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Melbourne rebound - where are the bargains? · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to the Australians Money Puzzle Podcast. I'm
0:13
Speaker 1: James Kirby. Welcome aboard everybody. My guest today is a
0:17
Speaker 1: Nissa Cavallo of the Ida Property Group and she's been
0:20
Speaker 1: on the show actually more than once, and the last
0:23
Speaker 1: time we heard from her, I won't say a voice
0:26
Speaker 1: in the wilderness, but she did outdime with some confidence
0:30
Speaker 1: how Victorian property market, which she is an expert on,
0:34
Speaker 1: she had seen it as a bargain. Basically, this is
0:37
Speaker 1: when things were pretty pretty bleak and as you know
0:40
Speaker 1: that Melbourne was the worst market for some time on
0:44
Speaker 1: a national basis. Now most recently we see that basically
0:47
Speaker 1: Melbourne prices have been rising at an annualized rate something
0:51
Speaker 1: in the order of six percent and were probably gathering
0:54
Speaker 1: pace through this period. So I've invited Anissa back on
0:59
Speaker 1: the show to talk first of all about this area
1:02
Speaker 1: because I think from a nation my point of view,
1:04
Speaker 1: it's where everyone's looking as investors. But I also want
1:07
Speaker 1: her she does have an interesting story which I haven't
1:10
Speaker 1: put to you before for the simple reason I wanted
1:12
Speaker 1: to put her to you as a property expert first
1:15
Speaker 1: and foremost, But how she actually got into all this
1:18
Speaker 1: is very interesting, which we talk about in the second
1:20
Speaker 1: segment of the show. But first and foremost, and this
1:23
Speaker 1: is Cavallo, try not You could almost gloase there if
1:26
Speaker 1: you wished, but but they wouldn't come across on the podcast.
1:29
Speaker 1: But thank you. I mean, let's say it was going
1:34
Speaker 1: to happen, right, it was probably going to happen that
1:35
Speaker 1: Melbourne would turn. I didn't think it would turn quick.
1:38
Speaker 2: Absolutely well, firstly, thanks for having me back, James. I
1:41
Speaker 2: appreciate it to glow. And look, I think in many
1:45
Speaker 2: cases when you listen to economists, eventually, if you wait
1:47
Speaker 2: long enough, what they say is correct. Right, But we
1:49
Speaker 2: were talking about the next twelve months, so we did
1:52
Speaker 2: get it right. The fundamentals are just there and we've
1:55
Speaker 2: talked about it before. Population growth, we've got stronger wages growth.
2:00
Speaker 2: The population growth hasn't really changed other than that little
2:02
Speaker 2: period during COVID. There's just been so many positive characteristics
2:06
Speaker 2: about Melbourne and the last five years in particular have
2:09
Speaker 2: set us back ten And I know I've heard that
2:12
Speaker 2: you've spoken about this a lot on the show, that
2:14
Speaker 2: the numbers for the ten years is dire and that
2:16
Speaker 2: presents an incredible opportunity for investors that are willing to
2:21
Speaker 2: go against you, against the grain, which is really tricky.
2:24
Speaker 2: So yeah, I was right. It's not surprising. I don't
2:27
Speaker 2: think we're not celebrating it, right, We're not popping the champagne.
2:31
Speaker 2: But the first indicators are certainly there. And it's a
2:34
Speaker 2: bit of a relief, to be honest, for me, because
2:36
Speaker 2: I'm highly exposed and a lot of my clients are.
2:39
Speaker 1: I suppose, so you professionally put yourself out there. It
2:41
Speaker 1: wasn't just a notion and you would have acted upon it,
2:44
Speaker 1: so you wanted to see it happen. Look, well, take
2:47
Speaker 1: it that it is happening. It's not shooting the lights out.
2:50
Speaker 1: It's all it's doing so far, it would seem. And
2:53
Speaker 1: Calendar twenty five is coming back to something like a
2:57
Speaker 1: normal market what you would expect an Australian city. Five
3:00
Speaker 1: minions should be ticking away at least six percent parannum.
3:03
Speaker 1: So let's just take it down. Is the situation, and
3:05
Speaker 1: that it could get better. Now, before we talk about
3:10
Speaker 1: where and style and type of property that might be
3:12
Speaker 1: attractive in the city, can you tell us I think
3:15
Speaker 1: the tax the role of new taxes that were announced
3:21
Speaker 1: by the Victorian State government at the very depth of,
3:24
Speaker 1: you like, of the cycles, So when things were really
3:26
Speaker 1: at their agrimace, they went and really sort of kicked
3:28
Speaker 1: it in the head by adding new taxes, and they
3:31
Speaker 1: got a lot of attention. Is that still a risk
3:35
Speaker 1: from a broad point of view for people investing in
3:37
Speaker 1: this market?
3:38
Speaker 2: Well, as we've discussed, I think it presented an opportunity
3:43
Speaker 2: because if you had a look at the true impact
3:46
Speaker 2: on the majority of investors, I think it was it
3:50
Speaker 2: was for majority investor property investors. It came to seven
3:53
Speaker 2: hundred and fifty to nine hundred dollars extra a year
3:56
Speaker 2: that was tax deductible, and if you consider where interest
3:59
Speaker 2: rates have been in the past while property prices go up,
4:02
Speaker 2: that's not really a massive financial disincentive to invest. So
4:06
Speaker 2: for me and what we discussed was it was largely sentiment.
