Latest / The Follio Property Podcast / $1 Trillion Debt Just Triggered Australia’s Biggest Housing Crisis | Property Experts

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$1 Trillion Debt Just Triggered Australia’s Biggest Housing Crisis | Property Experts · The Follio Property Podcast

0:00
There's going to be double digit price falls pretty much across Sydney and Melbourne.
0:04
Brisbane's starting to really feel the heat and come off.
0:05
It's the fastest falling market at the moment.
0:07
Pretty much every market in Australia peaked between the 10th and the 20th of March.
0:11
Everything's gone backwards since then.
0:12
It's not a positive thing.
0:13
They only need a 5% deposit.
0:14
They don't pay any of the entry costs like a normal buyer does.
0:17
You need to do, you need to say 40 grand over the next 12 months.
0:19
You can't buy a property in Sydney.
0:21
I'm like, bro, you got zero chance.
0:22
Maybe we should do nothing at all.
0:23
Like, that's what it's done.
0:24
What else really can be done to make it easier for them?
0:27
Nothing.
0:28
We have a trillion dollars worth of debt now.
0:30
For every $1 of income tax it's paid, 80% of it, or 80 cents in the dollar, goes back into welfare.
0:35
If the opposition had a really strong leader and they went to the next election and said, hey, this is what needs to happen, I don't reckon anyone's voting for them.
0:41
I reckon the family home will be taxed eventually.
0:43
And I'd heard that from someone who knows a lot more about government than I do.
0:46
There's a good chance there'll be a death tax if Labor get back in.
0:48
Jack Henderson, where's the best opportunities in the market right now?
0:50
Best opportunities in the market right now are...
0:59
You're listening to the Folio Property Podcast, number one property podcast with my guest, Lachlan Delante.
1:08
Co-host, I think you went to go with.
1:10
I'm with my co-host.
1:10
I've been trying to get in that number one property podcast and it's stuff I've written them up.
1:14
But we've got a special guest today, Lachlan.
1:17
We had a look actually at the archives and we caught up six months ago.
1:21
Was that long ago?
1:21
Yeah.
1:22
There you go.
1:23
And actually just looking at myself in the camera angle there, I remember I also had a silk outfit on last time we caught up.
1:30
You did?
1:31
So there you go.
1:32
The date of that was 10th of March.
1:34
We looked at it this morning because I was like, I thought it was later last year.
1:36
And I'm like, Rhys, do you know what that date was?
1:39
And it didn't signify anything to you.
1:40
Do you have a- The 10th of March.
1:46
No, it means fuck what I mean.
1:48
Essentially, if you go back, pretty much every market in Australia peaked, but if you had to put an absolute date on it, it was between the 10th and the 20th of March 2026.
1:56
Was it?
1:57
That was the peak of the market.
1:58
So it was ironic that our chat happened to be at the absolute peak of the market and everything's gone backwards since then.
2:04
Apparently so.
2:05
Not for us, but for most people.
2:08
How do you find the market?
2:10
I mean, we have a unique model.
2:11
Look, at the end of the day, sentiment is down.
2:14
Like we have way less inquiry than we did fucking two years ago, 12 months ago, no doubt.
2:19
But the intent of the inquiry is still the same.
2:23
So like-
2:24
You know, we've changed how we market now.
2:27
We have changed what we optimize for.
2:31
But our strategy is still exactly the same.
2:33
We can spend less money now on ads than what we had to spend because no one else has spent money on ads.
2:37
So we get way, way more effective ad spend.
2:41
And our strategy has always been about value add anyway.
2:44
So...
2:45
Yeah, it hasn't really changed that much.
2:46
And we've sort of pivoted for our clients that are doing like our equity factory deals or our development style deals.
2:55
There is more of an incentive now for those guys to do it because, you know, you're getting your CGOT discount on a brand new asset that you develop and you're getting your negative gearing benefits and you obviously get the depreciation.
3:08
So...
3:08
Like if you talk about the 10th of March, people aren't making less money now than they were back then, right?
3:13
Like if you're earning half a million bucks a year, a million bucks a year, you're still earning that today.
3:17
So like you still have an issue with paying too much tax.
3:19
You still have a goal of wanting to not have to work.
3:23
So they still need to do something.
3:27
And generally property is a choice of most people.
3:29
But sentiment is a thing that's changed, no doubt.
3:32
You don't think sitting on the sidelines is a strategy why this uncertainty washes through.
3:39
We get lots of comments that people are wanting to see the markets fall.
3:45
Maybe they're the ones that sat out for the last five years and missed out on all the upside.
3:49
You know, we're running some pretty serious headwinds at the moment.
3:52
There's going to be double-digit price falls pretty much across, you know, definitely Sydney and Melbourne.
3:58
Brisbane's starting to really feel the heat and come off.
4:00
It's the fastest-falling market at the moment.
4:03
What's your thoughts on, you know, that conversation, just sitting back and letting these markets burn, so to speak, and then take advantage of that when they are somewhere near the bottom?
4:11
You can.
4:12
You can.
4:13
Don't listen to what I do.
4:14
Go do what you want to do, right?
4:15
Like at the end of that, I couldn't give two fucks what people do.
4:17
But like there's two parts of it.
4:20
There is the market's coming off.
4:23
Everyone's limited by serviceability.
4:24
If rates go up, your serviceability is going to be less anyway.
4:26
So it doesn't mean you're going to buy a better property cheaper.
4:27
It just means you're going to be able to borrow less and buy the same property.
4:31
And you also then need to have a vendor that's willing to sell at a lower price because not everyone is.
