How Destiny Financial Solutions was Started by an $18,000 Gamble and Propelled Margaret Lomas to Investing Stardom
Margaret Lomas is an icon in Australia’s property investing scene, widely recognised as one of Australia’s first property experts. After taking a huge risk and using the last $18,000 of her and her husband’s savings on a gamble, Destiny Financial Solutions was born 25 years ago and set Lomas on her journey.
Join us as we discuss her eight best-selling property books
which detail her winning strategies and key tips for investing. We’ll hear about her different roles as investor, expert and mentor, how she has managed to balance work with family life, and much more!Timestamps:
3.54 | Spotting spruikers
7.04 | The point of PIPA
10.38 | Building society lottery
12.34 | High school activism with consequences
16.50 | Desperate for work
21.58 | Spending money to make money
25.34 | Starting all over was a risky move
30.30 | Finding out what works and what doesn’t
34.11 | Second five years
38.47 | Duped
42.10 | Town plan changes again
6.38 | Valuable mentors don’t have to be in property
9.12 | Developments at Destiny
13.30 | Compromise
18.36 | 20 Questions
20.22 | Finding the right area is just as important as finding the right property
25.04 | Both feet in
28.52 | The development space
Resources and Links:
(26:24): We moved over to New South Wales and moved to the Central Coast in 1996 with $80,000 in the bank, five children under 10 and no jobs. So it was a bit of a risk at the time.
This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.
I’m Tyrone Shum and in this episode, we’re speaking with one of Australia’s most recognised and respected property investment experts, Margaret Lomas. We’ll hear about her hugely successful property career and how she and her husband risked it all in the beginning, using their last $18,000 to start her company Destiny Financial Solutions!
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With such an accomplished career in property and having achieved things one can only dream of, Lomas is currently involved in several aspects of the industry. As a property investment expert she is in high demand.
(00:20): I also host two TV shows, one called ‘Your Money, Your Call’ and one called ‘Property Success with Margaret Lomas’, both on the Sky News business channel. I've been the founder and director of Destiny Financial Solutions for 25 years now. I guess I'm pretty proud of the fact that I'm probably the longest surviving property investment expert in Australia. I've seen them come and go, but as far back as most people's memories go, I'd probably be amongst the first.
As well as being an expert, founder and TV presenter, Lomas is also the best selling author of 8 property investment books, which share some of the most sought after tips and tricks in the business.
(01:07): I wrote my first book in 2001 and it was at a time when nobody had really written a book that was useful for property investors. When I say that, I am aware that at that time Jan Somers had written a very good book called Real Estate Investing. But her position in writing that was from a position of a property investor, who really focused very much on the physicality of buying property.
(01:45): So her book was really centred around the notion that you would most likely find an area that you knew quite well, that was near where you lived, that you would then seek out a median priced property. Much of her advice centred around what that property needed to look like, how to get one that was tenant friendly and more about the asset itself.
(02:08): So up until that point in time, nobody had really written a book about property that took more of an economic view and considered all aspects of property investing, including the tax aspects and being able to identify the right places to buy. I guess you could say that my book was fairly groundbreaking in that regard. Although when I look back at that book now, to me it's notable by what it misses out on.
(02:41): I was a fairly novice investor really, when I wrote that I'd only bought seven properties, which today most of my clients have. To think that I could write a book back then was probably stretching it a little bit. But I wrote the book and people liked it. From there, I guess my own journey continued and I stayed for a long time one step ahead of the readers, but eventually got to the point where I did build my expertise and was able to write books that were far more useful than that first one.
Lomas made the decision a few years ago to publish her 8th book as a collation of the first three books. These books were part of her ‘how to’ series and each one built a little more on the one prior, with added knowledge and experience that Lomas had subsequently learnt.
(03:54): They made a really nice bigger book that had three components, a component for brand new beginners, a component for people who were already on the journey and then a component for people who were possibly even getting to the end of that property investment strategy and thinking about exiting. It's all in the one book. So it just means that you can buy that at any phase of your journey and get a fair amount of information out of it.
(04:21): That's great. A lot of people who I've had on the podcast have referenced your books as being the go-to Bible per se, for the property investing industry. So kudos to you. It's been a huge, huge resource for everyone to use.
(04:36): I think a lot of the difference there, is that when I first started writing I had a real genuine desire to share my knowledge, to tell all of those secrets that the spruikers were charging thousands of dollars for you to come and listen to, that weren't really secrets at all. I really wanted to educate people.
(04:57): These days if you think about it, a lot of people have the opportunity to self publish, to write ebooks and many of those books are really a business card for the person writing them or a way for them to sell a product. So I think it's very important for the listeners to understand that there are some good books out there that you can read. But there's also plenty of books that are really written as a promotional tool and you do have to be careful of those.
With Lomas taking on so many different roles as both an investor, expert and mentor, it’s no surprise that on any given day she is on the computer and doing a number of things.
(05:50): I either write scripts for upcoming episodes of the program, I answer the emails that come in to me because it's very important to me that people get answers directly from me. I also get a lot of questions through my Facebook page which I try to answer as well.
(06:11): I work on different ways to get information out there to property investors so that they can invest in property safely, but they're protected from the spruikers. Part of that is my work with the Property Investment Professionals of Australia [or PIPA] for short, which is a not for profit association that I was involved in from its inaugural year and was very instrumental in getting that up and off the ground and getting a course developed.
(06:39): The goal was and still is to make sure that consumers all over Australia, in the absence of regulation by the government, have some kind of protection against the people who are just trying to rip them off.
The Point of PIPA
Although PIPA has already made so many strides forward in the industry for Australian property investors, Lomas believes that they still have a long way to go. She is however comforted by the fact that if consumers are dealing with a PIPA member, at least they can be sure that the member has done a qualification.
(07:04): So the qualification is quite comprehensive and it does involve a fair amount of work and input by the advisors, who then gain a qualification known as a qualified property investment advisor.
(07:31): But even though I can't guarantee that every member of PIPA is going to operate honestly and effectively for you, because we do our best to search the backgrounds of the people applying for membership and we try to make sure that it's not that easy to become a member, we still do have members who may not perform the way we would like them to.
(07:57): We take complaints from the public about our members and we make sure that we deal with them. The ways we deal with them are that if we can substantiate that complaint, after a lengthy investigation, we will terminate that member and we will make sure that we put out a press release that we have terminated that member. That would then mean that that member hopefully either changes how they're operating, but doesn't have that opportunity anymore.