4:10
Speaker 2: I mean, we could have been taxed twenty dollars and
4:12
Speaker 2: we wouldn't have been happy with it because we felt
4:14
Speaker 2: it wasn't our fault, right, Why are we tacked?
4:16
Speaker 1: Why we So you're saying that the dollar terms, it
4:18
Speaker 1: wasn't backbreaking, but it was, but it sure was in
4:21
Speaker 1: terms of sentiment wasn't it.
4:23
Speaker 2: I think that the sentiment was also partly because we thought, well,
4:27
Speaker 2: what are they going to do next? We'd had enough
4:29
Speaker 2: and interstate investors, Melbourne had a good run for many years.
4:33
Speaker 2: We were relatively oversupplied in supplied in some areas, not
4:38
Speaker 2: all areas, which isn't always a massive issue. But I
4:41
Speaker 2: think that it had a good run. That we dealt
4:44
Speaker 2: with COVID in a way that wasn't very popular, and
4:47
Speaker 2: then it was like what else is this government going
4:49
Speaker 2: to do? What else are they capable of? And it
4:51
Speaker 2: was almost like I like to liken it to the
4:53
Speaker 2: Carton Football Club, everybody almost really enjoyed the lot, you
4:57
Speaker 2: know Melbourne.
5:00
Speaker 1: Some Sydney siders enjoy seeing Melbourne's struggle in any fashion.
5:05
Speaker 1: I don't tell that for a moment. We know that
5:08
Speaker 1: we know that all too well. But let's rise above
5:11
Speaker 1: all that as investors and look strictly at the numbers.
5:14
Speaker 1: So I suppose what I'm asking you is that issue
5:19
Speaker 1: that seem government are still in power in Victoria, right,
5:21
Speaker 1: So is that risk still on the table?
5:23
Speaker 2: Well, okay, okay, So I think that we've seen this
5:27
Speaker 2: pan out now for a period of time and realized
5:30
Speaker 2: that not a lot has happened. We haven't had this
5:33
Speaker 2: huge despite what the media says, and even the headlines
5:37
Speaker 2: of people are leaving Victoria and drives, it's simply untrue.
5:40
Speaker 2: If you look at the ABS figures more people left
5:42
Speaker 2: Queensland last year than Victoria and that's on a numbers basis,
5:46
Speaker 2: so on a percentage basis, it's much greater. Right, So
5:49
Speaker 2: I think we've got it. People are starting to see
5:52
Speaker 2: the truth. There's not anything massive that's happened. We haven't
5:56
Speaker 2: grown hugely, but we've also become incredibly a foe audible
6:00
Speaker 2: and I know that whilst there are some talks about
6:04
Speaker 2: some additional taxes on property in general, it seems that
6:09
Speaker 2: the huge, the huge imposition to Victorians in particular, it
6:14
Speaker 2: has stopped, right, So we're not not quite sure that
6:17
Speaker 2: much more is coming. I think we've had We've watched
6:19
Speaker 2: it play out a bit. There's also been other states
6:22
Speaker 2: that have made very unpopular policy decisions, and you know
6:25
Speaker 2: that just hasn't been as as widely publicized.
6:29
Speaker 1: Actually, Hugh Robinson's The Financial Advisory based out of Brism
6:31
Speaker 1: was on the show sometime ago and him at the
6:33
Speaker 1: point that Land tax is actually and the way it's
6:34
Speaker 1: going on the forward estimates inside the budgets of the
6:36
Speaker 1: two states, land tax will be higher in Queensland than
6:39
Speaker 1: it will be in Victoria, and so the Victoria might
6:42
Speaker 1: have more taxes, but the one that really matters to
6:44
Speaker 1: most people is land tax and it's heading to be
6:47
Speaker 1: higher in Queensland. Okay, we've got those things on the table.
6:50
Speaker 1: Where in the city of Melbourne are the bargains and
6:53
Speaker 1: what are the type of properties that offer opportunity to
6:57
Speaker 1: our listeners.
6:58
Speaker 2: Well, my strong focus for most people that are trying
7:02
Speaker 2: to increase wealth, right, not drawing down on their income,
7:06
Speaker 2: but increasing wealth is capital growth and everyone's heard me
7:08
Speaker 2: talk about that a lot. I think that's where the
7:10
Speaker 2: magic is. You change your wealth position by through capital
7:13
Speaker 2: growth with property yield after all the costs associated with
7:16
Speaker 2: it rarely changes anything. Okay, it's a good way to
7:19
Speaker 2: pay for the asset while it grows in value. So
7:21
Speaker 2: my strong focus is how do we find there's nuggets
7:24
Speaker 2: of growth. And you've said affordable anyway, and affordable is
7:28
Speaker 2: actually a really important part of finding these nuggets. Those
7:32
Speaker 2: areas that are less affordable that have bigger supply issues
7:35
Speaker 2: have traditionally had a lot of volatility, so you've really
7:37
Speaker 2: got to ride the wave. So I'm really looking for
7:40
Speaker 2: those suburbs that are affordable because if you think about
7:44
Speaker 2: it just logically, there's a much greater percentage of the
7:47
Speaker 2: population that can afford it, so you've got more buyers.