4:37
Like our biggest issue right now is not –
4:40
getting access to stock, it's getting access to stock where the vendors are like, oh, yeah, I'll take
4:44
100 grand less than I would have taken six months ago.
4:46
Like, they just don't sell.
4:47
That's our biggest issue right now is fucking people not selling.
4:50
They go to market.
4:50
They haven't met the market.
4:51
Yeah, they're like, oh, no, I just won't sell.
4:53
I'm like, oh, fuck, that's annoying.
4:54
So even if you could buy it cheaper, doesn't mean they're going to sell it cheaper.
5:00
And we have clients like that too.
5:03
Like, I met with a client on Monday, I think it was.
5:07
Oh, no, sorry, last week it was Friday.
5:08
Yeah.
5:10
And he's in his 60s, really successful HVAC business.
5:16
And he's got a heap of resi assets with like next to no debt on them.
5:19
And when we build out, he's a profit wealth client.
5:21
When we build out as a plan originally, it was like, hey, let's sell down five or six of these resi assets that you bought for fucking 150 grand.
5:25
And now they're worth one and a half million bucks.
5:28
Cash out and then roll into some commercial assets.
5:30
He's got some business debt that he's going to clear and shit like that.
5:33
And those assets are not trading for the money that he wanted for him.
5:36
So you're just not going to sell them.
5:38
Yeah.
5:38
Yeah, it makes sense.
5:39
So, like, that's the other part of it.
5:41
And then they're good properties too in good locations, but he's just not getting what he wants and he's like, well, why the fuck would I sell them?
5:46
I'll just hold them for-
5:47
until the market comes back or the sentiment comes back.
5:50
So you can sit on the sideline, it can work, but at the same token, like people who are busy and people who are running their business and people who are focusing on growing their careers, when you've got the capacity to do something, you just do it.
6:04
And if you're gonna do it for the next 10, 15, 20, 30 years, who gives a fuck what happens between now and whenever it bottoms out in quotation marks, right?
6:12
No one knows.
6:13
And no one can really pick them on.
6:14
It's always in hindsight.
6:15
I don't think, you know, the peak of the market was in March when we had that conversation.
6:19
I don't think any of us in the room thought that was the peak of the market.
6:21
We can look back now and say- But it's in comparison to what as well, right?
6:24
Like there's been, since I've been in the industry, there's been so many peaks and so many troughs, you know, like over six years, seven years.
6:32
We had the pre-COVID peak, then we had like the during COVID peak, then we've had the post-COVID peak, you know, and then March of this year would have been what peak was that?
6:41
So...
6:42
Again, who cares when the peak is?
6:44
It's like when you look at shares, it's like there's a new fucking high of the market.
6:49
There's a new high of the ASX.
6:50
There's a new high of the S&P constantly, right?
6:56
What do you reckon locally as well, Jack?
6:58
Like, you know, we've been in Sydney for the last week now chatting with, you know, property guys like yourself, agents, buyers agents.
7:07
valuers and trying to get a feel on the ground here.
7:10
Sentiment still seems pretty low here at the moment, but...
7:13
Sentiment is the thing that's changed.
7:14
That's the big thing that has changed.
7:15
Nothing else has changed.
7:17
Rates actually haven't changed.
7:19
How much money I earn hasn't changed.
7:20
How much money Joel earns hasn't changed.
7:23
The price of fucking...
7:25
Petrol hasn't really changed.
7:28
Life's still the same.
7:29
It's just what people think about the future, that's what's changed.
7:31
When people think the future is going to be better than what it is right now, they act with a lot more certainty and that's when things become more expensive.
7:38
When people perceive the future as being worse than what it is right now, they act differently.
7:44
And how much of the blame you put onto the government, right?
7:47
It was an interesting time to release such a shock to the markets was the budget that they released.
7:53
I think there's upside in it, to be honest, because it will curb inflation.
7:58
We're going to get some rate rises.
7:59
It is what it is.
7:59
But the upside to the market not continuing to crank is that hopefully it has an impact on bringing inflation down, which in the long term is good for the market.
8:10
Rents will rise.
8:11
So, as an investor, rents without a doubt.
8:14
We think it's a positive in the fact that, and it makes our yam style assets stack even better.
8:19
Yeah.
8:21
If Brisbane comes off by 10 or 15%, say, your property that you were going to pay a million bucks for, you now pay 950, 900, 850, whatever it is.
8:29
they probably still rents for the same money, which means you're buying it at a better yield.
8:32
And if rents go up, it'll be a better yield, even better yield.
8:36
And then obviously, you know, if we had a second dwelling to it, the yield becomes even better.
8:40
So we're noticing it in our fees, those when we're buying assets now, that yields are stronger.
8:46
So that's an upside.
8:48
And same with our development style assets.
8:54
There's two ways to value an asset generally.
8:56
In residential world, you've got comparable sales.
8:58
And then if it's more than one income stream or one title, you can use a cap rate valuation just like you can in commercial.
9:04
And cap rates haven't changed, but rents have gone up.
9:08
So the value of the asset based on a cap rate valuation is even better.
9:12
Like I just finished a development.
9:14
I had an as-if complete valuation when I started construction of 5.2%.
9:18
So two, six aside as a duplex.
9:20
I had a completed valuation as if I subdivided a two, three, five.
9:25
So to come off by half a million bucks.
9:27
And then I had a valuation done based on a cap rate of six and a half when I didn't subdivide.
9:34
Which one do you reckon I chose?
9:36
The six and a half.
