26:56for it. So you need to factor that in
26:57when making your decisions and appealing
26:59to a target market like anything selling
27:02a good or a service people want um you
27:05need people to want to buy it. People
27:07want to spend their money for what
27:08you're offering. So that goes the same
27:10for property. Um the big thing is is you
27:13know spoke about villas and town houses.
27:15You know when we start to look at villas
27:17and town houses are we seeing discounts
27:19compared to say Torrance title homes or
27:22are they relative relatively in the same
27:24price point? Are you seeing that in the
27:26market at the moment especially now
27:27after maybe those freestanding houses
27:29have come back a little bit?
27:30>> Depends obviously how how how much uh
27:33how big the plots are for the villas as
27:35opposed to the houses. But we've we've
27:37seen a discount in quite a few markets
27:38for quite a long time. And um I mean an
27:41area that we do really like a lot and
27:44probably giving the game away a little
27:46bit but but that's all good. the the the
27:48golden sort of we call it the golden
27:50circle like out out in Melbourne sort of
27:52west like we got Moral Bark Killsite
27:54Bonia Bazewater Fernry Gali these type
27:56of areas really really nice suburbs and
27:59what you've seen is a pretty big
28:01disparity between where the houses are
28:03are selling as well as the as the villas
28:05and I think there's there's really good
28:06opportunities in those markets if you're
28:08very selective obviously you'll look at
28:10the construction risk etc um where you
28:13can actually get uh you know roughly a
28:14five 5.5% yield if you're if if you're
28:17quick, but you do see that gap between
28:19how much that the houses are going for
28:21in those areas too. And so I think what
28:24we we are seeing some some really good
28:25opportunities in these space and those
28:27are the sort of markets with the sort of
28:29houses etc where we we see quite a good
28:31value there as well. Um the other thing
28:34is again if if we're looking at um likes
28:38of Danong for example and Noble Park and
28:41these type of places where you can get I
28:44mean you can get villas on quite smaller
28:47plots of like say say a bit of a garden
28:48out the back or courtyard etc. Um now
28:52these like sometimes we see them with a
28:546.5% yield and then if you look at sort
28:57of you've got to look at body corporate
28:59risk etc or strata uh body corporate
29:02obviously in Vic uh and generally
29:04generally there there's you know the
29:06fees are pretty low there and uh and we
29:08think that these are sort of fly under
29:10the radar a lot on Bayside too close to
29:12the beach there's a couple of
29:14opportunities we looked at in the likes
29:16of Chelsea Bomb Beach etc whereby the
29:18houses are going for the 1.2 2 1 million
29:211.2 mark, but you're picking these v you
29:23can pick these villas up around the sort
29:25of 550 or 600 mark. And so we're always
29:27looking at sort of price disparity and
29:29where we can get sort of uh or or or get
29:32something that's got a maybe a little
29:33bit of land content or even if it's just
29:35minimal but in a very good location
29:37because the one thing as you know with
29:38property you can't change the location
29:40and so so so it's it's a market that's
29:44not been talked about a lot on podcasts
29:46or out there but we're still we're
29:47seeing some real value in in in the
29:49villa space across the whole of
29:50Melbourne.
29:51>> Yeah. that disparity between again
29:54assets that will have a body corporate
29:56on it compared to freehold Torrance
29:57title. I don't think I've ever seen the
30:00gap
30:01as big as what it is ever. No, I
30:04>> I've just never se I've seen a maybe a
30:0720 30% 35%
30:10maybe 40, but I've never seen the gap
30:13where it is where most of them are now
30:15between 30 and 50% cheaper in the same
30:19area than a than a freestanding house.
30:21Yes, it's got land and dirt and
30:22understand that God isn't making more
30:24land and dirt, not unless you live in an
30:26island in Hawaii where there's a
30:27volcano, but it's one of those things
30:29where location is important, close to
30:31amenities and and and infrastructure.
30:33That's part of the big thing. But this
30:35one body corporate, Steve, you know,
30:36everyone's petrified of body corporate.
30:38>> And I say that body corporate is again
30:42contributes to insurance of of the
30:44property itself will contribute to
30:46majority of the structural repairs and
30:47maintenance of the property. So things
30:49like roofs and gutters and exterior of
30:52the property, the skin itself inside
30:54obviously is yours. I I've done some
30:56numbers with clients and looked at body
30:58corporate verse their properties at a
31:00freehold. sometimes actually body
31:01corporate cheaper than if you were to
31:04own a Torrance title home when you add
31:05in things like insurance, like repairs
31:08and maintenance. Is that what you're
31:09seeing now when you're kind of comparing
31:11apples with apples with some of the
31:12older properties that are freehold
31:14compared to some of the um the dwellings
31:16you're buying that are are units or
31:17villas or town houses,
31:19>> especially in Melbourne. Yeah. Yeah.
