Season 2, Episode 2: The Power of Co Living Investing (High-Income Multi Liv Properties)

This episode welcomes one of the best in the space of high-income properties (Ian Ugarte).

The question that we always ask our investors is, "if we can invest in something that  can grow in value like anything else, then why would we not want to increase the cash flow?"

And that is where we see residential property investment going, towards high-income investing. Where we can take the guesswork out of the capital growth predictions, and focus on what we can control first, which is the cash flow!

When we hold investments that support themselves with a positively geared position, then growing a portfolio can become all the more consistent and all the less terrifying.

The Episode Highlights:

5 mins: It needs to make sense before it makes dollars. Why Ian chose Co-Living investments over everything else.

7 mins & 07 seconds: Co-Living & how it works

11 mins & 25 seconds (Katie's corner): Why is buying property in Australia so expensive?

15 mins & 50 seconds: How to apply strategy to provide win/win outcomes for the investors and tenants at the same time. 

23 mins 28 seconds: Giving investors the power again and protecting them against troublesome tenants. Highlighting the difference between the Residential Tenancies Act and 1B rooming code.

26 mins and 30 seconds: The difference between a normal house and a Multi Living investment property.

30 mins and 18 seconds: Upgrading the house to ensure the best rental outcome 

34 mins and 27 seconds: What does it cost to invest in Co Living properties in Australia and what could our cash flow look like?

40 mins and 20 seconds: Understanding the House Rules (protecting your investment).

This episode is full of wealth and shares ways of investing to achieve returns that have not normally been available to the everyday public. 
 
We hope that you enjoy our discussion and invite you to reach out to discuss your investment journey if you wish. 

You can reach our team at hello@buyfairproperty.com.au or matt@buyfairproperty.com.au 

Happy Investing  

Transcript

Speaker 1 (00:01):

Welcome to the Property Now Podcast, where we talk all things property, investment and new homes with your host Matt elo. Speaker 2 (00:09):

Yes, there's bad debt. Yes, there's good debt. The good debt is not bad. It will never send you broke. Ever rich people rely on debt to expand because without debt it's pretty hard to expand. It's almost impossible. Speaker 1 (00:20):

If you want to learn more about what's happening in the market and how to benefit from property investment, then go no further. We dig deep as to why our sector is a key to building financial security and safety for your family. Never before has it been more important to understand the playing field than now. Speaker 2 (00:39):

And I would say this, this is probably going to raise some eyebrows with some people, but your family home is not an asset. It is a liability. It's taking money out of your pocket from a cashflow position. Speaker 1 (00:49):

So let's get on with the show. Happy listening and we'll see you on the other side. Speaker 3 (00:54):

Hello, hello and welcome to the Property Now podcast. I'm very, very glad to welcome our guests for today. Ian ti. Good day. Ian, how are you mate? Speaker 4 (01:03):

Good. Thank you for having me on. Speaker 3 (01:05):

You're welcome. You're welcome. You're up in sunny Queensland, I believe while we're, Speaker 4 (01:09):

Yeah, the sunshine coastal as we sometimes call it the rainy coast. You're Speaker 3 (01:13):

Not at that part of the year yet though? I don't think so. No. Speaker 4 (01:16):

We're in, it rains during the night and then it goes to 35 degrees to make it 94% humidity. It's awesome. Speaker 3 (01:23):

And what's the coffee of choice mate? What are we drinking? Speaker 4 (01:26):

It's licorice and peppermint tea. Speaker 3 (01:27):

Oh, lovely. Very good. I don't have a hot drink for this session, so I'll just need to get through without That's all good, but it's not really good to have you on board, mate. Yeah, this podcast is obviously about property investment and take a pretty casual approach to our conversations, but I've been looking forward to having you on, mate. I'll get you to introduce yourself, but for the listeners, Ian is an expert in co-living properties generating higher incomes out of investments for people so they can obviously make it a bit easier to hold and also help tenants at the same time with providing more accommodation. Mate, you've got a wealth of experience in the space. There's a few too many startups to mention, I believe 30 or something along those lines. Speaker 4 (02:07):

Yep. 31 in 30 years I think that call me a serial entrepreneur, but the question that no one ever asks is out of 31, how many of them were successful? It really took the first 12, 14, 15 where one of them was successful in those 15, I always worked off the do 10 things and one of them will succeed and it didn't quite get there at 10. So from there the realisation was that there's a certain amount of business that's required, a certain amount of background and personnel that are required to make something successful and since then we've been able to build and manage some really great businesses and we're thankful that Holly and I get to live a really, what's the best way to put it? We get to live a life of choosing and that's something that everyone aspire to and if you can get that, it's awesome Speaker 3 (02:54):

On the back of a lot of hard work and a lot of risks taken by the sounds of, Speaker 4 (02:57):