9:37
And it wasn't six and a half to begin with.
9:39
It was 5.525 because I used rents of $1,700 per side at a 3.2% cap rate, I think it was.
9:46
And I said, okay, well, if I actually rent these out for $2,000 per week each, will the cap rate say the same on my value increase?
9:52
He goes, yeah, absolutely.
9:54
They both rented for $2,000 a week.
9:55
I did a video on it yesterday.
9:57
So that was a positive for me.
9:58
And now I'll...
10:00
wash up all the depreciation benefits and all the losses that I've accumulated in that entity.
10:04
And I'll cash out $2.2 million worth of equity and I'll be off to the races.
10:09
And then I don't need to worry about selling that asset.
10:11
Is that, you know, the YAM strategy is the value-add strategy?
10:15
YAM is like single residential dwelling, add a second dwelling to it, same title, and that's about like building a foundation portfolio so it's not costing you an arm and a leg.
10:23
And you can still buy really good quality assets because you can make it.
10:26
In good locations, yeah.
10:27
Yeah, that's right, as opposed to trying to find a location for the yield.
10:30
Yeah.
10:30
Is that like where you see, you know, post-budget, we've seen a lot of exodus in buyers' agents, which has probably been for the better for the industry as well, and you're starting to see a lot of these...
10:42
agents or you could call them spruikers are pitching a lot of speculative sort of regional players as well start to disappear.
10:49
Everyone wants to buy one-bedroom apartments in Melbourne now.
10:52
That's everything in social media.
10:54
Exactly.
10:55
Where do you see the market then?
10:56
So are you purely focusing on the value-add strategy?
10:59
That strategy like literally never changes.
11:03
Why would it?
11:04
Like...
11:05
The way that Warren Buffett invests has never, ever, ever changed.
11:08
Tell a lie, actually.
11:09
It changed once.
11:09
He went from the cigarette butt strategy, which was like he used to look for shitty companies that had a few puffs left on them like a cigarette to pull value out of them and getting them for nothing.
11:18
And then he changed to a value-based investing model.
11:20
And it's never changed since then.
11:22
Sure, he buys slightly different companies, but even then, he hasn't gone into AI.
11:26
He hasn't gone into any tech plays other than Apple.
11:29
Now, they're going into Google more heavily.
11:32
So, the investment strategy remains the same for them.
11:35
It's to buy really good quality companies that can generate a lot of capital with very little input.
11:41
They put their initial money into it and it doesn't require more CapEx every time they grow in the business.
11:46
And they continue to do the same thing.
11:47
It's just simple.
11:48
And you do it for fucking 70 years and it works.
11:52
And I love Warren Buffett and Charlie Munger and I watch their videos constantly.
11:56
And it has nothing to do with property and they're actually not huge fans of property.
11:59
And the reason for that is because like once you buy a property, you can't pick it up and move it.
12:02
But the thing that I love is even Berkshire Hathaway, one of the greatest investment vehicles companies in the world, has decreased in value in his ownership times.
12:14
Because Berkshire Hathaway was a company before Warren Buffett bought it.
12:18
It was a textiles company.
12:21
And it's decreased in value by 50% twice and it's decreased in value by 30% more than three times.
12:26
In the time that he's had it.
12:27
And he's like, you know, that'd be like 70, 60 odd, 70 years, I think.
12:30
So, it's like, does it make Berkshire Hathaway a bad company because it's decreasing in value based again on market sentiment?
12:38
Or is it just the market?
12:40
So, that's how I think about it.
12:41
What about strategy?
12:43
I'm with you.
12:44
I think in terms of keeping the core strategy, you've been pushing the value-add strategy, which makes a lot of sense in this market.
12:52
What about actual market conditions?
12:53
We mentioned like, I think when we caught up six months ago, it was very much a two-speed economy in Australia where you had –
12:59
Brisbane, Adelaide, Perth still going on a bit of a run.
13:01
Sydney had come off.
13:03
Melbourne was in a bit of pain for the last sort of five or six years.
13:07
What about market conditions and locations?
13:11
Has that changed post-budget for you?
13:13
Not really.
13:13
If I could buy a house in Point Bar for today, I'd buy one.
13:17
But Sydney's a shit market apparently.
13:19
But I guarantee if I offered anyone a house in Point Piper or 20 houses in Townsville or fucking 10 apartments in Darwin, I know which one they choose.
13:25
It's got nothing to do with the market.
13:26
There's good buying, I guess, in that prestige market, right?
13:28
You're seeing serious drops in value.
13:30
Yeah, but it's just like whether you bought it at the peak two years ago, if you perceive that as the peak, or whether you bought it right now or you buy it in five years' time, the fact of the matter is it's a scarce asset in one of the best locations in Australia and...
13:45
people with the most amount of money in the world want to live there.
13:47
So like regardless of when you buy that property, if you hold it long enough, you are going to do very, very, very well.
13:52
Surely there's something you've said for, there was an asset, which something was it?
13:57
Sold, traded for $16 million about 18 months ago and they've just let it go for $9.5 million.
14:03
Surely in that conversation, you'd rather be the buyer at $9.5 million than the guy at $16 million.
14:07
The thing that's missing from that is like you're looking at it simply through numbers and I don't know the backstory to that, but I guarantee there's a backstory to why it traded for $16.5 million to begin with and why it traded for $9 million now.
14:18
Without a doubt.
14:19
But we're seeing more of those stories, probably not as exaggerated, but we're seeing very common examples of things that traded for five and a half to six that are now trading for four and a half to five, right?
14:28
Sure.