7:50
Speaker 2: You know, always so looking for affordability, and there's different
7:53
Speaker 2: ways to do that. There's going into those sort of
7:56
Speaker 2: those growth corridors, which I do like. Some of those
7:59
Speaker 2: growth corridors that can sometimes appear like they've got a
8:02
Speaker 2: lot of land available, also present the opportunity to build
8:06
Speaker 2: more hospitals, to build more schools, to build better roads,
8:10
Speaker 2: and so the Victorian State government has done a very
8:12
Speaker 2: good job of building what we call employment clusters. We
8:15
Speaker 2: don't build commuter suburbs where you have to commute to
8:18
Speaker 2: get to work. I think it's something like seventy percent
8:21
Speaker 2: of the people that live in the Melton that work
8:24
Speaker 2: and live in melton Shire actually work locally. They don't commute,
8:29
Speaker 2: which is a huge number of local workers. So I'm
8:32
Speaker 2: looking for if I'm looking for growth corridors, I'm looking
8:35
Speaker 2: for a lot of local employment. Could be southeast your Cranburns.
8:39
Speaker 2: A lot of that is now getting quite expensive. And
8:42
Speaker 2: I can tell you fifteen years ago people looked at
8:44
Speaker 2: Cranburn and said it's all land, there's too much available,
8:46
Speaker 2: and yet it's been an incredible performer against other inner
8:50
Speaker 2: urban suburbs.
8:51
Speaker 1: Of interesting straight away that when you're looking at the city,
8:53
Speaker 1: you're looking at you were looking at middle to alto suburbs.
8:57
Speaker 1: You didn't do you mention them first?
9:00
Speaker 2: Yeah, I'm mentioning them first.
9:01
Speaker 1: These are growth, these are new housing estates basically.
9:04
Speaker 2: It sometimes new housing estates, sometimes we get a bit
9:06
Speaker 2: closer to the suburb. Right now, I'm talking about new
9:08
Speaker 2: housing estates. We've done a lot in Melton, a lot
9:11
Speaker 2: in Deanside, a lot in Werribe. I mean, Weerriby is
9:13
Speaker 2: an established area, but it has a few little infill
9:16
Speaker 2: sites that we've invested in. So that's one way to
9:19
Speaker 2: do it. And the good thing about that is that
9:21
Speaker 2: you're getting the benefit of a lot of migration, a
9:24
Speaker 2: lot of population growth, but a lot of a lot
9:27
Speaker 2: of infrastructure growth. There are new jobs going in which
9:30
Speaker 2: creates household income growth, which in the end is a
9:33
Speaker 2: lead indicator for price growth. Right So I love that
9:36
Speaker 2: then there's another way to find affordability, but without investing
9:41
Speaker 2: in units and townhouses which are unlikely to give you
9:43
Speaker 2: the same effects in terms of capital growth. Because we're
9:45
Speaker 2: focusing on capital growth, we want as much land as possible,
9:48
Speaker 2: and that's going to those regentrifying suburbs. You know, your Coburgs,
9:53
Speaker 2: your sunshines going towards the Monash, further out from the Monash,
9:57
Speaker 2: even your seafrets are very expensive now. But finding those
10:00
Speaker 2: suburbs that are still a little affordable the problem is
10:05
Speaker 2: one of the things that a lot of that in
10:07
Speaker 2: my experience, that I've learned the hard way, and that
10:09
Speaker 2: a lot of people don't take into consideration when they're investing,
10:12
Speaker 2: is one thing, is this property doubling in ten years
10:15
Speaker 2: or doing more right? Capital growth great, but you have
10:18
Speaker 2: to be able to hold it, and the holding costs
10:21
Speaker 2: is often the killer, just like cash flow in a business.
10:24
Speaker 2: And if you are buying older properties, because you want
10:27
Speaker 2: to spend seven hundred and fifty which is the average
10:30
Speaker 2: investment price, so average investor in Australia will want to
10:34
Speaker 2: spend about seven hundred and fifty to eight hundred. There's
10:36
Speaker 2: not a lot of brand new, beautiful properties that you
10:39
Speaker 2: can buy in the inner urban ring for that price.
10:41
Speaker 2: So you're often if you're going in an urban, you're
10:43
Speaker 2: often buying something that may may cost you a lot
10:47
Speaker 2: in terms of you know, constantly doing it up, et cetera.
10:50
Speaker 2: And often the yields can be a little bit lower,
10:52
Speaker 2: and so if it's hard to cash flow and it's
10:54
Speaker 2: hard to hold, then you may not be in a
10:57
Speaker 2: position to hold it long term. So I've had a
10:59
Speaker 2: lot of it's James that have purchased older properties. I
11:03
Speaker 2: did it myself, It's what I used to do, and
11:05
Speaker 2: they've just said, we just simply can't afford it because
11:07
Speaker 2: every cent that we get from the tenant just goes
11:08
Speaker 2: and in repairs.
11:10
Speaker 1: Because he used our relatively low, very long. So the
11:13
Speaker 1: red lincome is con considering what they've paid out and
11:15
Speaker 1: come considering what the mortgage is, what's coming in is
11:17
Speaker 1: relatively low. So they get caught in that sort of trap,
11:20
Speaker 1: and that's more common in the inner city older style properties.
11:24
Speaker 1: Is it, Yes, absolutely absolutely so. Are the only better
11:29
Speaker 1: in the subject of the subverbs that you've mentioned, Is
11:31
Speaker 1: the yield any better?