I worked for over 20 years, maybe 25 years, going to sleep at midnight and waking up at 4:00 AM so four hours sleep and that does burn adrenals and I don't do that anymore, but that work is what's got us to where we are now. Yeah, Speaker 3 (03:13):

Congrats mate. I think anyone that is brave enough to do what we do deserves a bit of credit and especially when you've lasted as long as you have and built some real success now. It's a testament mate, so congrats. Thank you. We won't go through all of the businesses that you've launched, but obviously you're in property now and a very passionate person with respect to what you specialise in. Do you want to tell us a little bit more about what you do and what your key focus is at the moment? Speaker 4 (03:39):

Yeah, I think short in 60 seconds was I come from a family of plumbers, went into the plumbing business as an apprentice, became plumber, then owned my own business, then went through, started a wastewater company with seven patents worldwide, patents that held to that wastewater company. Ended up in TAFE New South Wales as a head teacher. I was one of the earliest part-time teachers for age into New South Wales TAFE and worked my way up to three IC of Sydney Institute, largest education employer in the Southern hemisphere and they said that I would get to the top job within 10 or 15 years. I said, how much does it pay? And they said 370 and that year we made about 400,000 in property development on side. So we went there. So that's where we ended up in property development and then the turning point to go to co-living was became rich and very unhappy.
(04:29)
I read a quote once that said, rich people have a lot of money and wealthy people have time to spend it. And I got to the lowest point in my life on a day where I had a lot of money in the bank account and I made a difference to myself by making a change in how we started to adopt because all I was concerned about was myself. And what we did was we started to research and look at strategies that would make a difference to people. In 2009, new South Wales state government released Granny Flats to the standard market through private certification and everyone went for Granny Flats and no one else read the rest of these state environmental planning policy, which had new generation boarding houses in it. I looked at that, I looked at the numbers, I looked at the fact that you could do load density and I went, this is a winner.
(05:14)
Then started down that road of learning, started looking at other states, found other policies that were unused or sitting dormant because it had never been taken away and all of a sudden not only was I helping a community problem, I was starting to make more money than what we did before. And so we came up with a slogan. It needs to make sense before it makes dollars, it needs to help the community in a positive way first and secondly, it needs to be financial viable, has to do both of them and then the project's successful. So from that I started teaching other people and here we are now doing it for people because it's not something I ever wanted to do, but I realised that all the education in the world still has some if youness about people choosing the right in the right zoning with the right building class and getting it built right and disability and all the rest of it, that was way too hard for anyone to actually encompass. We just started doing it and here we are helping you do exactly the same thing Speaker 3 (06:10):

And we're really excited about that. Obviously part of the reason why you're on here is that you're coming on board to assist in different ways with multi live and bifa property group, which is good and we only want to work with the best mate, so it's good to have such experience on board assisting, so thank you. You call Speaker 4 (06:26):

Me the best. Speaker 3 (06:27):

Yeah, why not? Why not? Speaker 4 (06:28):

Well, the government pays me because they think I'm the best, which is good. Speaker 3 (06:33):

Well, who can argue with the argument? They say you're the best then you must be. Speaker 4 (06:37):

That's Speaker 3 (06:37):

Right. Yeah, no, that's good mate. Look, I agree. I think health is wealth and I think revenue and profits and these kind of things are a byproduct of adding value to people as well. So we take a similar approach. We try to educate in a down to earth manner that people can understand and just help where we can and if that help leads to something great, if not, then that's okay as well. So co-living, obviously this is one of the areas of your expertise and for those who don't know what co-living is, why don't you give us a high level rundown as to what it is and how it works? Speaker 4 (07:11):