(08:27): So I guess the way we've been able to assist the industry is in at least providing a background to the kind of people that are members so that you know if you're going to get an advisor to help you with your property investing journey, that somebody is watching the shop and providing some standards and accreditation for members.
(08:51): The great thing about what you've done with the association putting into place practices that are able to help consumers not go down the wrong track and get taken advantage of.
(09:09): Yeah and look, I've seen some pretty awful things in my time. I've seen some shocking examples of people being ripped off and a lot of people just don't realise how ripped off they're getting. I mean, if you think about it, you've got people out there who are charging $15,000 to help buy a single property. You've got advisors out there who are saying that they're property investment advisors and what they really are, is middlemen for developers.
(09:39): The advice they give you is to buy their product. Now, what are the chances that someone like that just happens at that moment in time to have a property that matches your own personal needs, in addition to one that matches your personal financial circumstances, as well as being in a hot spot at that moment in time? The chances of that are very slim. Yet people every day are taken advantage by these spruikers who call themselves property investment advisors and all they are is a front for a selling operation.
Building Society Lottery
Growing up in what was known as ‘the sticks’ in Padstow of Southwestern Sydney, Lomas grew up around renovations and tradespeople her whole life. This would be her first introduction into the property world.
(10:38): My parents had saved up and purchased a block of land with the benefit of one of those building’s society lotteries, which back in the day meant that the building society would take all of the applications for finance and basically put them in a hat. Every month they would pick a couple.
(11:05): So they were lucky enough to win that lottery and be given the finance to buy that block of land while they were living with two children and living with my mother's parents. They built a little shed on the back, about the size of today's granny flat with three rooms, a little lounge room, a bedroom and a kitchen. They lived in that for another five years while Dad began the construction on the house.
(11:32): He was an electrician and at the time he had a lot of contacts amongst his mates. He knew plumbers, builders and a lot of tradespeople. So they all helped each other out at that time. He did the electrical work on someone's house who might have been a plumber, who could then do the plumbing work on his house. Eventually they built their three bedroom, one bathroom home that they moved into and I was born there and lived there my entire life. Right up until I was well moved out of home.
(12:03): Wow, that's a very interesting story. I love that, I didn't know about the lotto system back then, it obviously doesn't exist anymore.
(12:10): No, a long time ago now. I think it was during the 1950's.
High School Activism With Consequences
Lomas’s story becomes particularly interesting when recalling her experience at high school. This is where she would discover her passion for social justice and made her position on one issue quite known.
(12:34): I went to an all girls public school. At the time, our school didn't allow any of the girls to wear long pants in Winter and I thought that was unjust. It was a very long time ago when you wore hats and gloves, but dresses.
(13:03): I made the decision that, while some of the other schools in our area were getting up to date with the times and allowing their girls to wear long pants, that ours should as well. So I made that decision that I would start a campaign to try to get our school to change. Part of that campaign was me calling in the Sydney newspaper at that time, The Daily Mirror, to get a story on page four wearing trousers to school along with another girl and then encouraging the entire student body to strike over the issue.
(13:39): Now that didn't go down well with the principal who promptly decided that I needed to be expelled from the school, which I was. I was lucky at the time though because the principal of a nearby school who had formerly been the deputy principal to the principal who had expelled me and didn't like her, offered to take me into her school, which I did and moved schools.
(14:03): But after that point, I was very unsettled. Despite the fact that I'd done very well in primary school and in fact got dux at the school, I didn't do well at all in my high school certificate and I essentially failed that. Now, straight after school I became an exchange student for a year and I lived in Jakarta, Indonesia which was a great experience for me.
(14:26): It definitely changed a lot of my attitudes and I came back from overseas with two career paths in mind. The first one was that I was going to go back to school, redo my high school certificate and qualify for medical school. The second career path was that I was going to come back from overseas and enrol in the National Institute of Dramatic Art and become an actor.
(14:54): Oh great.
(14:55): Neither of them eventuated because instead, the day after I got back I met my husband, or the man who would become my husband. We quickly decided that we would get married and instead I needed to work. I got a job in a bank, which was the last thing I wanted to do because all of my friends from when I was at school had left school in year 10.
(15:21): Back in those days, most girls left school in year 10 and then went and worked for a bank. I didn't want to do that because I had chosen not to in year 10. Here I was three years later getting a job in a bank. But pretty quickly in that bank, I decided that I didn't want to work in the bank, but I wouldn't mind being in the training department of the bank.
(15:40): That was at the Bank of New South Wales which became Westpac. After a lot of harassing and hounding of everyone I could find in that bank, who kept telling me that I needed five years experience and that I needed to be 25 years of age, I finally broke everybody down and got moved to the training centre when I was just 21 after two years in the bank.
(16:01): That was really the beginning of a career for me because training and development became something that I went back to night school to learn. That was four years at night school, trudging up the hill after I worked three nights a week, to qualify with a diploma in human resource management, specialising in training and development. I went on to have my own training company, my early career was very much centred around the training area.
Desperate for Work
It was inevitable that Lomas would one day get involved in property investing, going down a few connected routes which would eventually lead her there, giving her quite the story to tell!
(16:50): A feature of my personality is that I am highly creative and I'm particularly good at being able to solve situations of either conflict or where things have gone bad for me. I'm very, very good at thinking of ways out of things and I'm always coming up with new ideas. It's a little bit annoying sometimes, I have thousands of new ideas every day and I always have my entire life. Some of them are good and some of them are just silly, but mostly they work out okay.
(17:21): I was married and had two children and I was working at the time. What had happened was after I left the bank to have my first child, I needed to work because we didn't have any money. I went and got a job in a pharmacy on the weekends. I've worked part time in a pharmacy since I was 14, so I was able to do that part time on the weekends. The owner at the time also owned a chain of video stores when videos had first come out. That chain was called Hollywood Boulevard.
(17:56): He found out about my training background and then sought me out to help him with some training of the managers. Every time he opened a new store he needed to train the managers, so he got me to design a training program for these managers, which I had the skills to do. From there I went on and started my own training company.
(18:15): Somewhere in all of that we moved to Perth for a lot of reasons. We couldn't afford property in Sydney at the time, feels just like it does now. But we just couldn't reach that property goal in Sydney and Perth was very cheap. I also had a brother who lived there and my ex husband could get work there, so we moved. When we first arrived, I did a whole lot of different things.