14:29
So caught one, one and a half million dollar discounts.
14:31
And not everyone's going to be able to pick the market.
14:34
Our job is to try to get that as close as possible, and we're not always absolutely perfect.
14:39
But if I can buy something cheaper, because-
14:43
That holding period, obviously there's holding costs that get factored in.
14:45
There's obviously inflation that you've hedged against.
14:48
If I can get it for $2 million cheaper and not hold it for three years, you're going to be significantly more advanced.
14:54
Surely there's an opportunity to wait.
14:56
Yeah, but if the people knew three years ago that it was going to be cheaper today, they probably would have not bought it back then.
15:01
But the reality is no one knows.
15:02
They just bought at the wrong time and sold at the wrong time.
15:05
If that person bought today and then we looked at data in 15 years' time and it sold for three times the amount of money, but during that 15-year time there was a dip of 20%, but they never sold, that dip wouldn't be reflected.
15:15
So I'm the opposite of you guys when it comes to data.
15:21
I don't care about this micro-movements, pick this, pick that.
15:23
It's like, fuck.
15:24
Yeah, we certainly don't do it on a- What do they say?
15:27
If you try and pick the market, all you're going to end up is with a stinky finger.
15:31
I don't know if they do say that, but apparently they do.
15:33
They do, yeah.
15:34
They do say that.
15:35
But it's interesting.
15:37
A good example of, you know, is Melbourne right now.
15:40
Those that were going to upgrade or thinking about upgrade, do I think Melbourne market could get worse at the higher end?
15:46
Potentially, but it's coming off.
15:47
It's falling, you know, 30%, 35% in some of those suburbs like Brighton.
15:51
What an opportunity.
15:52
And over the long term, yeah, I think it would be okay.
15:55
If I was buying in Sydney today for $7 or $8 million, I'd still be concerned that I could be overpaying by a couple of mil if I didn't wait two or three months, get through these two rate rises and then it falls again.
16:05
And you may then leave some money on the table, but sometimes patience can, you know.
16:10
Yeah, but at the same token.
16:14
you want a house and that house comes up like i looked at a house the other day in watson's bay i used to live in watson's bay i used to walk by this house all the time park on both sides only got a neighbor on one and like it's from here to the boom gate out there to to the harbor so it's the closest you can get to the harbor front without being a harbor front and i said if it ever comes up for sale i'm gonna buy it come up for sale i want 20 million bucks for it and i went through it and i was like fuck
16:37
I really like this house.
16:38
And then I took my missus through and she's like, she's a little less keen on it than I am.
16:43
But when that house sells, it ain't coming back up for sale anytime soon.
16:47
You know, and that's the reality.
16:48
So like, if I want to buy it, I'm going to have to pay what they want for it, or they're just not going to sell.
16:52
But the reason I'm not buying it has nothing to do with the market.
16:56
Well, that's a good segue to reinvesting, right?
16:59
That's the reason.
16:59
I was like, fuck, I'm going to have to sell some shit.
17:01
I'm going to fucking cash out $10 million, put $10 million into this thing, borrow $10 million, then spend two or three on a reno because it's dated.
17:09
It's actually Mark Boris's house.
17:10
He built it.
17:12
Another thing he went through a divorce in it to sell it.
17:14
And I'm like, fuck, it doesn't really make much sense to buy it considering I'm never home.
17:19
So it's got nothing to do with the market as to why I'm not buying it.
17:22
It's more like me.
17:25
So, but when that sells, I'll bet you I'll be pissed off.
17:27
What about, you know, you kind of referenced there, you've been a pretty pro advocate for rent vesting, right?
17:33
Yeah.
17:33
Like a lot of people in Sydney.
17:35
Yeah, that's probably the question.
17:36
Are you still an advocate and have you seen the personas maybe changed a little bit within your business or inquiries?
17:43
Not really.
17:43
I think it makes less sense to rent vest if you're going in with 50% or more cash into a property transaction.
17:51
Most people are not, especially when they're upgrading.
17:53
Like they're using every bit of cash they have from the sale of the last house to like push the boundary.
17:58
But again, people, I look at it through a financial lens.
18:00
People look at it through a...
18:02
a personal lens.
18:03
I had dinner with some really good friends last night at Benalong and they said, oh, they're living in like North Sydney now and they're like, oh, we're going to buy a house or try to have kids.
18:16
And I was like, why the fuck are you going to go buy a $5 million house from?
18:18
He read that fucking thing for-
18:20
$1,500, maybe $2,000 a week.
18:22
And she's like, yeah, but it's not about that.
18:24
Like, we've already been asked to move out once.
18:26
Fucking pain in the ass.
18:27
We just want somewhere we can be settled with the kids.
18:29
And she's like, it has nothing to do with finances.
18:31
So, I'm looking at it through a lens of, why the fuck would you do that?
18:33
And they're looking at it through a lens of, we just want somewhere to have a home.
18:36
And that entitlement of owning a home is the Australian dream.
18:38
Like, there's a lot to be said on the emotional side of owning a home, plus the benefit that you don't pay tax if you ever do sell it.
18:44
Yeah.
18:45
Yeah.
18:47
Yeah, it's coming.
18:49
It's coming.
18:50
What about from the property perspective off the back of the budget, right?
18:56
You mentioned there obviously from a strategy standpoint, it's all kind of remained the same.
19:01
People still want the same money, da-da-da-da-da.
19:03
What about like what's your thoughts on the budget?
19:06
Do you think from a property perspective, was that a positive move for the housing and housing space?
19:11
Yeah.