11:32
Speaker 2: Well, they are. You can you can get something relatively new,
11:36
Speaker 2: a couple of years old. We're often looking for something
11:38
Speaker 2: no more than five years old if we can, right,
11:40
Speaker 2: because we want as much as possible to just buy
11:43
Speaker 2: this asset and get on with that day job and
11:45
Speaker 2: let it go up in value. I just don't even
11:46
Speaker 2: want to know about it, I say to some of
11:48
Speaker 2: my clients. If my life depended on driving it to
11:50
Speaker 2: some of my suburbs, I wouldn't even know where they are,
11:52
Speaker 2: which is a good thing. I don't want to worry
11:54
Speaker 2: about them.
11:54
Speaker 1: Well, that's the Warren Buffett line. You know that he
11:57
Speaker 1: should be able to go to the movies for the
11:59
Speaker 1: afternoon care of what the share market is doing, if
12:01
Speaker 1: he's made the right.
12:02
Speaker 2: Decisions, Yes, exactly. Just let them do their thing without
12:05
Speaker 2: me worrying about them. And so in some of these
12:08
Speaker 2: suburbs you can still purchase things that aren't necessarily units.
12:12
Speaker 2: If I am looking at a unit for a client,
12:14
Speaker 2: I'll be looking for something that's on as much land
12:16
Speaker 2: as possible, and obviously I will rely heavily on site
12:22
Speaker 2: inspections and professional building inspections, et cetera to make sure
12:26
Speaker 2: there's no underlying issue. But I'm always looking for as
12:29
Speaker 2: much land as I can get, and also as much
12:31
Speaker 2: house as I can get because you need to tenant it.
12:35
Speaker 2: So some of these outer suburbs that have got, in
12:37
Speaker 2: particular new hospitals, new infrastructure that is under construction, because
12:42
Speaker 2: you know, a promise of a hospital could be twenty
12:44
Speaker 2: years away, right, So I'm looking for a Footscray Sunshine
12:48
Speaker 2: has got an existing hospital. Melton's Hospital has commenced, and I.
12:52
Speaker 1: Just ask you, as an investor, is that just a
12:55
Speaker 1: signal or is it literally that you will be able
12:57
Speaker 1: to rent to people who work in those big areas, hops,
13:00
Speaker 1: et cetera.
13:01
Speaker 2: Yeah, I'm using hospital probably unfairly, but I love hospitals
13:05
Speaker 2: because they create long term growth and they bring in
13:07
Speaker 2: other professionals, and they're bringing in a relatively high income.
13:10
Speaker 2: And if you're talking about so remember I said that
13:13
Speaker 2: in our experience, the most important factor and characteristic for
13:17
Speaker 2: future price growth in Australia globally is something family income growth,
13:22
Speaker 2: household income growth. And if a new hospital is going
13:25
Speaker 2: in then you're often particularly in these outer rings or
13:28
Speaker 2: the inner urban ring, but right on the borders, you're
13:30
Speaker 2: often increasing the employment the household employment income as a
13:35
Speaker 2: result of having a lot of health workers. In some
13:38
Speaker 2: of the suburbs we're looking at, there's new legal facilities
13:41
Speaker 2: going in, new courts, et cetera, which is also a
13:44
Speaker 2: great thing because what you're looking for is the sort
13:47
Speaker 2: of infrastructure that is going to bring a lot of
13:49
Speaker 2: employment and long term employment. Schools are wonderful because it
13:53
Speaker 2: will bring people looking to house their children in a
13:56
Speaker 2: good quality school, and certainly a good quality high school
13:59
Speaker 2: can be unbelievable for a suburb. There are many suburbs
14:03
Speaker 2: that people just buy or rent just to get their
14:05
Speaker 2: children into these really great public schools. But it doesn't
14:08
Speaker 2: necessarily create a lot of jobs, whereas there are other
14:11
Speaker 2: types of infrastructure that will create a lot of jobs
14:14
Speaker 2: and also entice other workers to come in and service
14:18
Speaker 2: the local health workers, et cetera. So it's sort of
14:20
Speaker 2: a you know, snipall effect.
14:22
Speaker 1: Just something I really want to put to you, and
14:24
Speaker 1: I mean, obviously I'm thinking is very strong and it's
14:26
Speaker 1: interesting and it's interesting how you are looking. Obviously, it
14:29
Speaker 1: turns out we're talking about city of Melbourne being a bargain,
14:32
Speaker 1: so which areas. But your theme and you're largely could
14:36
Speaker 1: be applied at any city. Let's come back in a moment.
14:38
Speaker 1: I want to ask you about one thing that sort
14:39
Speaker 1: of hangs over all that that just me threaten it
14:42
Speaker 1: back in a moment. Hello, Welcome back to the Australians
14:54
Speaker 1: Money Puzzle Podcast. James Kirby here with the Nisa Cavello.
14:57
Speaker 1: We left you with a cliffhanger. What is it that
15:00
Speaker 1: possibly go wrong with Anissa's concept of the opportunities? Can
15:06
Speaker 1: I put words in you about and say, in any
15:07
Speaker 1: city and it just happens to be Melbourne being the
15:10
Speaker 1: one that you are expert in and from a nationwide
15:13
Speaker 1: perspective is clearly the bargain state at the moment. But
15:16
Speaker 1: you and you outline how you like these new areas,
15:20
Speaker 1: new clusters, new growth developments, for they have new hospitals
15:23
Speaker 1: and they have you're really focusing on houses and alone
15:26
Speaker 1: houses with land. The only thing that I would from
15:28
Speaker 1: an economic point of view, the challenge might be supply.