(18:40): I started a shop, opened a baby store, employed women to sew for me, I worked at the YMCA running baby massage and kindy gym classes. I did everything that you could imagine to get work, but still had my skills and experience in training and human resource management behind me.
(19:01): So eventually, I decided that I wanted to get back into that corporate world and I got a job for a community based service that was funded by the Department of Training and Development. My job there was to run a small project where I trained mentors who would go on to help unemployed people. I know this is sounding like a long story, but it's actually getting somewhere.
(19:24): No I love it, I'm really at the end of my seat. Actually, at what time was this roughly?
(19:32): This would be 1987–1988. I managed to get this job which was a full time position. It was a job that was funded every year by the Department of Training and Development, so you spent three months a year writing your tenders to try to get money for the following year. But in between time I was training mentors, running these training programmes and overseeing the relationship between the mentor and the job seeker.
(20:04): I was basically helping them by helping them to understand how to write resumes, how to go for jobs. I did interview training, I did all of those kinds of things which all came from my background in training and development. My time in the bank certainly gave me a lot of skills in training and I credit the fact that I can effectively public speak today to my timing banks training department because it was a very good training ground for me.
(20:32): So this was happening and I then separated from my husband, but I still kept that job. I was raising three children under five on my own for a couple of years. Along the way, I met my now husband, who was a police officer at the time, he'd helped me out with a few issues that I was having. We ended up together and married and had two more children.
(21:00): Now, it was around this time, so we're talking now around 1990, that again I was still the girl who did everything I could to try to get ahead. I was running a training company, then I'd started another training company in Perth. I was the person who wrote the first ever Train the Trainer course and had that nationally accredited. I was offering that course, I was tendering for courses through the government.
(21:28): I would run courses for Centrelink at the time, they'd be either job search courses, or personal development courses, a range of things. I was doing little bits and pieces of everything. Computers were very expensive at the time, they were about $5,000 and I remember saying to my husband at the time, 'If we buy a computer and a printer, I can add to our income by writing resumes and application letters for people at night'.
Spending Money to Make Money
(21:58): I convinced him that we needed to take out this finance plan and buy this computer, which we did. We bought the computer and I started to write these application letters. I advertised in the local paper and I got tonnes of people who really loved the letters that I wrote and I was helping people to get into work. I was doing all of this in my spare time, while I had five kids, a training business and anything else I could think of at the time.
(22:25): One night, one of the clients who I was helping get a job in the mining industry came to the house and he said, 'I have to leave early tonight because a financial advisor is coming to my house to tell me how to pay off my mortgage earlier'. Now I'm always interested in those sorts of things so I said, 'Oh, you need to tell him to ring me because I want to pay off my mortgage earlier as well'.
(22:46): The next day, I got a call from the fellow who proceeded to come around and see me and told me about a new system where you could get a line of credit, you could use a credit card and by putting all your expenses on the credit card and holding your money in your line of credit for a while, you could pay off your line of credit quicker and you'd be out of your loan in 15 years instead of 30 and you'd save $100,000 in interest.
(23:13): Now I liked the sound of that but I didn't like the sound of the $2,000 that I had to pay him to help me do it. So I said, 'Well I can do that on my own', which he proceeded to say, 'Oh, well yeah maybe'. He didn't seem to be able to offer me anything for the $2000 except the idea. So I offered to set all of this up for myself, but work for him part time and show other people this great new system.
(23:37): I knew that if I could help other people pay off their mortgage earlier, I could offer a bit of after sales service as well by helping them with their budgets and encouraging them and motivating them. So he said, 'Yep, that's a great idea' and I became a consultant for another company, basically just helping people to pay off their mortgages earlier. My husband was a police officer at the time, working for the Bureau of Criminal Intelligence.
(24:05): He had a lot of spare time on his hands because we lived in an area where there wasn't a lot of crime activity. It didn't take long for him, who had also been learning a little bit more about computer programming, to also work out that we could actually do a similar service, but offer it in a better way. We were consistently disappointed with the company that I was working for and their delivery of services.
(24:29): We thought they let people down a lot, so we decided that since we were doing all the work anyway that we should start our own company and we did. That's when Destiny began in 1994. It was basically conceived in a lounge room in Perth. What we did then was simply help people to pay off their mortgages earlier. We would go out at night to see clients and help them with their budgets and that's how we began.
Starting all Over was a Risky Move
This wild story continues as Lomas recalls their decision to relocate in order to build the business up. She and her husband just didn’t believe growth would be possible in remote Perth which held less opportunities to grow, as opposed to the East Coast. With her family on the East Coast, this seemed like the perfect place to begin again.
(25:34): Now bear in mind, at this point in time, that business was something we did on top of our own regular jobs. So my husband had a job in the police force and I had my training company, which was getting a fair amount of work. All of our friends thought that we were probably the most successful couple they knew, even though in light of how you think of successful couples today, we probably weren't that successful, but we looked it to everybody else.
(25:59): We just made the decision that we would throw in all of our jobs, sell everything we owned and move to the East Coast and start this business all over again on the East Coast. Noone could really understand why we would do that and looking back, I'm not sure why we did it either. What actually happened was, by the time we'd sold everything including our house, we had $80,000.
(26:24): When we moved over to New South Wales and moved to the Central Coast in 1996 with $80,000 in the bank, five children under 10 and no jobs. So it was a bit of a risk at the time, but we've always backed ourselves and we've always been confident that we can come up with some way to make money, so we did it. In the first six months it looked like we'd made a big mistake here.
(26:49): We managed to rent a house and we were going through our money fairly quickly at that point in time. But we were both out there pounding the pavement dropping off leaflets in the letterboxes offering people the chance to pay off their mortgages earlier and save a lot of money in interest. We knew that we could help people and we were getting the occasional client, but we weren't really getting enough to make a business.
(27:13): So the decision was made that one of us would probably have to go out and get work because we were down to $20,000 in the bank.
(27:21): Now, at that point in time, I can remember being out one day again pounding the pavement and I came home and my husband said, 'I've called the radio station because I heard a radio ad and on that radio ad they said that from $400 you could advertise and maybe we should get that a go'. So the guys from the radio came out the next day and listened to what we needed to happen and went away and came back two days later with a proposal for us for a radio campaign that was going to cost $18,000.
(27:50): Okay, this is exciting.