Yeah, co-living in its simplicity is taking either converting or purpose building. It's what you do now, purpose building a property that looks the same as the property next door in the low density zone, but internally what you've got is micro apartments which are made up by of a sitting room, a bedroom, a en suite and a kitchenette, everyone. So there's either going to be four, five up to nine depending on which state you go to, but four, five or six is generally a good little number to work with and every person has their own area, but they share the common kitchen, which has the cooking oven and a fixed cooktop and they share the laundry as well. We try and keep the communal areas down to nothing. So effectively what we're doing is we're building either small micro apartment one bedrooms or studios in a building and what happens then is that we're catering for the people that need it the most.
(08:06)
Since the 1980s, we as investors have decided that four bedroom, two bathroom houses are the way to make ourselves wealthy in the long run and they do eventually make you there. The problem being that 60 to 80% of all the people that are looking for rentals today are singles and couples and 60 to 80% of all the available rentals are four bedroom houses. So we've got this mismatch in the marketplace, so co-living fixes that mismatch by taking those four bedroom houses. Instead of building a four bedroom house, let's build a four, five or six bedroom house that's got its own, say self-contained, but technically not by law areas within the house. And what's the outcome? The outcome is that the first thing that happens is that the people were looking for somewhere the singles and couples looking for somewhere to live are looking for 600, $700 houses because nothing else available on the market and we've got a housing crisis across the whole country right now.
(09:00)
So instead of paying six or $700 and having to look after the whole property and do the gardens and pay utilities and pay all the rest of the stuff that goes with that, they can now live in a micro apartment for somewhere around two 50 to 400 depending on the location area. On a 600 to 704 bedroom range, you're probably looking at about $320 a week. That's sort of the comparison. And then you times that by five, now you've got 1500, 1600, you get a six bedroom in, you are now getting 2000, 2,200 for the same place that used to get 600 or 700. So from an investor point of view, great outcome from the people that are living in it, they save one third or one half off their normal weekly rent and their utilities are included up to a certain amount over that they have to pay.
(09:46)
But more importantly, we've got a crisis at government level right now and the government level crisis is that we used to have a lower class, a middle class, and an upper class. The middle class cannot afford to buy houses or cannot afford to rent anymore and they've squashed down onto the top of the social housing list and they shouldn't be on the social housing list. So what we do, you and I, we take and market to the people that want to live in the house, which is the old middle class and we give them somewhere where they can live, they can save money, and within three to five years they'll have enough savings to be able to go off and buy their own property. And that's a really big thing because that's not possible. You only have to ask right now, if you've got an 18 to 30-year-old child that is looking to get in the housing market, the chances are zero to slim at best. Now we're opening up how the market and we're helping the government by taking the pressure off the social housing market and get them to concentrate. We don't do low socio, that's not our job. Our job is to look after the middle class, get the cashflow that we need and then everything fixes itself. Speaker 3 (10:52):

There's a number of things to unpack there. That was a very good explanation. Thank you. Things that really stand out for me, there are obviously solving a problem of the housing crisis and most people know this. We don't have enough houses for the amount of people that are moving here and being born and living within the country, especially with the changes in the demographics of we don't have the five person house as much as we used to anymore. It's singles and young couples and people aren't having kids as often. Speaker 4 (11:18):

I'll give you an exact example of that. There's two things to say. The first thing I'll say is that in our team huddle every day, every week on what's today, Thursday we have Katie's corner, Katie's corner, we've got an overseas Katie's corner has basically set up our IT worker wants to know more about what we actually do in the business and the way to do that is for her to understand a little bit more what's going on. We've now shifted that to Sarah's corner because Sarah lives in the Philippines and the question she asked today is why is property so expensive in Australia? So I unpacked that for her and I said, just so at the moment, average price across Australia is about $800,000 to buy a house. And I said, in your area, she said, it's $17,000 US to buy a four bedroom house, right?
(12:00)
Yes. The wages are different. Let's look at my previous household when I was married to my ex-wife, four daughters in one household, six people in one household. Then one of my daughters left went to Sydney, so she's met a guy and then she moved into a house or a unit, so there's one household that became two households, then another daughter left and she's now living on her own. Then we've got another daughter that lives with her girlfriend and then we've got another daughter that lives with my ex and now we've got a household with Holly and I out of one household. We then ended up with five households and each one of them are either single or couple households. This is what's happening more and more in Australia, but we're not catering for that change and it's been happening since the census in 2006 and as early as 2001 you saw the click in the census data to start to revolve around that. Speaker 3 (12:56):

Yeah, it's crazy. That's a really good explanation as well because I don't think people think of it that way often enough, and I would imagine speaking from a tenant standpoint, the location's really critical here too because when you can build these types of homes, people don't have to live in the city in a one bedroom apartment or a studio. They're just not available in these areas that people want to live in. Speaker 4 (13:18):

Correct? Yeah. And so what's important for clients of yours is that where you are sourcing properties that are going to have one or more key functionalities around being close to either a hospital, an airport, an industrial state, or a shopping centre, those hubs that are within 10 minutes walking or 10 minutes driving distance is what people want and if you can give them that, they're happy to move out into burbs because they pay half as much as living in the metro. I think this is a longer conversation if we wanted to go into it, which we can do another day, but decentralisation needs to happen in Australia. Australia is the same size literally as America and yet we've got 28 million and they've got 280 million. Why is it that they can do that? Because they've decentralised, they've got space all over the place and they're living in deserts as well. We could do the same, but we just love our harbours and surf features. Speaker 3 (14:17):

I talk about supply and demand with driving prices of property in Australia and that is pretty much the answer, isn't it? It's that you've got so much demand around certain areas and that's why we see the capital growth in capital cities perform so consistently access to capital and then a competition amongst buyers trying to get into property Speaker 4 (14:37):