15:32
Speaker 1: That scarcity isn't there and that Melbourne and Victoria actually
15:36
Speaker 1: has the best supply in the country. There's a variety
15:40
Speaker 1: of reasons for that, but the main one is that
15:41
Speaker 1: you can keep building forever. There's no parks, lakes or
15:43
Speaker 1: the ocean. To get in the way like other cities.
15:46
Speaker 1: What do you say to that if I said to you,
15:48
Speaker 1: I love your thinking. I'm ready, I've got my checkbook
15:50
Speaker 1: half opened, but I'm worried about supply.
15:53
Speaker 2: Well, we don't. I'm not only investing in these growth areas,
15:58
Speaker 2: but it is an area that we do like. It
16:00
Speaker 2: is one of our themes. Okay, just to say that,
16:02
Speaker 2: just a bit clear, but if you looked at it,
16:04
Speaker 2: I think I use the example before a Cranburn fifteen
16:07
Speaker 2: years ago was just paddocks and many people said, why
16:10
Speaker 2: would I invest there? There is so much supply. Now
16:12
Speaker 2: there is nothing. And so often when you have these
16:16
Speaker 2: large land supplies and you have these huge population growth
16:20
Speaker 2: to go with it, it's the chicken and the egg.
16:22
Speaker 2: Why are we getting the population growth? Because there is
16:25
Speaker 2: job opportunity because there is land to build new roads,
16:28
Speaker 2: There is land to build new hospitals and new schools,
16:31
Speaker 2: so we are able, we have the capacity to build
16:34
Speaker 2: these employment clusters which will then bring the population. So
16:38
Speaker 2: that's one thing. Sometimes this presents opportunities. And sometimes when
16:41
Speaker 2: you drive out to suburbs like towards Caroline Springs and
16:44
Speaker 2: you go on the Western Ring Road, and then you
16:47
Speaker 2: end up on the I've forgotten the name. I think
16:49
Speaker 2: it's EMA, and just you go past vacant Land, huge
16:54
Speaker 2: industrial estates in vacant Land. A lot of that is
16:57
Speaker 2: not rezoned residential, a lot of it is commercial, and
17:00
Speaker 2: so there are huge pockets of future employment in these areas,
17:04
Speaker 2: which is exciting. So some of it is actually an
17:07
Speaker 2: opportunity for Victoria because we have the land to create jobs,
17:11
Speaker 2: to create employment clusters. The other thing that people don't
17:15
Speaker 2: take into consideration is we've had a lag in building
17:18
Speaker 2: approvals and construction, a massive lag, and yet our population
17:22
Speaker 2: growth has accelerated, and so we are now way behind
17:26
Speaker 2: where we need to be.
17:27
Speaker 1: Okay, So it sounds like excepploint doesn't disturb you really
17:31
Speaker 1: because you're coming in with a it's a more optimistic
17:33
Speaker 1: view rather than saying no, we need a bit of serciosity,
17:35
Speaker 1: forget the price. You're coming in a different point of view, really,
17:38
Speaker 1: which is like top down. You're saying no, there's population growth,
17:41
Speaker 1: so there's going to be literally new towns, and these
17:43
Speaker 1: new towns the values will improve. And I suppose what's
17:46
Speaker 1: interesting with your approaches that century level, Like you said
17:50
Speaker 1: seven fifty, which is, if someone's listening in Sydney, what
17:53
Speaker 1: can they buy for seven fifty I have?
17:55
Speaker 2: Again, they're lucky, that's right.
17:57
Speaker 1: Very little. There's something I wanted to bring in here,
18:00
Speaker 1: which is we have lots of people on the show
18:01
Speaker 1: and they're coming with different perspectives on property to us
18:05
Speaker 1: just a little bit. I wanted to tell the listeners,
18:08
Speaker 1: now that we know you know that we know your expertise,
18:10
Speaker 1: now that we know what you have to see, it's
18:12
Speaker 1: interesting how you started in property, and you might just
18:16
Speaker 1: synopsize it for us as to how you got to
18:18
Speaker 1: where you are, and just before you do in how
18:22
Speaker 1: many properties are you running now?
18:24
Speaker 2: So I'm under my peak. So and I hate answering
18:28
Speaker 2: this question because I say all the time to media,
18:30
Speaker 2: I don't want everybody to go up by seventeen properties.
18:33
Speaker 2: I think it's ridiculous for most people. Right, yeah, I
18:36
Speaker 2: think you know, two, three, four really good place properties
18:39
Speaker 2: is all you need. But I'm in the industry, so
18:41
Speaker 2: I buy and sell. I'm now under fifteen. I'm about
18:44
Speaker 2: to start buying up again. So I've gone down and
18:46
Speaker 2: I go up, and again I don't recommend other people
18:49
Speaker 2: do that because the cost of transaction is so high with.
18:51
Speaker 1: Property, you're in it all day long. You're a professionally,
18:54
Speaker 1: it's right. So you're taking three or four properties for
18:56
Speaker 1: the serious investor. It's interesting because we talked about stocks
18:59
Speaker 1: and we see ten. If you're serious, ten to fifteen,
19:02
Speaker 1: you should be able to name them, remember them and
19:04
Speaker 1: know how much they are on the d If you've
19:06
Speaker 1: got forty stuction, probably not able to do that. So
19:09
Speaker 1: something similar with the properties had to concentrate. So tell
19:11
Speaker 1: us how did you get to this point? How did
19:13
Speaker 1: you get into property?