19:12
For their objectives, right?
19:13
Create new housing supply and help first-time buyers get into the market.
19:16
Was there a so-called objective?
19:18
Yeah, I'm not sure why they did it.
19:20
Like, it doesn't really make much sense.
19:23
No, it's not a positive thing.
19:26
And again, the reason I hate talking about it is because I have a vested interest, right?
19:30
Like, the reality is I'm a property guy.
19:32
I make money off property.
19:33
I'm a property investor.
19:33
So, of course, everyone's going to watch this and they're going to sort of forward think what I'm going to say.
19:39
So, of course, I'm like, no, it's not a good thing for the market.
19:41
I want the property market to go up.
19:44
But like if you objectively look at it and go, well, first-time buyers right now can't get into the market.
19:49
That's our goal.
19:50
Let's try and make it easier for first-time buyers to get in, which I think is a great goal.
19:53
If property comes off by 20%, is it going to help a first home buyer save a deposit?
19:58
Property being cheaper doesn't help someone save.
20:01
If rents increase, is it going to help someone save for a deposit?
20:03
No.
20:03
Okay.
20:05
If we potentially give some sort of stimulus or concessions to builders to build houses cheaper so they can sell them cheaper, is that going to help first home buyers?
20:17
The answer is probably no.
20:20
What about serviceability?
20:21
How does, like if first home buyer makes 80 grand a year and they've got a partner that makes 60 grand a year, they make 140, like,
20:26
is there like something we can do with servicing if they borrow more money?
20:29
Is that irresponsible?
20:29
Like there's so many things that can be done, but like you need to look at the fundamental problem of a first-time buyer is generally they can't afford where they want to live, not because it's too expensive, but it's because they don't earn enough money to be able to buy that property.
20:41
And even if it's 20% cheaper, they still don't earn enough money to buy that property.
20:44
And they don't have a deposit to buy that property.
20:46
So I was like, there's a lot of ingredients in there that makes it hard for a first-time buyer to buy a property.
20:52
And then I did a video the other day about Monty, who's a first-time buyer who works for us.
20:55
And he works for us and he's a first-time buyer, I should say.
20:58
And fortunately for him, he has me and the team guide him.
21:02
And we said, okay, this is what you need to do.
21:03
You need to say 40 grand over the next 12 months.
21:05
This was 12 months ago.
21:07
And you can't buy property in Sydney.
21:09
He lives in Sydney.
21:10
I'm like, bro, you got zero chance.
21:12
So let's go to like Newcastle.
21:14
We got an office in Newcastle.
21:15
He can go live there and work from our Newcastle office, same as Sydney.
21:19
Go buy something for $750,000.
21:20
And we ended up buying him a house in Maitland.
21:25
So, I think it was like $35,000, $36,000 or something you needed to put in cash.
21:30
And then I did a video on that, put it online and like you should see the fucking comments.
21:34
It's like it's going viral.
21:35
But like the comments are like, oh, why would you live there for?
21:38
You know, people still complaining about, oh, the mortgage repayments are going to be X or Y per week.
21:43
How is he ever going to afford it?
21:45
Blah, blah, blah, blah, blah.
21:46
So, like...
21:48
Fundamentally, I think there's two things that need to happen for the first time.
21:51
One is they just fully need to realign their expectations.
21:54
The second thing they need to understand is there is an intrinsic replacement value of a property today.
21:59
To build a two-bedroom apartment in Sydney is about $1.2 million.
22:02
Like all-inclusive to build a two-bedroom in a big block of apartments costs about $1.2 million, which means you can't sell it for less.
22:09
And then the third thing is you need to be able to save for a deposit regardless of the level.
22:16
Like if you need to buy something at $300,000, you need to be able to save $15,000.
22:19
If you need to buy something at $800,000, you need to save $40,000.
22:23
And then also you then need to be able to afford to pay the mortgage.
22:27
Like you need to have enough income to be able to pay the mortgage.
22:29
And like for most people, if you're a single person, a single mom with kids or a single fucking person that's got a low-income job, that's not going to be possible.
22:36
That's not the market's fault.
22:37
That's just not going to be possible.
22:39
If you want to live in an location that's really expensive that you can't afford, again, that's not going to be possible regardless of government intervention.
22:46
So that's just how I see it.
22:51
Yeah.
22:51
So, it's going to be a suck.
22:52
It can't be solved.
22:53
That problem can't be solved.
22:54
Like, you can't make it any easier for a first-time buyer to get in.
22:58
They only need a 5% deposit.
22:59
They don't pay any of the entry costs like a normal buyer does.
23:03
Let's say property prices get cheaper.
23:04
Like, what else really can be done to make it easier for them?
23:08
Nothing.
23:08
Yeah.
23:09
I'll give it to them.
23:10
Because I remember last time we caught up, I think that was – we discussed the – you said it was like cost of spending, not a cost of living crisis.
23:18
And to a certain extent, I actually agree with you, right?
23:20
I remember you doing something – it might have been 12, 18 months ago where you were paying yourself a smaller wage.
23:25
I was going to live on $70,000 a year and fucking save for a house deposit.
23:28
Instead of me doing that, I got Monty to do it.
23:31
I never publicized that, but I was like – it was a great idea for me.
23:33
I was like, oh, yeah, I live on $70,000 a year.
23:34
But it's like my life is just – it's not possible to do that because I'm like, well –
23:38
If you're into the boats, the Lambo and everything else.
23:40
No, it's not even that stuff.
23:41
It's just like the reality of my life is I'm constantly traveling.
23:44
I'm constantly on the road.