And then we haven't got enough housing for the population we've already got, plus an increasing amount of households being created every day when a child leaves home because the child of the baby boomers and the baby boomers child are now the children now coming out of that, but then throw on top of that immigration and so you've got hundreds of thousands of people that before Covid were approved to come but couldn't come during Covid. The rest of the world looked at the two countries that handled Covid the best. We've got Australia and New Zealand and if you're overseas and you said, you know what? I want to go to one of those places, are you going to choose Hobbit Town or are you going to use Australia? Right? Most people are choosing to immigrate to Australia, so that's just increasing more and more and more. Not only that, we also have a skill shortage from destroying our manufacturing process 10, 12, 15 years ago that needs to be filled again and they're skilled work. We don't have them here, so we've got to bring them in, bring them in more housing's required. It's this perpetual motion of housing affordability issues that will go on for a while if we don't do something about it. Speaker 3 (15:42):

Yeah, well said mate. I want to touch on investor versus tenant. So obviously we're killing two birds with one stone here. We're helping both sides of the equation, so they're working together. Tell me what the advantages are to the investor and what's going to be asked. I get asked, you get asked it, we all get asked it. Oh, what are the quality of the tenants and how well are they looking after the house and all of these kinds of things and hence the property management requirements Speaker 4 (16:08):

And that's always come up. It's always come up as a perception issue that as soon as we have multiple people in one house, it's because they can't afford a whole house and that's not necessarily true. What it means is that they don't want to spend the affordable housing income or more than that. Affordable housing is not low socio people. Affordable housing is spending no more than 30% of your gross wage on housing, whether it be a mortgage or whether it be rental. As soon as you spend more than 30% you are living unaffordable or you are under housing stress, what we get is people that can afford. So just to put that into perspective, if I own 50 grand a year and I spend more than $300 a week on my accommodation, I'm under housing stress. If I own a hundred grand a year and I spend more than $600 a week, I'm under housing stress.
(16:57)
That means that you don't have enough money to save at the end of the week to be able to buy your own home. Effectively that, so looking at, there was a study done by the housing industrial union and it looked at all the houses for rent that were available on the market in metro and regional, and the outcome was that at the time, it was in 2019, at the time four bedroom houses were renting for $420 a week and two bedroom houses were renting for four $15 a week. Now the difference between those two is that there's not enough two bedrooms, which is forcing the two bedroom prices upwards because people don't need more than two bedrooms as an outcome. We've now got this issue with people thinking that because it's a mixed house or a shared house or what they would think a boarding house, it must be low socio.
(17:51)
That's where dirty old men used to live and I get it all the time. Oh, you must have drug dealers and criminals, but that sort of functionality in someone's head perception is so different to the reality. I was only just thinking about it this morning. We all obviously as part of our rentals, you need to know what job they do. Everyone in our properties are employed. Everyone pays the rate that they need to pay, and at the moment there's a $12 per room increase per quarter. That's what's happening. So effectively you're talking about call it $50 a quarter, that means $200 a year. That's an extra 10 grand of extra cashflow that's happening right now in the co-living market and the type of people that we rent to are nurses and doctors and tradies and accountants that are making their way up the ladder, lawyers that are doing the same thing.
(18:40)
We've got people that are employed, the other big demographic that we have coming in, we effectively have three different types of demographic. We have the single 22, 25 to 30 5-year-old, they've just finished uni or they're working their way up the ladder of getting more pay in their job. They come into our properties, save 'em some money. We've got the 30 to 45-year-old couples. These are professional couples. They're either on a sea wage or getting there and she gets close to 40 and she says, you know what? We've had a great time Friday nights drinking with everyone down after the stock market crashes and we're now in a place where we've spent all our money. I want to save, I want to buy a house and I want to have a baby once we own a house. That's Australia, right? They knuckle down, they work long hours, three to five years they save enough money and off they go buy a house.
(19:29)
And she then has her baby in her forties. And then we've got the biggest growing demographic of homelessness in the country right now, which is the 55-year-old single female who looked after house at home for the last 20 or 30 years and then finds a place where she's living with a husband she doesn't like and the kids have gone and left the roost and she says, I'm out of this. And he waves at a hundred thousand dollars in front of her and she takes it because she just wants to get out. She doesn't think it's fair, but she doesn't want to be here anymore. She was supposed to have it set for life because she married a guy with a good job, but it turns out that guy's not such a great guy and then they go out to try and find work. They can't get work because apparently they're not qualified enough.
(20:12)
These are people that looked after house, home, finances, timetabling, everything you can imagine. They try and find a house, they've got no rental background, they can't afford the housing because they haven't got a job. Their a hundred thousand becomes 50, becomes 20. They go and buy themselves a van and then now what we call homeless because they're sleeping in a van. And look, I live on a really nice property and at the end of our street, Holly and I go for a jog and there's always one or two different cars with women that are sleeping in the back of their cars every week. This is disastrous in Australia for those people who question whether we've got drug dealers, criminals in our properties. No, we've got 55 year olds as an anchor resident. She's the first one we put in there because she becomes the adopted mother. She tells you when things go wrong, she's on the ball all the time, and we then place a household around her, essentially a family like she used to have of mature people where everyone just gets on really, really well. Speaker 3 (21:08):