19:15
Speaker 2: Well, it's a long I won't go back all the way,
19:17
Speaker 2: but I bought property when I was very young, not
19:20
Speaker 2: knowing what I was doing. I was in financial services
19:22
Speaker 2: for many years. But I'm Italian and if you know
19:25
Speaker 2: anything about Talian parents, they make you buy property or
19:27
Speaker 2: you're not a good girl, right or a good boy.
19:29
Speaker 2: So you do what you're told. You do what you're told, and.
19:32
Speaker 1: So I thought, I think that.
19:36
Speaker 2: It's a lot of helt. So I bought a couple
19:38
Speaker 2: of properties, and I unfortunately listened to my parents. I
19:41
Speaker 2: didn't do what I wanted to do because I wanted
19:43
Speaker 2: to buy a property in footscram my mother said, oh,
19:45
Speaker 2: no way, not Footscrad. This is in when I was
19:47
Speaker 2: in my twenties and I'm nearly fifty and so, and
19:50
Speaker 2: I wish I bought the property in Footscrad. Tell you what.
19:52
Speaker 2: I bought an apartment in Sint Kilda and then I
19:54
Speaker 2: bought a house with my brother and Cremawn Richmond. And
19:58
Speaker 2: I eventually realized that I was working very hard. I
20:01
Speaker 2: was virtually a single mum, and I was nowhere near
20:04
Speaker 2: being able to replace my working income. So what I
20:07
Speaker 2: wanted to do was sell these properties, increase my income
20:10
Speaker 2: and have a bit of a break. I was absolutely exhausted,
20:13
Speaker 2: and I worked out by going to sell them because
20:15
Speaker 2: I just sort of left them and didn't think about them.
20:18
Speaker 2: That these two properties had made me more money in
20:21
Speaker 2: five years than Assex said my portfolio was going to
20:23
Speaker 2: do in something like fifteen, right, And so I had
20:26
Speaker 2: a light bulb moment and thought, I haven't even performed
20:29
Speaker 2: wealth it compared to other property markets because I don't
20:32
Speaker 2: know anything about it. So I set out to become
20:34
Speaker 2: very serious about it. And I actually did work with
20:37
Speaker 2: Louis Christopher from SQM Research, who's just a legend and
20:41
Speaker 2: a knew end from the industry, and we built a
20:43
Speaker 2: methodology to understand those suburbs most likely to outperform over
20:47
Speaker 2: the long term. And I started to follow that and
20:50
Speaker 2: in a very short period of time I did really well,
20:53
Speaker 2: and I went to areas that The first place I
20:56
Speaker 2: invested was Werribe And I can tell you twelve years
20:59
Speaker 2: ago when I drive out to wear Abe and wind
21:01
Speaker 2: and Veil, I thought, what am I doing, you know?
21:04
Speaker 2: But I did yet that beyond the paddocks and thought, really,
21:08
Speaker 2: where where are all the people?
21:09
Speaker 1: You know?
21:11
Speaker 2: But I listened, I said, because I'd been in financial services,
21:14
Speaker 2: I built financial products. I understood how to listen to
21:17
Speaker 2: the numbers and not listen to my heart. So I
21:19
Speaker 2: did it. And the two these properties that I bought,
21:22
Speaker 2: the first ones that I started with, performed a lot
21:24
Speaker 2: better than the ones that I bought in urban and
21:27
Speaker 2: they cost me less. It was easier to hold them,
21:30
Speaker 2: you know, all of those things that I'm now teaching
21:32
Speaker 2: my clients. I was able to get a second one
21:34
Speaker 2: a year later and build my portfolio very quickly.
21:37
Speaker 1: So you change your nature of risk. And the first
21:39
Speaker 1: ones you went into well worn, established city suburbs where
21:44
Speaker 1: you knew people lived there already, and you moved to
21:47
Speaker 1: a different type of thing where you went to somewhere
21:48
Speaker 1: you didn't know, yes, possibly had never been. And that's
21:51
Speaker 1: been the case ever since, has it.
21:53
Speaker 2: That has well? I held on to my older properties
21:56
Speaker 2: for a while, and then my personal story is that
21:59
Speaker 2: I had marriage breakdown and I had to start again.
22:02
Speaker 2: That was about six years ago now, And this time
22:05
Speaker 2: what I did was I got rid of I had nothing,
22:09
Speaker 2: no old properties, and I just listened to the advice
22:12
Speaker 2: that I gave my clients, because some of them had
22:15
Speaker 2: got to the point where they were doing better than me,
22:17
Speaker 2: and I thought, well, why don't I just listen to them?
22:19
Speaker 2: And I actually took a little bit of risk and
22:21
Speaker 2: I started to buy untitled land. So I put small
22:26
Speaker 2: deposits towards untitled land, and in most cases, after twelve
22:30
Speaker 2: months that land had appreciated significantly and I'd put ten
22:34
Speaker 2: to fifteen thousand dollars down and made fifty to one
22:36
Speaker 2: hundred grand.
22:37
Speaker 1: What untitled land is.