23:45
Like I'm doing a lot of shit.
23:47
So it's like how would I actually do that without saying, well, you know, 95% of my expenses are business expenses and I live on, you know.
23:57
Yeah, true.
23:57
It was just a really – I didn't think about it enough before I announced it.
24:00
The bottle of champagne in the south of France probably gets rolled up in that one transaction.
24:03
Yeah, like I spent 70 going on lunch for my 30th.
24:05
You know what I mean?
24:06
Yeah.
24:07
But it's just the reality of life.
24:08
But I did- Monty, I should have documented it way better.
24:11
I told him to fucking document it and he didn't do it very well.
24:15
But he did that thing.
24:16
He did the living at home with his parents, going to work.
24:19
He works for me.
24:21
You know, he still had to pay for fuel in his car, which is fuck all because he lives close to the office.
24:26
And he saved within 12 months a deposit.
24:28
And there's like, there was no hidden secrets there.
24:30
It's not like his parents give him a handout.
24:31
It was just like- And it wasn't even that hard.
24:34
Like what the fuck do you spend money on when you're young outside of discretionary spending?
24:37
Sure, there is a segment of the market that don't live at home and they've got kids and all the rest of it.
24:41
But let's talk about the majority of people, which is like you can earn a relatively small amount of money, pay fuck all tax, live frugally for a year, and you can have a deposit.
24:52
Then you've got the second issue, which is if you earn a low amount of money, you can't borrow a lot of money.
24:56
So then you've got to find a property that you can afford to buy with your servicing.
25:00
And for him, we said, go buy a house.
25:02
It's like a three-bedder.
25:03
Live in one room.
25:04
Rent out the other two, which is completely above board.
25:05
It's going to cost you fuck all to live there.
25:08
Hopefully, you've got some mates that are tradies that can help you renovate and do some shit.
25:13
And you're off to the races.
25:14
Yes.
25:15
What about mum and dad investors?
25:17
I know you're pretty passionate about that's not your target demographic, but naturally you're going to see quite a lot of those.
25:25
Do you think this budget has really diminished a lot of opportunities for those?
25:29
No, it hasn't diminished opportunities.
25:30
The thing that it's done is it's fucked with people's minds.
25:33
That's the psychology of it.
25:35
Yeah, they're like, oh, no, what's going to happen?
25:37
Fucking...
25:38
Maybe we should go and do something else.
25:39
Maybe we should do nothing at all.
25:41
Like, that's what it's done.
25:41
Getting into bonds instead.
25:43
It's people, I do a lot of research.
25:46
So when like the budget come out, like I was like, fuck, has this ever happened before?
25:52
Has it happened in my lifetime that I'm aware of?
25:53
But like, has it happened in the past?
25:55
What has changed with tax?
25:56
Like, when has this happened in the past?
25:59
And like, when you look back on it, these things have happened heaps.
26:01
We didn't have a capital gains tax at all.
26:04
Then we brought one in.
26:05
Corporate tax rates were like near 50%.
26:07
Now they're 25.
26:09
You know, like income tax rates have changed.
26:11
The GST was introduced.
26:13
Payrolls, like there's all these things that have changed over time.
26:16
And like change is going to be a constant forever.
26:19
So if you go back and you go, well, okay, there wasn't a capital gains tax.
26:23
Now there is.
26:24
That's a big change.
26:26
We're taxing something that wasn't ever taxed before.
26:28
That's going to happen in the future.
26:29
Again, I reckon the family home will be taxed eventually.
26:32
And I heard that from someone who knows a lot more about government than I do.
26:35
There's a good chance there'll be a death tax, I reckon, if Labor get back in.
26:38
All these things are going to come and they're normal in other parts of the world.
26:41
Mm-hmm.
26:42
So if you choose not to do something because of a new taxation that's changed the way that we knew, then you'll never do anything because there's always going to be a new tax.
26:54
There's always, if we spend more and we're less productive, they got to tax more because they got to pay for the spending.
27:02
But the fundamentals remain the same, which is like, is there going to be population growth?
27:06
Yes or no?
27:07
Will people always need somewhere to live?
27:09
Yes or no?
27:10
Will there be people that always do really well financially in any economy?
27:13
Yes or no?
27:14
And then do we think property is going to be, or any asset is going to be a lot more valuable in 20 years time than it is right now?
27:20
Yes or no?
27:21
And how much does it actually cost to replace a property?
27:23
Because that's the other thing.
27:24
There's the actual supply right now which can come down in value because it's built.
27:28
No new supply can come down in value because it costs a certain amount of money to build.
27:33
You cannot sell a property that costs a million dollars for less than a million dollars because someone loses money.
27:38
Baffler is trying to do that.
27:41
And they went back virtually bankrupt.
27:43
So,
27:44
That's the other thing people need to understand.
27:46
If we have a growing population, there needs to be new supply and we need to be able to sell property for more than what that new supply costs to build.
27:53
And building costs are not coming down until we get the technology that allows for it with robotics and all the rest of it.
28:01
So, yeah, I really don't think about the short-term stuff all that much at all.
28:08
What about this?
28:09
So one thing this budget has done is, like you said, you're the only one competing with ad spend at the moment.
28:14
So a lot of these groups, you could call them spookers, that have the strategy of buying heavily up in regional areas and buying multiple properties, five, six, seven, eight.
28:24
I almost had a big short moment with a broker that had a badge of honor that one of his clients has bought seven properties since the budget in regional locations and I've never been more disgusted in my life.
28:36
Where are?
28:39
Towns I actually hadn't heard of.