I think it's something that people aren't aware of. Well, I know that it's something that people aren't aware of. Is the strategy that you actually apply to filling these homes. I know you actually said some stats with me a little while ago about how many inquiries you get per room when you advertise these properties, but it's the key approach of actually putting the right person in first and building around them, isn't it? Speaker 4 (21:31):

And I tried it at the beginning myself. I had this altruistic love to want to fix the over 55-year-old problem and you put over 55 year olds together. I always make the joke that you put 1 55 in a holder as the anchor resident, but you don't put a second one in there because that's disastrous. They'll kill each other, right? They're set in their ways, they want things done in particular ways. We quickly moved away from that model and people say, oh yeah, but you've got students in your houses. We do not put students in any of our properties. Student accommodation you don't want for a number of reasons. Firstly, they're only there for two thirds of the year. One third, they're away. What are you going to do during that Christmas break where they finish in November and come back in March? Secondly, they're not the greatest residents.
(22:13)
They love parties and it's a good chance that you'll end up with a property that might have a little bit of fatigue at the end of it. But thirdly, most importantly, knowing that I came out of TAFE New South Wales, we stopped making money in education and we started to invest in TAFE New South Wales in accommodation. And if I have to compete against a uni or a TAFE who can drop their prices and still get government funding, I don't want to be in that market and no one else should be in that market either. So effectively putting same together doesn't work. What we worked out was anchor resident and build a house together. Now it's almost like you develop a six sense. It's like a chef who knows he's about to get burnt or she's about to get burned and pulls back rather than getting burned a plumber.
(22:56)
I used to get burnt. Now I don't and maybe still do now because I've lost my trade, but as an apprentice, you learn very quickly if something feels hot, you pull away from it, but your sense isn't there. We've developed a sixth sense on how to put a household together and people question all the time, gee, you must have a lot of problems and must have that heaps of hassles. We have less handles hassles with our co-living properties than what we do with our standard everyday family resident properties. And that comes in time and time again. The beauty with the rental process that we go through in co-living is we've got much more power as managing agents and landlords than what we do in a standard everyday residential. The notice periods are shorter. If they stop paying rent, you can almost get them out immediately if they're dangerous to anyone else in the, because they're unrelated parties, you can get the police to turn up and evict them almost immediately in those circumstances. So you've got issues that can come up but can be dealt with much quicker than under standard normal residential leases. Speaker 3 (23:58):

I dunno what the changes are like in Queensland, but in Victoria they've just announced again recently substantial changes to the Residential Tenancies Act and it's pretty much all in favour of the tenant, which is great for the tenant. That's good, but as an investor looking to put a lot of money into building something and housing someone, it's a little bit scary. Knowing that difference between the two is very important and something we try and explain to people so that they can get it. Can you just explain quickly the difference as far as the legalities are concerned with the one A and the one B and how that works as a high level? Speaker 4 (24:30):

Yep. This was a learning curve for me and how I've ended up as a government advisor around the country, state and local council is because when I started, I needed someone who knew everything about the building codes, national construction code as 1420 electrical standard disability standards, the compliance around planning compliance around the Real Estate Tenancy Act, but I couldn't, I could find individuals, they all contradicted themselves, so I had to go down the path of learning all of it so that I could do something and make sure that I was legal and compliant because after all, ignorance is bliss. If you go and do a co-living property and you don't tick a box, there are government agencies that look after people that live in your property and if you haven't ticked the box you are up for in Victoria, it's $200,000 fine and possible jail time.
(25:18)
Similar in Queensland if you get it wrong, ignorance doesn't come up as an argument. They're concerned about people living in your property and the reason behind that is you need a different building classification code. When we buy a townhouse or a villa or a freestanding home, we are almost always buying what we call a class one A building. Okay, so it's a class one building and in the national construction code, a class one building is a family dwelling. So effectively we have a family that lives in there and they eat together, they shop together, they sleep in the same house, they're blood adopted or similar in the household. Once you put unrelated parties, and it doesn't matter whether they get to know each other or not, if you put them into the household by individually advertising, you now change your building classification from A one A to A one B.
(26:09)
So what's a one B building? A one B building has to be under 300 square metres and it has to have less than 12 people in it inside that building. It's built exactly the same as a normal one a building. So it's either brick veneer, lightweight construction or double brick. If you're in WA or mud brick, if you're on the wak, it's exactly the same construction, but inside there's five things that are required. You need disability access, disability, bathroom, and the person with a disability needs to be able to get into every room. We're yet to actually rent a room to someone with a disability, physical disability, you need smoke detectors in every room and they need to be linked so that if one alarm goes off, they all go off. You need emergency lighting attached to that with battery operation, not the exit lights.
(26:59)
It's simply just another down light that turns on when the alarms go off. We need fire extinguisher blankets and a few other bits and pieces like that and we need external door handles that allow someone to be able to get out of the house by one single function. That means, and the example is if you go into a disabled toilet, as I know everyone does, every now and then you close the door and you lock it and you push down on the handle and it unlocks and then you lock it again and you push down, it unlocks and then you lock it again and you sit on the toilet going, please don't come in, please don't come in. So the action of pushing down and eat unlocking automatically needs to happen on the external door so people can get out in case of a fire. Now the reason the code is important from going from one A to making sure it's a one B is because in the one a house, if I've got a fire that happens in my house and my children are in the bedrooms, I'll die making sure they get out. Whereas in an unrelated party house, if a fire happens on the first night that everyone's sleeping in the place, their main thought is, I'm going front door, I'm not really concerned about everyone else. So that's why we need a different classification of building Speaker 3 (28:07):