(27:53): We had $20,000 in the bank and that was the sum total of our entire assets, apart from some secondhand furniture that we had in the house. So we talked about it for 24 hours and then we decided to do two things. Firstly, we decided that we would go ahead with the campaign. Secondly we decided that since we promised the kids when we moved, that as we were going to be a bit closer to Movie World on the Gold Coast, we'd take them there, we thought we should spend the remaining $2,000 on a holiday to Movie World.
(28:30): This is insane.
(28:32): [If it all] didn't work out and we were flat broke, at least we would have the holiday to remember. So the fellows from the radio station prepared the campaign and it was going to be a four week campaign. They came out and they talked us through the fact that with radio, you need repetition, that we couldn't get stressed out if nothing happened in the first week or two.
(28:54): We were told that if there was something else we could do in that first week or two to take our minds off it that would be a good idea. So I said how about we go to Movie World, that's the perfect chance for us to do that. They said, 'That's a good idea. Go to Movie World'. So on the Monday morning of our first AD, which was due to go on just after the News at Nine, we packed the family up into Falcon and shoved everyone in the back.
(29:16): Just in case, we diverted the phones to the brick mobile that we owned at the time and we set off. Somewhere around Taree, nine o'clock came and we knew that the ad was going to go on. We couldn't hear it because we were out of radio range at that time. But three minutes past nine, my phone began to ring and I had all the kids in the car. So I'm turning around to the kids every time the phone rang saying, 'Everyone be quiet’, this includes the baby.
(29:48): I would then answer the phone and I'd say, 'Good morning. Welcome to Destiny. How may I help you?' For that entire trip to the Gold Coast the phone did not stop ringing. So by the time we got to the Gold Coast, we had our diaries fully booked for three months with appointments to hear about this great way to pay off your mortgage early and the rest is history. We began Destiny pretty much from there and didn't look back.
(30:15): Gosh, that was a very big risk that you took to spend the $18,000, but obviously it paid off.
(30:21): It did pay off.
Finding out What Works and What Doesn’t
In hindsight, Lomas considered this gamble to be very stupid. But, with lots of experience and training behind them, she and her husband believed themselves to be very employable if things didn’t work out.
(30:30): We both had skills and we did both feel that we wouldn't have that big of a problem getting a job and that we would be okay. When we first started the business, all we were really doing was helping our clients to pay off their mortgages earlier.
(30:54): But we were doing that for ourselves as well, so it wasn't long before we started looking around for ways to improve our wealth. We both liked the idea of property investing, but didn't have a clue how to invest in property. I read Jan Somers book and got a couple of ideas, then we went out and bought a couple of investment properties of our own.
(31:14): But fairly quickly, we were able to look back at those investment properties and work out what we did well and what we did badly. My husband had been reading a bit about positive cash flow investing and he'd been becoming interested in that concept. He worked out at the time that out of the three properties that we bought, one was positive cash flow and two weren't.
(31:38): We also worked out that with all of them, we hadn't really thought too much about where we were buying. We bought them off spruikers who sold the benefits of the property, but we didn't think too much about the area. So we started to work on, 'Okay, well how do we do this better?' There was no information out there available.
(31:57): But we started to think about better ways to invest in property and bought a couple more that were really good investments. Then our clients started to say, 'We want to do that too.' We'd talk about our investments and they started to need the guidance. So when we began really advising on property investing, we were really only six properties ahead of our clients at the time.
(32:21): But as I [published] the first book, more and more clients started to come and see us. The book was obviously a national publication, so we started to get inquiries from all over the country and that gave us the opportunity to start to open up in new places and open new branches. Pretty soon we had an office in most states and we were really flying along.
(32:41): That's exciting. So just to clarify, Destiny as the training company was also able to help fund a lot of your property investing so that you were able to grow and that's how you were able to to keep buying more properties so quickly?
(32:54): More or less, we bought a property upfront to live in, which had gained value fairly quickly. So it was really only the first investment property that we needed to bring cash in and every other property has been funded through equity. But having said that, the first couple of years of Destiny, we didn't make any money. All of the money we were making was going out to wages for the staff that we had. In fact, there were years there where we were using our personal line of credit to fund the operations of Destiny.
(33:29): So we weren't really getting very far ahead, even with those first six properties. Every step forward in equity we'd take, we would take steps backward in either using some of that line of credit to fund the business or to fund the next property purchase. So really for the first five years, if you had a look at our equity position, that didn't change much, we were getting a wider spread of assets. But we definitely weren't getting ahead in our net worth at that point in time.
Second Five Years
It took some time, but during the second five years of their property journey and with about seven or eight properties under their belt at this point, their portfolio was starting to pay them some passive income, allowing them to grow even further with the equity.
(34:11): You want the widest base that you can get, as long as it's a diversified base and situated in different areas. One area is going to grow and stabilise and grow and stabilise. You don't want all of your properties in that one area when it's stabilising because then you're not getting any equity in those years.
(34:38): So we were careful to buy those first seven or eight properties in different states. We had some in New South Wales, we had some in Perth, we had I think one in South Australia, we had some in Queensland and one in Darwin. They were growing at different rates, so every time one area was growing, we were able to pull that equity out.
(35:00): But after we had those seven or eight there, they were all going through periods of time where they were growing pretty well and creating more equity than we needed for that next purchase. So it's really that wider base that makes the difference to you. But now, I would say for any property investor, don't expect too much in that first five years. Unless your timing is exceptional with every purchase, which it isn't going to be, that second five years you should start to see something happen for you.
When an investor holds such a big property portfolio, it’s almost certain that they will have had some negative experiences in their past, Lomas was no different. Some of these hiccups did not work out so well and others, she managed to get out by the skin of her teeth.
(35:52): I guess the first bad investment that I made was my first one. That was because I bought it from a guy in a brown suit, who came into my house and told me about this wonderful area and all of the wonderful things he was going to bring to me.
(36:23): I did absolutely no due diligence in checking whether what he was telling me was even correct, or based on anything. We bought a two bedroom unit in Cairns at a time when there was a pipeline supply that you wouldn't believe. I didn't even think about the fact that Cairns was going to be an itinerant market, that meant that it could never have sustainable growth.
(36:48): So Cairns has what I call a sympathetic growth, where the sympathies of property investors tell the fortunes of how the growth occurs in Cairns. There's nothing else to create real growth in Cairns because it's 100% specifically tourism, or 80% tourism and 20% retirement mecca. So we don't have the big important things in that area that we need to grow property, which is infrastructure, employment and population growth in the family demographic.