28:40
The population centre is less than 30,000, which is concerning.
28:44
Where is that market going and you see there's always positives that come out of change and what the budget might do is reset the playing field of our space.
28:54
This buyer's agent industry has been growing dramatically over the last few years with
28:59
rise of the markets.
29:02
This might wash a few of them out and do some resetting.
29:04
So talk to me about firstly the regional markets, where they sit, what's your thoughts, and then the industry as a whole.
29:11
We don't buy anything regionally, so I have no idea where they sit, but it's like the fundamentals are in a market like this, if you look at a clearance rate of 50%, nearly 100% of that 50% would be owner-occupiers.
29:24
That's where you want to buy.
29:24
You want to buy where owner-occupied are buying because they buy regardless, right?
29:28
Someone who wants the kids to go to fucking this certain school next year ain't worried about what the market's doing.
29:32
They want their kids to go to a school.
29:33
They want to be in the postcode.
29:34
They want to send their kids there and they want to live.
29:36
So you want to be in a market where those people are because there's always transactions happening.
29:42
If you're in a market where it's all investor-driven, right now those investors are gone, which means that like pump and dump growth.
29:48
Who's going to... Like you look at all these people who bought in Darwin, for example.
29:52
If they didn't exit...
29:55
who's gonna exit them now?
29:58
There's no one.
29:58
No, your Occupy is not gonna exit them.
30:00
And if there's no other investors to exit them, who's gonna exit them?
30:03
So there's no liquidity in those markets.
30:04
Whereas if you've got a house that's getting sold in a market that's dominated by owner Occupy, sure, you may not get a price that you want, but there will be someone to exit you out of that marketplace to give you a little liquidity.
30:13
So you think like a market like Darwin, once the pump, not so much dump, but the pump of this investment activity dries up, there will be no exit.
30:22
There will be no liquidity.
30:23
It will be much harder to get an exit, no doubt.
30:26
In all these regional markets, it's going to be the same.
30:28
Who buys the property if it's not the other investors?
30:30
Investor.
30:31
So then the second part of that, the clear out of the industry, are you seeing that?
30:34
Obviously in Sydney, there's a lot of buys out.
30:35
Yeah, I've caught up with a few people that have gone into liquidation, had lunch with them and shit.
30:39
I learned from these people.
30:40
I'm like, what the fuck happened to you?
30:41
What happened?
30:42
They don't charge enough.
30:43
They've got fat teams.
30:44
They don't run on good margins.
30:46
They've got a one-dimensional business model.
30:49
They don't have cash.
30:49
They don't have a balance sheet.
30:50
Yeah, there's lots of things.
30:53
And they don't make change fast enough.
30:56
If you're a business owner, it's not just buyer's agent, it's any business, right?
31:00
It's like you can sort of see when the things are changing.
31:03
So if you just like hope and pray that, you know, fuck revenue will continue, it's like you are going to go out of business.
31:11
They get ATO debt, you know.
31:14
One thing that I did many years ago after I had a very, very challenging year was I moved all my ATO payments onto monthly.
31:22
Because when you grow a big business, like ATO payments from a BAS point of view, we pay many millions a quarter in BAS.
31:28
When you break that up into monthly payments, it might be half a million bucks a month or something like that.
31:32
And it's much easier in comparison to one and a half or two million dollars at the end of the quarter.
31:37
You've got to find all this cash.
31:38
Yeah.
31:39
Or annually.
31:39
Most small businesses sometimes still do annually.
31:41
Yeah, that's right.
31:42
And they've got to pay back a year.
31:44
So that's the big thing.
31:45
Probably, you know, not making sure that you don't get ATO debt because if you get ATO debt and you don't pay it, the ATO will wind you up.
31:52
Yeah.
31:53
They don't have very good unit economics.
31:55
Like...
31:56
This whole low fee buyer's agent model works when you've got crazy volume because you grow by more and more volume and your volume generally grows before your staff count grows.
32:06
So then you start to hire behind the growth and you think you have margin but you don't.
32:13
And then obviously as the market comes off, you know, you lose all your margin.
32:18
So margin is the most important thing.
32:22
And then, yeah, very one-dimensional.
32:23
So it's like, hey, we buy regional properties.
32:26
When no one's buying original, probably what the fuck do you do?
32:28
So like I'm just very fortunate the way that we've built the business.
32:30
And the only reason I built it like this is because I had lots of advice from people who have built much bigger businesses, which is like, you know, you need to make sure that like, for example, I could close the buyer's agency today and I would still have a 30 to $40 million business.
32:44
I got a big building company.
32:45
I got a big asset management business.
32:47
I got a finance business.
32:49
I do my own developments.
32:50
I got wedding venues.
32:50
I don't need the buyer's agency.
32:53
My life would be worse, of course.
32:54
I wouldn't have as much money, but like I don't need it.
32:57
So, and I have a balance sheet.
32:59
So I can leverage off assets when times get lean.
33:02
If you don't have that, you're in big trouble, which is what happens to a lot of these people.
33:06
They don't have balance sheets.
33:07
They don't have good cash flow and they have no cash.
33:10
They're not sitting on any cash.
33:11
But don't get me wrong, regardless of all that stuff, it's still fucking hard.
33:15
It's still stressful.
33:16
Business is not an easy thing, regardless if you're in buyer's agents or you're fucking doing something else.
33:21
It's fucking hard.
33:22
We're seeing a lot of these speculative portfolios now sort of coming across our business.
33:28
And a lot of the advice is to not necessarily sell them all, but definitely start to sell off some.