Critical. You would never think of that, but it's so logical, it makes sense. It's the Speaker 4 (28:11):

Number one reason and this is disastrous part. You may remember the Childers's backpack of fire that changed fire and fire rating all over the country very quickly. The most significant fire that happened in a share living house was a young couple living in a legal share house and the locks on their doors were key deadlock locks, and there were bars on the windows, there was a fire that broke out in the house and this young couple got disorientated in the smoke and they couldn't find the key to their door and they died trying to get out of their room. And that cannot happen. That's really affecting people's lives. And as an owner of a property, you've done the wrong thing and you may not have the understanding or empathy of the family that just lost that couple, but eventually that's going to catch up with you. And then not only that, eventually going to catch up with you. In the meantime, you're probably going to end up in jail. That sort of safety and security of people living in your home should be the number one investor strategy. And then what comes after that needs to make sense before it makes dollars. So if you can do both, then it's an outcome that's beneficial to everyone. Speaker 3 (29:23):

Yeah, that's awesome mate. I couldn't agree more and it probably makes sense to have those kind of doors on most properties if anything because you Speaker 4 (29:30):

Know what gets me? So the one B building requires all these link smoke detectors, right? Queensland has brought it into law that you need to have it on every rental property. Now that came in two years ago, I cannot understand for the life of me why someone who owns their own home with their own family in it wouldn't do the same thing. The cost is negligible compared to the outcome of firstly just being alerting that there's a fire could put the fire out quickly. So you would make your savings up very quickly if you stop the fire quickly. But more importantly, you've just most likely saved your family's life by having a smoke detector that goes off in the kitchen and wakes everyone up in the middle of the night. Speaker 3 (30:08):

Yeah, no, I agree. Smoke detectors are pretty loud. Definitely ones in my house would wake me up in any one of the rooms, but no, that's awesome mate. What I was going to ask is from a feature standpoint in the home, this is probably more geared towards investor now, what are the kind of key features that you're putting in these homes to make sure that they're attracting people? And what I'm talking about is obviously air conditioners and these kind of things, Speaker 4 (30:33):

The properties that you are selling have furnishings, so all the properties are furnished. There's not one property that you've put together or anyone else has put together that is unfurnished based on the fact that most people in that age bracket that's looking or the older age bracket don't really have a lot to their name anyway as far as a whole household. Occasionally we get people say, oh, can I swap the mattress out? I've got an orthopaedic mattress, I've got scoliosis or whatever. That happens occasionally, but otherwise people are coming in and moving into a fully furnished studio. So firstly, they move into a fully furnished studio, which is attractive, so that's great for the landlord. Someone's going to come in really quickly, they've got air conditioners in every room and landlords are going, oh, the air conditioners is going to turn 'em on and turn 'em down to 16 or up to 28 degrees and I'm going to end up paying for all the cost of that.
(31:24)
Well, a couple things, firstly is written into their agreement is if they use more than a hundred dollars per quarter of utilities, they're paying the excess. So we sort of build in a little bit into the rent, but generally if they use more than that, we give them a notice and saying, we know and we've got aftermarket readers, so every room tells us how much power they're using. So we know very quickly if they've gone and bought a 2000 watt plugin heater to make up for that. But more importantly, the air conditioners themselves. The system that we use has a remote control that will turn the unit off every 45 minutes, 45 to two hours depending on how we programme it. And also built into the programming is a proxy. So when they turn it down to 16, it's operating at 21 degrees and when they turn it up to 20 eights operating at 25 degrees, that temperature is like someone can walk out of a hot day, walk in there and go, you know what?
(32:16)
It's pretty cool in here at 21. That helps. So everyone's got their own air conditioner. We don't put air conditioners in the main areas. We want people to stay to their own space. So the less mingling that happens, the better off we are in general. It'll never become a party house that way. We have two washing machines with one laundry tub generally that can be used by two people at the same time. We make that they've got their own pullout induction stoves inside, so fully furnished down to forks, knives, spoons, plates, there's two in every room. What that means is that they can cook in their own room. They've got full insurance for it. So insurance is about double of normal housing insurance for the investor. So the insurance is available, the house itself is set up in a way to give someone their own space.
(33:04)
Some of the features we like to include where possible is we have a sliding door in their room to a side courtyard or a rear courtyard. That little bit of open space gives them their own space. And again, no mingling. My project manager who looks after all our stuff moved up from Victoria and we put him into one of the co-living properties up here, and he lived there for 18 months and he said he had three conversations with people in that 18 months in the rest of the house. And generally it was like, you park me in a bit, can I get out? But everyone's respectful. Parking's a big thing that we should talk about. There is a minimum amount of parking that we're required to put into properties, and what we do is we put that in plus where possible we add more. You are always going to get spillover into the road, especially when you've got six rooms.
(33:49)
In saying that we pick properties particularly where we know that it's part of the development of an estate or where there's infill blocks, we're looking for a property that on the roadside has actual designated parking. So in a cul-de-sac, you are normally in some of the cul-de-sacs in Queensland. You go to the end and there's three parking spaces in the middle. So you go around those parking spaces where we can, we pick those up or we add them onto site so there's enough parking. Ultimately people just move in are happy and they just live their life in there. Speaker 3 (34:23):