31:20That like there's obviously a lot of due
31:22diligence. There's a lot more due
31:23diligence that goes in with the body
31:25corporate, but that's um that's where
31:27the gold can be found. But you're dead
31:29right. I mean, sometimes you might for a
31:31freestanding home, yeah, you do you pull
31:33in your insurance, your landlord
31:35insurance, etc., it might come in at
31:362,200, 2,300, and then when you factor
31:39in the body corporate, etc. It's
31:41especially for some of the villas, it's
31:43it's minimal. Sometime we we bought some
31:45around about the,000 uh dollars perom um
31:49roughly they sort of seem to land around
31:50that sort of 2,000 to 3,000 mark, which
31:53is below Sydney. When when it all comes
31:54out and the rents, obviously, you factor
31:56in the land tax, etc., but but because
31:59of some other sort of fees, you're
32:01actually not coming off too far uh
32:03behind other states. But then when you
32:05look at the houses and then you factor
32:06in the maintenance costs for for houses
32:09where we all know if we especi
32:12particularly in Melbourne, if we're
32:13looking at 40 50 year old home that you
32:15know there's there's going to be items.
32:17you got the compliance stuff that uh
32:19that that that you have to sort of
32:21adhere to sort of like well within both
32:23assets, but it's obviously more
32:24expensive within houses to make sure um
32:27items have to be compliant to be able to
32:30to meet the minimum rental standards.
32:32Now with the villas, town houses and and
32:34the units obviously that's the rem of
32:36the well with the within the building
32:38that'll be the body corporate. So so
32:40there's there's and the insurance is
32:41obviously covered by the body corporate
32:43too. And so really when you do your
32:45numbers and you you factor in the lack
32:46of like having to buy you know the
32:48building insurance etc you might be up
32:50for say 400 450 let's call it 500 tops
32:53but maybe um your landlord insurance
32:56contents if you you know risk averse you
32:58wanted to get that too. So so so yeah
33:01it's interesting point you make for sure
33:03there's there's actually turns out to be
33:05cheaper and you shouldn't be scared of
33:06doing a body corporate um there's a lot
33:09in there there's a lot of gold when you
33:10do the due diligence on these type of
33:12assets. Yeah, and the big one is
33:13obviously land tax. You know, the units
33:15and town houses and and villas, they're
33:18on a prardament of land. So, land tax
33:20obviously is prored. And typically
33:22speaking, the land tax that you might
33:24pay to achieve maybe the same level of
33:26rent as a a rides made [clears throat]
33:28asset being a house not far away, you'll
33:32probably find that the rent might be 20
33:33or $30 difference per week, but the land
33:35tax might be $50, $60 difference per
33:38week, maybe more. So there's some things
33:39that again if you're looking to buy into
33:42where the market is down in Victoria and
33:44there's a big push towards units you've
33:46you've got to factor in obviously a lot
33:48of things like your body corporate cost.
33:50We also got to factor in assets and one
33:52beds and studios versus three beds town
33:55houses and villas on the Torrance Title
33:57Homes as well. From your point, Steve,
33:59you know, you mentioned that agents,
34:01they're seeing a lot more foot traffic,
34:04a lot more activity going towards the
34:06unit dwelling market as opposed to the
34:08Torrance title and freehold market. What
34:10things do you think that people just
34:12need to be very careful of going into a
34:15market where now a lot of people start
34:17to converge in there at once? So, we've
34:19seen markets explode very quickly
34:22because everyone's starting to move into
34:24the same market. What's some of the
34:26things that telling signs that you'll
34:27say guys this is now becoming too hot?
34:30Um we you now need to make pull back
34:32because everyone's trigger happy when
34:34things are going up and they just think
34:35it's going to continue to go skyrocket
34:36upwards moving forward.
34:38>> Yeah. Yeah. No, and and it is a good
34:40call and it and again like I mean I gave
34:43an example of of the movement of one of
34:44these assets and it's taken me by
34:46surprise and I think what you've got to
34:48do is you've got to be ultra strict as
34:50it always comes down to. If you've
34:52identified, okay, my strategy is to buy
34:55in Melbourne and these type of assets,
34:56you got to be so strict in the deal
34:58economics of the deal that you're
34:59looking at, you got to look at kind of
35:01how that deal is going to get you to the
35:02next property, how it's going to get you
35:04to your end goal. Like, you know, we
35:05talked about our end goal, God knows how
35:08many years it was and then working
35:09backwards to how you're going to achieve
35:10that goal. Is that asset going to going
35:12to get you to that particular goal at
35:14the moment? And now what we're seeing
35:16and so we're coming back to the deal
35:17economics at the moment. And so
35:20something that we have seen recently is
35:22that yield compression. And so roughly
35:25for buying and killed or wherever it was
35:26from 6.1 6.3% yield now that's roughly
35:295.5 uh to 5.8. So that's to me an you
35:33know a sort of an alarm bell to say okay
35:36well this there's good momentum in this
35:37market. It's going to keep going but
35:39there's going to be more rentals coming
35:40into that particular area because
35:42there's there's a lot more investors
35:44buying. I mean, it's pretty pretty
35:45obvious to know that lots of people have
35:46had to pivot their strategy as investors
35:49as well as buyers agents. So, they're
35:50coming into this this particular area.