33:33
So not a strategy.
33:34
It sounds like from a strategy standpoint, we are very similar in terms of the blue chip assets, good location.
33:40
Long term.
33:41
Long term holds, right?
33:42
But we are seeing a lot of this speculative stuff at the moment where at the peak they've had some serious, serious growth.
33:48
You're like ideal client, right?
33:50
Like you're an extreme example, right?
33:52
So don't use yourself and talk about some of the big locations you're looking at.
33:57
But like a typical client for yours is, is it get five or six good quality blue chip assets and sit and hold for 20, 30 years?
34:04
We don't focus on the number of properties.
34:06
We focus on asset value, like gross asset value.
34:09
So a typical portfolio for us looks like...
34:13
in the accumulation phase, assuming they come to a shop with an owner-occupier property, is we'll get them to 10 mil gross assets within, say, five years.
34:20
And then they might be like a... We generally tell clients to have a minimum seven years in what we call incubation, which is debt reduction and portfolio growth.
34:29
So your LVR is decreasing and your net asset value is increasing.
34:34
And then from there, it's like the conversion into cash flow.
34:37
And that can be commercial property, but it also could be...
34:40
Lots of other liquid assets that provide really good cash flow.
34:43
You also have liquidity.
34:46
And that's it.
34:47
It's pretty simple.
34:48
There's lots more extreme versions of that where they are much more active and they've got a passive asset base and they've got something that's a bit more active, which is like development plays and shit like that.
34:57
But even the development plays are not a big part of someone's portfolio.
35:00
They've got active assets that are sitting there that they can leverage off that will grow long term in the market.
35:06
And then they've got maybe one or two active assets, which are transacting and moving every 24 months or something like that.
35:15
And then commercial is good.
35:17
Not good for everyone.
35:18
you
35:19
A lot of fuckers have no idea about commercial.
35:22
And I did it myself first before I did it for any clients.
35:25
Commercial is like a business.
35:27
It's very sharky.
35:29
It's the wild, wild west out there.
35:30
Finance is not the same.
35:34
Every expense is on you, the borrower and the buyer.
35:39
And commercial banks are not the same.
35:43
You go get a NAB resi loan or a CBA resi loan and then you go to their same commercial channels.
35:48
It's not the same thing.
35:49
The valuations are $10,000 from you, not from the bank, right?
35:52
Correct.
35:52
And then just the way that they look at lending, and I'm talking about people doing big transactions.
35:58
I have had hell with some commercial transactions in recent times.
36:01
And the property market as a whole, for example, and the property industry, they're looking at it as a shaky industry.
36:06
Regardless of what my P&L looks like and what my balance sheet looks like, they don't care.
36:11
They go, well, the industry as a whole is shaky, so maybe a 70% LVR that we're going to give you, we're going to drop that now to 60 or 50%.
36:18
Let's do some quick fire questions.
36:20
So not one word answers, but as quick as possible.
36:22
Okay.
36:23
Jack Henderson, where's the best opportunities in the market right now?
36:26
Best opportunities in the market right now are where you create them.
36:30
So buy old properties that no one fucking wants and ideally develop them into new assets.
36:36
If you had $1 million today to spend- Only a million.
36:40
Only a million.
36:41
Where would you invest?
36:43
I would, same locations.
36:45
Love Newcastle, love Central Coast, love Gold Coast, Brisbane, Sunshine Coast.
36:49
And fingers crossed if the liberals get in down in fucking communism Victoria, there could be some green spouts down there.
36:58
Very nice segue to the next question, which rank between one to five best investment value, Sydney, Perth, Brisbane, Melbourne.
37:08
Value.
37:09
I've missed Adelaide.
37:11
That's something for you.
37:13
Adelaide and Perth are made to be at the bottom and we just don't do anything there.
37:20
I would think about it over a long period of time, so I'm thinking about right now.
37:25
I wouldn't choose Sydney for most people if we're talking about million dollar budgets, just simply because the yields are too low for most people and they can't afford to hold them, especially when you add in like your actual real cost with land tax and shit.
37:34
So I like Central Coast, Newcastle is like my version of Sydney because they're really strong markets and they're similar demographic.
37:42
I'd still, I'd personally still buy Queensland over Victoria.
37:46
That could change if the, you know, election changes.
37:48
But in Vlavia, get back in down there.
37:49
That joint's fucked still.
37:51
And then, you know, Victoria.
37:53
Yeah.
37:55
Last one.
37:56
Finish this sentence.
37:58
Everybody's wrong.
37:59
Everybody's wrong.
38:00
About me because?
38:01
I think people perceive that lots of people dislike me when in reality I've never had one person in real life ever say anything to me other than something positive.
38:11
So just happens to be that the loudest ones are usually the ones that, you know, have some fucking bullshit to say.
38:18
But in my life, I've never had someone say you're a fuckwit in real life ever, which you would think would be surprising.
38:25
everyone and everywhere I ever go, they're like, fuck, I love your stuff, bro.
38:29
Love your stuff, love your stuff, love your stuff constantly.
38:31
So I listen to real life, not social media.
38:37
And that's probably it.
38:40
Yeah.
38:40
I mean, I'm a normal fucking person and I'm very real, you know, like I'll tell you what the go is and what I'm doing.
38:46
And I think people like that.
38:49
Yeah, I can back that up.
38:51
Perception versus reality with Jack, it's, you know, I don't think people would understand how genuine you are, how authentic you are, and certainly even how humble you are.
39:01
So thanks for being on the show, mate.
39:02
Thanks for having me, James.