And talk about cost versus return, mate. So what kind of cost do we see in a new building space to build something like this compared to a traditional home of a similar nature? Obviously you're making a few alterations and increases and transferring it across to one B and whatnot versus the return, let's call it. I think one of the challenges in Victoria in particular, which is where this is going to specialise in is rental yields are quite low compared to what people are paying for properties. The growth is high, capital growth is high, but the yield is low. So cost to build it as a guide obviously. Yeah, look, Speaker 4 (34:57):

I think you can say that there's packages that'll start mid sevens. Our sixes have disappeared very quickly, Victoria, you're looking mid sevens up from that and effectively expect out of that for a five or six bedroom model, a 10% gross return. If you look at it from the perspective of having to pay on an 80% interest only on 80%, you're looking at about 20 to 25 grand of cashflow after cost. So that's after paying your interest, after paying the rental agency, after paying insurances, any utilities that you need to pick up, we send in a housekeeper, so cleaner and a gardener, so cleaner every two weeks and a gardener depending on the season, every two weeks or four weeks, by the time you've got all of that dusted out of the way, there's 2025 grand sitting in your bank account. The kicker here is, and this is a double-edged sword, is that as part of a new build, depreciation has been funnelled towards investors building and buying new properties.
(35:59)
And the biggest scale of depreciation that you'll get is on your bathrooms and your kitchens. Well, if you build a six micro apartment co-living property, you've got seven kitchens and six bathrooms which depreciate like crazy and that depreciation helps you with your cashflow. So yeah, you might end up with positive cashflow and there's a lot of people like my dad who would say, I don't want to pay tax. Pay the tax because you're earning money. Then claim your depreciation on top of that and you're going to get all lots more back to you. The kick with depreciation. And so it's maybe a discussion for another day is that when you do sell, obviously depreciation comes back into the capital cost base and there's a little bit of that that needs to be paid back. Speaker 3 (36:41):

Awesome mate. And obviously those returns are not returns that we get on traditional property. I think most properties that we see now are sort of sitting 15 grand negatively geared as a guide. So that's a pretty big gap between Speaker 4 (36:52):

Huge Speaker 3 (36:53):

The outcome and Speaker 4 (36:54):

Add to that, that once you've got people moving in, you mentioned our stats, right? So we'll advertise in a new area, we like to advertise a room to see what sort of response we get. We advertise between Thursday night and Sunday night. For some reason between Monday morning and the Thursday morning, no one thinks about where they have to live in two weeks time. I dunno why, but that's just the way it goes. What Speaker 3 (37:17):

Are they doing on Saturday night? Maybe that's Speaker 4 (37:19):

The problem. I dunno. We put a test on Thursday through to Sunday. We are generally looking for about 350 clicks on that. If we get three 50 clicks, we're looking for 60 solid inquiries where they actually stay on the page for a little bit of time. And then from staying on the page, how many actual messages we'll get. We're looking somewhere between 12 to 22 messages. If we know that we're getting 12 to 22 messages for one room, we're going to be able to fill a house really quickly and we know the price point that they're willing to pay. So what we do is we start high, we don't get enough responses, we drop 10, we drop $20 the following it see till we hit the sweet spot, and then we can confidently go to an investor like you are doing and say, this is what we're going to be able to get in rent.
(38:07)
And the outcome is strong. And the thing about co-living is that in a strong market like we're in now, we've got a negative vacancy rate. So effectively we're trying to fill a room of five, we get 10 applications that's already for the next house that's coming on the market, we've now already banked another possible five. But out of those five, probably two because the other three will find somewhere else, we'll be able to go into the next property that comes onto the market. And that's in a strong market. We're strong in a good strong market, we're stronger when we have an economic crisis. When there's an economic crisis, we strengthen because the first place people stop spending is on going out and eating at restaurants and the second place they stop spending is accommodation. They go looking for something cheaper. And that's where we then ended up with this competitive market. And at the moment, even though we're not in that place, we're still getting a $12 per quarter increase generally across the board across Australia right now. And so not only are you 20, 25 grand positive cashflow a year later, you are likely to have more cash flow depending on interest rates because the room rates will be going up. Speaker 3 (39:16):