35:52And so, it it it's if if all of a sudden
35:55you just go and buy something, you know,
35:57the market's pretty hot, then you maybe
35:59let's just say you buy an [snorts] asset
36:01with a 5% yield, that's that's not the
36:03play here. Like, we you've got to be
36:04ultra strict on on the deals. You need
36:06to look at the comps on the rental and
36:08just make sure that they're stacking up.
36:10Given another example in St. killed or
36:12when we were buying there was about
36:14seven or eight sort of properties two
36:15beds to to rent on the market. Now
36:17there's 17 18 or so. So you can see you
36:20know that that sort of volume of rentals
36:22is coming up. So do it pound in the
36:24pavement if you're in another state
36:25flying down just seeing what's going on
36:27seeing how many people are there. But so
36:29all all of these things I think what it
36:30boils down to and it's the one thing
36:32that you can control when you invest as
36:34you know Jeremy is is is buy well and
36:36and and and with those economics and
36:38with those good deal economics don't
36:40don't chase yields. Yes, try and focus
36:43on trying to get those 6% uh yields and
36:46if if St. Kilda or wherever it might be
36:48with those areas that you deem to be the
36:50place that you want to look at have
36:51gone, it's time to look at other areas.
36:53>> Beautiful. And I'm going to leave it
36:54there today, Steve. I think that's a
36:56really good ending point. It's it's
36:57still staying true to a strategy that
37:00you implement and looking at the deal
37:02economics. I love that. I'm going to use
37:03that personally myself. The deal
37:05economics, that's the biggest takeaway
37:07point for today. If you're looking in
37:09these areas and it it makes sense and
37:11you might be a little bit too slow or
37:12you might be getting in straight away,
37:14the deal economics needs to make sense
37:16that yield compression is is potentially
37:19a risk and you've got to look at that
37:21market demand. If it really is starting
37:23to pick up and you may start to see more
37:24and more people pick up on that that
37:27market demand and more rentals come in
37:28the market, then yields potentially come
37:30down and all of a sudden why you wanted
37:32to go into that area now may change
37:34because those yields have dropped, that
37:36cash flow has dropped and you know what?
37:38you're now on par with potentially what
37:39a freehole property is providing which
37:42you didn't set out to do. I really want
37:44to thank you for today mate. It's been
37:45it's been awesome to for you number one
37:47to share so much of the areas you're
37:49looking at um and potentially some areas
37:51that people need to be very wary of. Uh
37:54it's interesting to see what you said
37:55that nearly 75% of people pre-budget
37:58were looking at torrent title so
38:00freestanding homes to now that number
38:03being very minimal and a lot more people
38:05have pivoted their strategy to more
38:06affordable properties like the unit
38:08market especially in Victoria and I'm
38:11I'm hearing that personally myself. I've
38:12seen a stackload of clients their
38:14borrowing capacities reduced. And these
38:16are people who are looking at a million
38:18dollar price bracket plus or 800,000
38:21price bracket plus and have now had to
38:23come down to that 6 to 500 mark or maybe
38:26slightly more. And in that market units
38:28are presenting themselves to be value.
38:30So that's where we're going to start to
38:31see a significantly higher level of
38:33demand. But with that high level of
38:35demand can obviously attract a lot more
38:37risk as well. So deal economics. Steve,
38:40I'm taking that one from you.
38:41>> Trademark indeed. Great being on the
38:43show. But but I the one thing I just
38:45like people to say like there's been a
38:47lot of chat about units across Sydney,
38:49Melbourne. [clears throat]
38:50There's really good opportunities there.
38:52Look at those deal economics, stack them
38:54on top of each other. There's really
38:55good opportunities here, but be very,
38:57very picky in what you buy.
38:58>> Beautiful. So Steven Ash, if you can
39:00reach out to him on his website,
39:01propertystrats.com.au.
39:03He's always up for a chat.
39:05>> Thank you. And keep up the good work
39:06yourself. I'll keep listening to the
39:07podcast. It's great.
39:08>> Thank you.

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