(37:24): What we do see is plenty of renters who come there for work. We see people move in and out of Cairns very quickly because people think it's going to be a great place to live. Some people fall in love with it and other people find it oppressively hot and move back out again. So because we also don't have those underlying employment drivers, what we will see from Cairns will only ever be growth driven by the sentiment of investors who suddenly all flock there because it's cheap and you're getting a good cash flow and they'll push prices up for a while.
(37:57): That then affects the cash flow because the rents don't go up and then those same investors leave again and the properties go down. Properties in Cairns do go up and down. In the period of time that I've held my property, it's gone from the $160,000 that I paid for it, down to the $140,000 that it was probably really worth because I was ripped off by the spruiker, up to $225,000 – $230,000 at one point, valued by the bank, then back down. I think at the moment after 17 years, it's worth what I paid for it.
Another difficult investing moment for Lomas involved the changing of town plans when she purchased a property in Queensland. This unfortunately involved paying very high interest.
(38:47): We bought, I guess, emotionally a block of land in a little town called Agnes Water. To be fair to me, at the time I did speak with the council who told me that I could get three properties on that one block. So I had thought, if I build the three I can sell two for a profit, hopefully almost pay off my input and then have a rental or at least a rental with a low mortgage.
(39:20): It could be something that over time might be okay. I always knew Agnes Water was a speculative investment. But I thought I was really covering my bases by being able to put in place a strategy that allowed me to reduce my mortgage on that by building these three and then selling them. Not long after I settled on that property I contacted the council to find that the town plan had changed.
(39:44): The guy who told me I could do three knew the town plan was changing and that I'd be lucky to get two on it. Then after I did the feasibility on the two, just with the high construction costs in the area, it came out to be so much negative cash flow for me in terms of what I could get on rental, that it just wasn't worth having. Now unfortunately, because I do lead a busy life, one of my weaknesses is that I probably don't pay attention to some of those things as well as I could.
(40:13): We sat on that block of land for probably seven or eight years, paying the interest on that mortgage for all of that time before I finally took my own advice and decided to cut the losses on that. So we bought that property for $330,000 and we sold it, we were fortunate to get $290,000 for it. I say fortunate because at one stage there it was probably worth in the low $200,000's. We had paid all of that interest along the way, so that was a very costly lesson for me and a lot of money lost on that particular deal.
(40:53): I guess it's the opportunity cost. Building a business was your focus and if you had spent your time trying to sell this property you may have lost a lot of other great opportunities.
(41:05): Look, I've tried to make myself feel better by saying that. But the realities are that I should have paid attention, I should have just sold it straight away. I should have recognised the moment I knew that I couldn't build even the two on it and make a profit.
(41:18): I should have sold it and taken the loss then because I probably would have taken a $100,000 loss at that point in time. But I'm pretty sure that I've lost more than that with the interest of the loan over all that time. So I should have done that and that's definitely the advice that I give to other people who find themselves with the lemon where, looking ahead, you can't see any other option.
(41:39): I know that I did what I tell other people not to do, which is that I kept thinking it was going to get better, I kept thinking I had to hang on to make up for the loss that I'd already made. I should never have done that. I should have cut my losses as soon as I knew that I had them.
Coming up after the break, we hear about how Lomas struggled to take risks in her property journey with five children to look after. She says that this influenced her decision making immensely.
(00:55): But right back there in the beginning, I would get really quite ill in the stomach when even thinking about buying a property. Those first couple of properties were very, very difficult to buy.
We learn about how Destiny Financial Solutions has had to adapt during the digital era, whilst continuing to be competitive in the industry.
(11:35): We did a lot of that kind of stuff, but we found that what was happening was that more and more people were sort of saying, 'Well, I can't commit to coming in every month, I can't come to those things'.
How she developed the 20 questions from her book ‘20 Must Ask Questions For Every Property Investor’...
(24:12): The questions you have to ask are about choosing the right property in that area. So they encompass all of the things like how to find the employment data, how to read the employment data, what kind of infrastructure you need, what the demographics need to look like. This includes things like median household incomes and what you're looking for in those trends.
And that’s up next. I’m Tyrone Shum and you’re listening to Property Investory.
Town Plan Changes Again...
On the upside, Lomas’ experience in the industry has paid off along her journey, which has seen her pulling moves that nobody had ever seen or thought of at the time. By following her gut instinct and trusting her research, she was able to prove all of the naysayers wrong.
(42:10): We bought a unit in Darwin and while Darwin isn't doing as well now as it has done, for me it's still doing very well. I purchased a unit in Darwin because I could just see what was coming there. With mining, with improved interest and with affordability. We only paid $120,000 for that unit.
(42:36): Now, I could probably only sell it today for maybe $350,000, but that's still a pretty good result. At one stage, it was definitely worth well over $400,000, but I also get a really good rent on that. So my rental return on that is sitting at about 14% and that's without any of the tax breaks that I'm getting as well. So I'm getting a really good wrench on my initial purchase price and when I bought [a property] there everyone just said to me, 'Why on God's green earth would you buy in Darwin?' I just felt and knew from my research that something was coming to Darwin and I was correct.
(43:12): I did the same thing in Perth, I bought a property in Perth on a very big block at the beginning of two cul de sacs, so it's got three street frontages, with a house that was built to one side, or closer to the front of the block. I paid $125,000 for that. I was able to put a fence down the back and build a second dwelling. At the time I couldn't subdivide and although I could today, the town plan has changed because it is a 1000 square metre block.
(43:38): But I was able to build a second dwelling and construction costs were low at the time, so I paid $120,000 for a second dwelling and that faces the other street so it has its own entrance. They'd probably be worth $300,000 each today and I'm getting $400 a week on each of them. So $240,000 buy in price for an over $600,000 probably $650,000 equity position today, with $800 a week rent isn't a bad one.
Although there hasn’t been one distinctive moment in Lomas’ journey that she recognises as a time where it all clicked, she has definitely had experiences that changed the way she invested in the future and that solidified her strategy moving forward.
(44:35): I think I've worked out that developments can be good or bad. I've got one going at the moment that isn't necessarily going to turn out the way I would like it. It's a development site that I bought, where I wasn't quick enough to develop it. The four that I thought I could build is now three because of a change to the town plan.