22:39
Speaker 2: So untitled land is where land has been approved for subdivision,
22:44
Speaker 2: but it hasn't titled because the developer hasn't yet built
22:47
Speaker 2: the roads, et cetera. So you can that developer is
22:51
Speaker 2: only allowed to take a ten percent deposit as a
22:53
Speaker 2: maximum on a piece of untitled land, and you can
22:56
Speaker 2: often negotiate five percent. So I had paid small amounts
23:00
Speaker 2: anything that I was getting in from my income. I
23:03
Speaker 2: was putting towards taking massive risks. I don't recommend other
23:06
Speaker 2: people do this, putting towards this untitled land in areas
23:10
Speaker 2: in very strategic positions that I felt would perform well.
23:13
Speaker 2: And you know, I did six in the first year,
23:15
Speaker 2: and then did a few others in the second year
23:17
Speaker 2: and built a portfolio very quickly, and luckily it all
23:20
Speaker 2: went in my favor.
23:22
Speaker 1: H I see, Okay, So that was and I presume
23:25
Speaker 1: that was when you in terms of risk, that was
23:28
Speaker 1: the most that was the most risk exposed activity compared
23:31
Speaker 1: to what you do now.
23:32
Speaker 2: Well, well, now I probably take a bit more relatively speaking,
23:36
Speaker 2: you know, I'm probably not taking more risk because I'm
23:37
Speaker 2: in a much better position. But I will do things
23:40
Speaker 2: now where I'll test market So I, for example, am
23:43
Speaker 2: trialing and NDIS property. I'm really I've got a lot
23:47
Speaker 2: of clients that ask me about it, but I won't
23:49
Speaker 2: allow a client to invest in something that I haven't
23:51
Speaker 2: been prepared to invest in myself. So I want to
23:54
Speaker 2: trial it. I want to work it out and then
23:56
Speaker 2: come back and say, look, I found that too difficult,
23:57
Speaker 2: don't bother, you know. And I'm aligned with some great
24:00
Speaker 2: advisors on it. But so I'm testing that, and that
24:03
Speaker 2: to me is a big risk. I see a lot
24:04
Speaker 2: of risk in that type of really high yield property.
24:07
Speaker 2: That's very specialized. It's a very small market.
24:11
Speaker 1: It's very high regulation risk. There is the government team,
24:15
Speaker 1: it is very high and there's a lot of intermediaries
24:18
Speaker 1: in between.
24:19
Speaker 2: Look, there's a lot of issues with oversupply with something
24:22
Speaker 2: like that. When there's such high yields. There are a
24:25
Speaker 2: lot of property spookers will say that we'll go out
24:28
Speaker 2: and talk about the guaranteed returns and government backed, which
24:32
Speaker 2: is actually not correct at all. There's nothing guaranteed. It's
24:34
Speaker 2: not government back to the you, it's government back for
24:37
Speaker 2: the tenant. And so there's a lot of misinformation out there.
24:40
Speaker 2: And unfortunately, the property industry is not regulated like the
24:43
Speaker 2: financial services industry, so you can get away with saying
24:46
Speaker 2: a lot of things that aren't that can be misleading.
24:50
Speaker 1: Okay, I think it's a really good point, and we
24:52
Speaker 1: would take a break here of some questions I want
24:54
Speaker 1: on Lissa to cover their property questions. Really interesting about
24:57
Speaker 1: the NDIS property I didn't want. I didn't even know
25:01
Speaker 1: we were going to bring that up in Nissa. Everything
25:03
Speaker 1: I've read about them suggests don't go near them. But
25:05
Speaker 1: that doesn't mean that you can't that you and Nissa
25:07
Speaker 1: can navigate your way through it. But I would be
25:10
Speaker 1: very careful for the inexperienced investor on that one. All right,
25:13
Speaker 1: back in a moment. Hello, Welcome back to The Australian's
25:27
Speaker 1: Money Puzzled podcast. I'm James Kirby talking to a Nissa
25:30
Speaker 1: Cavallo regular on the show from the Ida EDA property group. Okay,
25:34
Speaker 1: there is a question. It's very good. It's also very long.
25:37
Speaker 1: From Michael. I'm going to just cut it in half
25:39
Speaker 1: and hopefully it all makes sense, he says. My partner
25:42
Speaker 1: and I bought our first home, a villa that'd be
25:45
Speaker 1: a villa unit I imagine in Canberra at the height
25:48
Speaker 1: of the previous peak, which is twenty twenty one. We're
25:50
Speaker 1: at the point now of looking to upgrade to something bigger.
25:53
Speaker 1: Thankfully don't need to sell our current home in order
25:55
Speaker 1: to purchase the next one. The property is a good
25:57
Speaker 1: asset in terms of quality, etcetera. But as a recent
26:00
Speaker 1: guest suggested, you make your profit when you buy, and
26:03
Speaker 1: we bought high. We're unsure what to do when we
26:08
Speaker 1: buy our next home. Should we sell the old one
26:11
Speaker 1: immediately and invest elsewhere? Perhaps? Okay, I'll stop it right there,
26:16
Speaker 1: and I'd put it to it. And they said, this
26:17
Speaker 1: is not advice, it's information only for all the Michaels
26:20
Speaker 1: in the world. But I like what I like. My
26:23
Speaker 1: imagination is captured by the essential feature of Michael's question
26:27
Speaker 1: is when they bought Camber, they bought the top of
26:30
Speaker 1: the cycle, and Camber really ran high there at one stage,
26:34
Speaker 1: having done nothing for years. This happens in Australian cities.
26:36
Speaker 1: Part really ran high recently having done nothing for years.