And it's interesting with interest rates, there's a lot of people saying that they're likely to come down at some point. Obviously we can't predict the future, but that's definitely appealing for people too. And I wanted to touch on, I think with every single potential investor that we speak with, and it's a lot, it's clarity creates confidence. It's when they have confidence because of the clarity that they know they're going to get a certain outcome or pretty close to a certain outcome, it makes it a lot easier for them to make a decision. So that's what we like about partnering with yourself as well because you can share that detail and say, Hey, here's what we're seeing and this is what it's going to lead towards. So Speaker 4 (39:50):

I mean, I learned very early on from one of my mentors confusion equals note. Once you give someone clarity and look, there's no doubt we still get clients asking very specific questions. What about the mail? Well, you've got a mailbox, but what if you've got to go to a room? We've got inside the property, it's the job Speaker 3 (40:07):

Room under the stairs. Speaker 4 (40:08):

That's another important point. As you walk in through the door, there's some pigeonholes for each room so that the mail gets put into those ones. We have within the house house rules and you have to follow those house rules and if you breach those house rules and then we've got the ability to enforce and eviction on not being compliant with because they've signed, making sure they've signed a lease based on the fact that they're going to adhere to these rules. If they don't, they play music after a certain time that's too loud and they get a warning and they do it again, well then this starts to continue down the line. We've also learned very strongly around where we build these houses to make sure that the outcome is right and that is we don't put TVs on an joining wall. It's always on external wall or one that doesn't join the one next door because obviously even though we soundproof, there's still a vibration of some sort that comes through there. We've learned over the last, we're talking 15 years now, that the way to put a house together, not only in its construction, but how the people live inside it and how they operate is all been joined into one and then the clarity comes and there's no confusion and then your investors can be confident about it. Speaker 3 (41:21):

Yeah, no, that's brilliant mate. Well, look, I just want to say thank you. I think what you've shared today is an exceptionally detailed amount of information that I would think will help a lot of people have more clarity around making decisions. And I think of everything that you've shared, the impact of being able to help not only investors and tenants, but also help a housing crisis that is pretty substantial at the moment and help people save money to be able to get into their own homes and to provide more houses for people down the track is probably the key thing from all of this. Speaker 4 (41:53):

The thing for me is that the investors that are working with you and are buying these, they can go to a barbecue and sit at the end of the table and say, you know what? I am a property investor and I think you might think that I'm actually destroying the market, but what I'm doing is actually helping the market and this is how I'm doing it. And they can confidently say without feeling bad about let's be serious, a mom and dad are only buying property for their future wealth. They're not doing it to try and destroy the marketplace or try and make it housing unaffordable. But at least if that's going to happen and you're doing it and you're helping the community at the same time and you're helping government at the same time and you're helping the people that are living in it at the same time, whilst at the same time getting some cashflow, you're doing good whilst you're making a profit. It's okay. It's something that you can be proud about. Speaker 3 (42:42):

Yeah, I couldn't agree more, and that's why I think this is the way forward. We need to do something and the government are trying and they've come out with different numbers on what they're going to do, but the reality is that they're not delivering on that. So I think the private community needs to contribute a lot more as well and do our bit. Speaker 4 (42:57):

Yeah, I've always said it's the private investor that destroyed the housing market. It's the private investor who can fix it as well. Speaker 3 (43:03):

Yeah. Well, I thank you very much, Ian. This is why you're the best in this space. I couldn't be more grateful, and I'm sure our listeners will be very grateful as well. Unless you've got anything to finish on. Speaker 4 (43:14):

No, you are in the right space helping your clients out. That's what I'm happy about watching you do that. Speaker 3 (43:19):

Yeah, thanks mate. That means a lot. I appreciate it. Yes. All right, we'll leave it there and talk to you soon. Thank you again. See you mate. Speaker 1 (43:28):

Thanks for listening to The Property Now podcast with Matt elo. We hope you learned something valuable and enjoyed the show. Should you wish to reach out to us, you can do so by calling 1 302 8 9 3 2 4. Or you welcome to email matt@hellobayfairproperty.com au and he'll be more than happy to help however he can. Have a great day.