(45:01): Again, that's probably not going to be a viable investment. I have another where I bought a house with a big block of land that nobody knew whether it could be subdivided or not. But I in the end got it subdivided by getting an out of policy decision by the council. That's made a lot of money for me. It was $400,000 for the original house.
(45:26): After we chopped off the block, the original house was valued at $550,000, even when it lost the back block it's now worth nearly $800,000 today. We've only had it for four years and we built a second dwelling at the back. We paid $450,000 to build that dwelling and it's valued at $1.2 million on a free block of land. So I've worked out that two things can happen.
(45:51): If you're careful about the development sites that you buy, you can make money from them in a way where you don't have to necessarily purchase an entire second dwelling. But you can get that second rolling because you can get some free land. I've also worked out that a town plan isn't necessarily 100% set in concrete. If you can put up a good enough case to a council and hound them enough you can often get things approved that are technically outside the development plan for the area.
When Lomas and her husband began their property investing journey they were a young family with 5 children, which comes with a lot of expenses and responsibilities. Their financial position meant that they could not afford to take risks at that point in time and so this was a factor that initially held them back in their investing to begin with.
(00:19): Even today, I will take more risks and I guess your ability to manage risk is intrinsically linked to your financial position as well. If it was just my husband and I alone with no family relying on us, I think we probably would have been able to take bigger risks.
(00:55): But right back there in the beginning, I would get really quite ill in the stomach when even thinking about buying a property. Those first couple of properties were very, very difficult to buy. When you're first starting out, it does feel like it's a completely unknown territory and it's a big investment to be making. So I was pretty risk averse and it's fair to say that my husband was as well.
(01:24): But on the other side of that, we did have the absolute desire to be able to get ahead financially. I'm not talking about becoming wealthy, neither my husband nor I have the need to have a lot of money, we don't have stuff. A lot of people who become financially secure, suddenly get a boat, the flash car and all the trappings. We're not like that, we don't have an interest in those kinds of things at all.
(01:55): We like our lifestyle and we do live in a really lovely place near the beach, we're fortunate in that regard. But for us, the simple things mean more than anything else. Just knowing that we've got enough money behind us now where we're at, no matter what happens from here, to not have to get a pension and to be able to still have our holiday every year that we like to have and help out the kids from time to time.
(02:21): So we don't have that big lifestyle where we need to be going on yachts and splashing around money. But we've always had a fierce desire to be independent financially. So when you're faced with the fact that on one side of the coin, you must become financially secure and on the other side, you have an aversion to risk, there's a disconnect between those two sides that you've got to work out.
(02:51): The way we worked that out is we sat down together and we talked about what each of us was prepared to do in terms of taking risk and where each of us needed to stop, so that we could minimise the risk as well. In doing that, we worked out that there were certain kinds of property that we would buy and certain kinds that we wouldn't buy. The choice was to buy just standard residential property in areas that we knew would always be able to get a tenant of some kind, even if we had to drop the rent a little bit.
(03:29): In making that decision, we also knew that what we were foregoing was the opportunity to maybe make a lot of money in a short period of time by being a bit more speculative and doing more speculative investments. So I think one of the things that you can't do is, if you're like we were, which is needing to get financially secure but not wanting to take big risks, you also have to accept that what you're going to see in the future is plenty of things that did better than what you did or than what you invested.
(04:03): You can't sit there and think, 'Oh damn, I should have bought that instead'. Your risk profile at the time dictates the steps that you're prepared to take and you've got to be able to look back on that and say, 'What I did then was appropriate for me at the time'.
(04:20): That's really, really good because it's true that a lot of people like to look back in hindsight and say, 'Gosh, the Sydney boom has gone so well. I wish I bought this, this and this’.
(04:28): Exactly. You know, I didn't buy a lot in the Sydney boom. I am fortunate that I did buy two. I would never have bought two in the Sydney market in the early part of my investing. They were way into my investing. Now I can look back now and think, 'Well I advised everybody to buy in Blacktown because Blacktown led that boom. I told everyone to buy in Seven Hills. I told everyone to buy in all those places and I didn't buy there myself. People would think that's the definition of stupid.
(05:01): I was going to say why didn’t you?
(05:01): At the time, with the number of properties that I already had in my portfolio, I had used up all of my appetite for risk at that point in time. I just didn't want to further leverage myself, I had a certain amount of equity that was my comfort zone. So for my husband and I, our comfort level of equity was that we owned 40%. We'd agreed on that at the outset.
(05:25): Now to buy into that Sydney boom, we would have had to compromise that 40% equity that we'd worked so hard to get to. Initially, we were at 20%, when we did the first lot of investing. We worked really hard through debt reduction and through doing everything we could to reach that 40% level. To buy into Sydney before the boom, we would have had to compromise that and that would have been an uncomfortable position for both of us to be in.
(05:51): What would have happened if that hadn't turned out for us. So it's very important that you're aware of these things and that you understand that, you might not always buy into the very best thing. It might not be appropriate for you at the time. But as long as you identify and understand your own risk appetite, while still pushing yourself within those parameters, then eventually you'll end up with a portfolio that does pretty well for you.
Valuable Mentors Don’t Have to be in Property
In an industry where the support and guidance of a mentor can really make a difference in your investing success, at least early on, Lomas reveals that it was very difficult to find this person, as her and husband were extremely busy from the get go and were always so far ahead of themselves.
(06:48): One of my mentors, I guess, is Noel Whittaker. He's been a great friend of mine for quite a long time now. For the listeners who haven't heard of Noel, all you need to do is look him up just to see what a fabulous background he has. He's probably the most well known financial advisor in Australia, who wrote a book called Making Money Made Simple, many years ago.
(07:18): It was actually voted one of the top 100 most influential books of the 20th century. He's done some fabulous things and he's always been a little bit of a mentor to me. He doesn't invest in property and we have wonderful debates about that because he hates property and says it's lousy. I can always win a debate with him on property and I have a lot of respect for Noel and a bedroom in his house as well. It's on the side, which is great when I go and visit them.
(07:49): He has the most wonderful and lovely family and I must say that, while Noel might not be there mentoring me all the time as such, anytime I spend with Noel always gives me that real boost of motivation that makes me realise why I'm doing all of this. It helps me to understand my own family values and it really gives me a good outlook on life. Apart from that, it's been very hard to get mentors because I guess Ruben and I have always been, as I said, way ahead of ourselves and always jumping ahead.