26:40
Speaker 1: Melbourne has done nothing for years, and the earlier part
26:43
Speaker 1: of our conversation suggests it will now run. How do
26:46
Speaker 1: you get around that when you have a bit of
26:47
Speaker 1: bad look at the very first property you buy because
26:50
Speaker 1: it just happened to be top of the cycle.
26:52
Speaker 2: Well, I was buying at the top of the cycle
26:54
Speaker 2: two years ago with several clients, so I've done it.
26:57
Speaker 2: My mantra is, don't try and time the markets. Economists
27:00
Speaker 2: get it wrong all the time. Investment professionals get it
27:02
Speaker 2: wrong all the time. So what hope do we have
27:05
Speaker 2: of getting it right. There's a saying that we say
27:08
Speaker 2: in the property that you'd never bought too high, you
27:11
Speaker 2: just bought too soon. So hang in there, right, But
27:15
Speaker 2: my only qualification of that is if you're in an
27:18
Speaker 2: asset that you don't think is going to perform and recover,
27:21
Speaker 2: and you're missing out on something that's going to do
27:23
Speaker 2: a lot better for you than you, by all means,
27:26
Speaker 2: get out of it. But I'm European. I'm a traditional
27:30
Speaker 2: investor that likes to hold by and hold unless my
27:34
Speaker 2: asset isn't performing. So I mean the risk is that
27:37
Speaker 2: he gets out of it, and not just Michael, that
27:40
Speaker 2: an investor gets out of it an asset at the
27:42
Speaker 2: peak and then buys another one at the peak. You know,
27:44
Speaker 2: if you're timing markets, if you're timed it wrong once,
27:46
Speaker 2: you could time it wrong again, So potentially hanging that particularly,
27:50
Speaker 2: as we've mentioned before, due to the transaction costs, James,
27:54
Speaker 2: you know, they're so high that you really need to
27:56
Speaker 2: make significant increases in property in particular in order not
28:01
Speaker 2: to sell it a loss. And so I think you've
28:03
Speaker 2: got to look at what is it likely to do
28:05
Speaker 2: over the next five years. Is it worth hanging in
28:08
Speaker 2: there or could I do so much better in another
28:11
Speaker 2: asset and therefore risk a slight loss in sale.
28:15
Speaker 1: Yes, okay, very good, Well, thank you for that answer it.
28:19
Speaker 1: And I think it's it's a very good point in this.
28:21
Speaker 1: And Meeks, I mean timing and share is a totally
28:24
Speaker 1: different thing. In property. You have that thing that you
28:26
Speaker 1: just cannot move in and out easily in the short
28:30
Speaker 1: period of time. I mean, what do you think is
28:32
Speaker 1: a question without notice like rock bottom shortest time cycle
28:36
Speaker 1: someone should have an investment property for in any market,
28:40
Speaker 1: all things being even, Look.
28:42
Speaker 2: If somebody is if it's really underperforming, cut your losses. Right.
28:47
Speaker 2: So I have had clients that have had it for
28:49
Speaker 2: a year and to at least save on CGT, you'd
28:52
Speaker 2: hang on to it for a year, right, Well, you
28:55
Speaker 2: won't have any capital gains if it's really underperforming. But
28:58
Speaker 2: let's say that it's underperforming in the sense that you
29:00
Speaker 2: just can't afford it. You've got to get out of it.
29:02
Speaker 2: Et cetera. But I would say that if you've got
29:06
Speaker 2: the capacity to make six percent a year, hang in
29:09
Speaker 2: there for a few years. You know, if you've got
29:14
Speaker 2: the capacity to make a lot less than that three
29:17
Speaker 2: percent four percent, then maybe cut your losses as soon
29:20
Speaker 2: as possible. So I think it's not a timing issue,
29:23
Speaker 2: it's a prospect issue. I mean, often clients are going
29:26
Speaker 2: to units to tell me that, but I'm going to
29:29
Speaker 2: get good yield and it'll cover the mortgage, right. But
29:32
Speaker 2: if you if it's just covering the mortgage and you
29:35
Speaker 2: and as a result of that, you're missing out on
29:37
Speaker 2: potentially getting six to seven percent capital growth and another asset,
29:41
Speaker 2: just forget about it, get out of it, cut your
29:42
Speaker 2: losses and get into something that's going to make you
29:44
Speaker 2: six to seven percent that will make up for the
29:47
Speaker 2: loss in that one year.
29:48
Speaker 1: Okay, and one in five mediourne apartments that salt in
29:52
Speaker 1: the last year, so to the loss. So we know
29:54
Speaker 1: who we're talking to. It's terrific. That is probably the
29:57
Speaker 1: perfect place to leave it for the moment. And this
30:00
Speaker 1: Thanks very much for coming on the show.
30:01
Speaker 2: Pleasure James. Thank you very much for having me.
30:04
Speaker 1: Great to have you on as always a Nissa Cavallo
30:06
Speaker 1: there of the IDA property group. I hope you found
30:08
Speaker 1: that interesting. It was only meant to be a show
30:11
Speaker 1: that looked at whether Melbourne was well, we know, I
30:14
Speaker 1: think it's ticking very nicely. What I wanted Danissa to
30:17
Speaker 1: do was to talk about where the opportunities are in
30:19
Speaker 1: their city. But she brought a lot more to the
30:22
Speaker 1: table than that, which was really good. Okay, let's have
30:25
Speaker 1: some more emails the money puzzle at the Australian dot
30:28
Speaker 1: com dot au. Talk to you soon.