(08:21): It is difficult to find a mentor under those circumstances, especially when you don't have a lot of time. So we do spend a fair amount of time bouncing off each other. Ruben runs Destiny, so he's the managing director of Destiny. While most people like to think that it's me, I definitely don't wear the pants in that business. I am the face and I am the property expert and Ruben would definitely accede to that.
(08:47): But in terms of running the company, he's the one who's always done that. He's the guy who has a lot of good ideas on how the business should be run and structured. In fact, we're just headed into an exciting new phase of Destiny, which is completely the result of Ruben's pushing and my reluctance, but I've come along for the journey. Now I'm glad that I have because everything's started to really ramp up there and work out really well.
Developments at Destiny
(09:12): Are you able to share a little bit more about that? What's happening at Destiny?
(09:15): Definitely. Against the backdrop of the fact that, if you think about it, Destiny really was that first company to ever offer property advice in a financial advising model. So prior to Destiny, if someone was a property company, they were a property seller really. So they'd be a marketing agent for a developer or some kind of property seller.
(09:44): We made the decision very early on that what we wanted to do was we wanted to advise people on how to buy property, using both an economic and a financial planning approach. So in other words, take the focus away from the physical asset of a property and put it onto the economics of why you should buy and where you should buy. We wanted to provide that and we were the first people to provide that, as opposed to providing that approach where you looked at the property itself.
(10:14): So we were the first people to begin doing that and we always promised ourselves and guaranteed our clients that we would never be on the other side and never sell property. If you think about it, somebody who advises on how you should buy property and what you should buy and then sells it to you, is a major conflict of interest. So we always reached down one side and that would be the side of the client and we've always done that.
(10:40): For many, many years, we were the only people who did that. But now it seems like every man and his dog has copied that. Everybody's doing education, everybody's doing support and everybody's charging way more than we charge at Destiny but still doing it. Now, there's a lot of additional costs in a business maintaining premises all around the place.
(11:10): We found there became a bit of a declining demand for our services as people became more busy. Our services were very much tailored around inviting people to come to our office and meet with our advisors, come to all of our events. We would run what we call property action teams that people could join and work within a community of like minded people to achieve their own goals, while helping other people to achieve their goals.
(11:35): We did a lot of that kind of stuff, but we found that what was happening was that more and more people were sort of saying, 'Well, I can't commit to coming in every month, I can't come to those things'. The second thing that was happening is that as we got bigger, I was losing a lot of that personal involvement in our clients because I just couldn't get around [to it all].
(12:04): My husband started to look at it all. He is a software programmer by nature, and loves technology. I do too, I might add. But he started to think about ways that we could bring our services just as effectively into people's homes, but not have them have to make that big commitment to go out on a Wednesday night after work or to actually go somewhere.
(12:31): We've developed the new digital services and I must say, they're just turning out fabulously well. So if someone comes to Destiny now, the first thing they do is go to our website and they get to actually view a presentation that I put together. I'm lucky to own a TV studio so I can create some really good quality videos. I put together a proposal about our services, that even include the full disclosure on what we charge, which is very cheap, I might add.
(12:58): So people can go look at that and from there, decide without feeling threatened, if we're right for them or not. So decide without having someone in the room with them pressuring them to sign up. 'Yes, that sounds good to me', or 'No, I don't want to have anything to do with that'. Therefore they can go ahead from there. Once they've done that, what happens is they get a whole range of things. They get all of their meetings done via a fabulous web meeting tool that we've developed, that after the first two minutes, you feel like you're in the room with that other person.
(13:30): So people say 'Well, I like face to face', it is face to face, you're just face to face over a computer. We can do screen sharing, we can do all sorts of things. The second thing that they get, is every month I now run a webcast purely for our clients. Every month it's something different. So in the first month we do a guest speaker, we've had some fabulous guest speakers. We've just done one on small developments actually, which was great.
(13:54): The next month we do a town spotlight, where I'm telling my clients where they should be looking, long before I release [that knowledge] to the general public and giving a good rundown on a couple of new areas. Then on the third one, we do my quarterly economic update and property market update. They happen every month. The third thing that they get is they're involved in my cloud rooms, where I run small groups of under 10.
(14:23): We all join in a room on the cloud, with me leading that group and they meet every month and work together to achieve all their property goals. So they share information, ideas, research and basically when you're working with nine other people, you're far more efficient at what you're doing. You're supported and you're motivated because other people are also buying and it's a great environment.
(14:48): All of our clients get the opportunity to be involved in those cloudrooms with me as the person running them. Then the second last thing is Destiny chatter which is almost like a Facebook iteration. All clients get to come on and ask questions and I come on to that all the time. We solve problems and we get everything that you can imagine happening in that.
(15:24): At the moment, for example, someone has a strata issue, someone else has a property manager issue and all the other clients are jumping in and helping each other out. It's like a forum and it's really good. The last thing, of course, is Destiny live, which is a fabulous property tracking and analysis tool. It not only helps you to assess properties that you’re going to buy, but it completely tracks all your personal and property financials.
(15:48): It produces and creates tax schedules at the end of the year, to save you money with your accountant. It's got an advisor section where we can log in and look at all your stuff and communicate with you via that advisor section and really keep on top of your financial circumstances to guide you. So I know that's been a little bit of a long description, but it's a very exciting way for us to operate. It's brought me back to my clients and it's enabled me to share all of my expertise much more openly and widely. Our clients so far are really loving it.
Although the philosophy behind Lomas’ investing strategy is fairly simple, she explains the nuts and bolts of her approach, with a focus on future growth.
(18:36): While I believe in buy and hold, I don't mean buy and hold throughout a lemon property. So it's buy and hold, but divest bad assets as soon as you can recognise them, which I obviously learnt from my experience with that block of land. So it is a buy and hold strategy, but also it is a strategy of understanding that the debate about whether you should buy a cash flow property or a growth property is really a moot one.
(19:05): Everybody should want to buy a property that delivers the best cash flow for the best growth that they can get. So when we're asking the 20 questions that I developed for every property investor, we're asking them to firstly identify an area that is going to grow in the future at some point in time and preferably in the shorter term. But if the medium happens in the medium term, then that's acceptable as well.
(19:31): So we're identifying an area that's going to grow, not one that's already grown, or one that's in the middle of its boom, but one that can grow in the future. We're also identifying one that provides a cash flow that allows you to stay in the market until you get to that growth, just in case that growth doesn't come as soon as you would like.
(19:52): So I really want people to understand that nobody can tell you when a property is going to grow. But with the right kind of research you can identify if a property is likely to grow and reduce the incidence of you buying a lemon.
With the knowledge that not all properties are suited to everyone, in terms of what your specific strategy is, Lomas explains what your research should include and the steps that you should follow when starting the process.
Finding the Right Area is Just as Important as Finding the Right Property
(20:22): The first thing is that finding a property is the last thing you do. It's finding an area that you do first and a lot of people ignore that. So what often happens is, somebody sees a property that they think might be a good investment, they go back and do the research on the area and it stacks up okay, so they buy the property. What they don't realise is that there could have been a better area somewhere else with almost the same property in it, that would have been a better investment at the time.
(20:50): So starting with a property is a backwards way to begin, you've got to start with an area first. Identify the area that is going to take off next. Now, it's all very well to read the magazines, but if you do that, you're probably just going to be buying where everybody else is buying. I like to use some expert hotspots as a guide for maybe a generalised area where I might start looking, but wave out from that and try to identify areas that haven't yet taken off that might be on the periphery of those hotspots.
(21:24): For our listeners who may not know, define what an area is from your perspective?
(21:31): So an area is a suburb or a town. From time to time, a town in a regional area might be a suitable investment and there has certainly been times in the past. I think we're just about to see some more times over the next year or two, where an investment in a regional area could be a good investment to make. But essentially an area, I define an area really by local government area.
(22:00): So when I look at the local government area, I try to then have a look at what suburbs are there and then assess which one out of all of those suburbs is the most likely to grow next. Usually, when you identify a local government area, you'll find that there's some suburbs in that area that have already taken off. You can tell that by having a look at the days on market and comparing the trends over that and see which ones are selling more quickly than others.
(22:30): But usually, if a suburb is in a local government area, it's going to be the recipient of whatever infrastructure development happens there. It's also going to be an area that will take off once the more favoured areas become overpriced. We often see in a local government area the favoured areas and some people want to invest in those favoured areas.
(22:55): But I never want to invest in the favoured ones, I might not want to invest in the dodgiest area in that local government area. But I usually like to invest in the less favourable ones because I know that once the favoured areas get up there and start to become really pricey, people will start to wave out a little bit and they'll be prepared to take properties in the outlying areas and they'll then begin to grow.
One of Lomas’ books is all about the importance of asking the right questions before purchasing a property. The 20 questions that she includes identify the exact research that you need to do, with the first 11 questions covering the area and the remaining questions covering property selection.
(24:12): The questions you have to ask are about choosing the right property in that area. So they encompass all of the things like how to find the employment data, how to read the employment data, what kind of infrastructure you need, what the demographics need to look like. This includes things like median household incomes and what you're looking for in those trends. The questions identify the trends that you're seeking, and really help you to focus on that research in a really targeted way, so that you don't miss any of the important steps.
Both Feet in
Lomas’ initial fear of investing and aversion to taking risks was not only overcome by the change in her financial circumstances, but also through the advice of a loved one. It was this advice that removed her fear of the future and with that came the confidence to invest freely.
(25:04): I suppose many, many years ago, my father always encouraged me to believe in myself. When the chips are down, when things are looking shaky and when I'm not sure whether or not I can do this thing, whatever the thing is I'm doing at the time, I always think about the fact that in the past, I've always made things work.
(25:36): If things don't work, then I've found a way to come around from that and move on. When one window closes, a door always opens somewhere else, even if it's a long time between the window closing and the door opening. So by believing in yourself, you know that you're going to handle whatever comes.
(25:58): It's the fear of what might happen that holds many people back. I've always got an attitude that it doesn't matter what happens in the future, I want to be able to deal with it in some way. As long as it doesn't kill me, then I'll be able to deal with it in some way. Just having that belief that you can deal with whatever comes your way, gives you a little bit more courage to take on whatever you're headed for.
Another personal habit that Lomas adopted from her father was a good work ethic, which she then instilled in her children. Lomas has credited this work ethic for her many successes.
(26:39): So one of the things that I can always recall my father doing is getting up every single morning and going to work and coming home every single night at dinner time. Now, he didn't work weekends and he didn't work nights and I am the same.
(26:59): Although I am doing the occasional night for our cloud rooms, apart from that, I've got not only a good work ethic, but I've got a good balance of work as well. Family time is important. So for me, that work ethic has gotten me through all the jobs I've ever had to do, just by knowing that I've got to get up in the morning and I've got to go. I don't take sick days mainly because I don't get sick.
(27:26): But I think I don't get sick because I've got a good work ethic, so my brain doesn't let me get sick. I think just having that good work ethic then applies across all facets of your life. If you have a good work ethic, then that ethic carries through to any activity that you're undertaking, or any job that you've got. It carries through into your family as well.
There’s no looking back for Lomas, as she expresses her excitement for the future. She once feared approaching 60, but now she is enjoying the full workload.
(27:53): I would say that life is going to get a lot better because 10 years ago I had a lot of things going on in my personal life. So I would say, 'Hang in there', which is what I did because things are going to get even more wonderful. My children are all grown up and they've left home now and many parents hate that time. It's a wonderful time for me.
(28:19): A, I like having my own personal space back again, which I haven't had for a very long time. B, I love the relationship that I have with my adult children and their families. It's a very exciting time.
The Development Space
In the near future Lomas will be dedicating more time to her development projects, having bought the most recent 7 or 8 properties on the basis that they have development potential.
(28:52): So I bought properties that were good enough investments on their own, even if I did nothing else with them except just rent out the house, but also had the opportunity to develop them in the future.
(29:14): Now I've just come through doing two of them [down in South Australia]. I've taken two duplexes, so that's four separate rentals altogether, but it was two and two and I've demolished them and turned them into four and four. I've just taken two old duplexes and turned each lot of duplexes into four new units and that was actually quite exciting doing that. There's a lot more of that now that I really want to do.
(29:41): I've gained a lot of confidence through doing that. I've decided to write a book along with Peter Koulizos about doing the property development journey because nobody's written one yet and it needs to be written. So that'll be great guidance for people who want to do small property developments. But I've got plenty more sites now that I can look at with the development eye and that's what I want to be doing for the next 10 years.
Thank you to Margaret Lomas, our guest on this episode of Property Investory.