In this episode Thornley shares his roots that allowed him to grow into the benevolent leader he is, starting with his humble childhood. We learn how he leapfrogged from one place to another, gaining new skills and unearthing new talents along the way. Taking listeners on a journey from Gosford to Melbourne and Kuala Lumpur to New York and beyond, Thornley reveals the steps he took— and is still taking— to revolutionise the Australian property market, one landlord and one renter at a time.

Timestamps:
00:35 | A Slight Overcorrection
11:06 | The Melbourne Muso That Never Was
16:35 | Making It At McKinsey
01:12 | An Overview of LongView
19:34 | Putting an End to the Nonsense
23:34 | Fragmentation and Aggregation
27:14 | ‘This is Going to Change the World’
30:05 | Making a Quick $10 Million
33:46 | From Gosford to Google’s Garage

 |

01:04 | Politics and Parenthood
04:27 | The Buyer’s Advisor Advocate
10:36 | Hang On a Minute…
15:25 | Land Appreciates, Buildings Depreciate
24:18 | Teamwork Makes the Dream Work
28:03 | The LongView Conversation
36:57 | Giving Credit Where Credit is Due
40:45 | It All Boils Down to This

Resources and Links:

[00:33:25] And then two years later, we went public at $1.2US billion and went up to $14AUD billion by March of 2000. So I'm a kid who grew up on welfare, in a single-parent family in Gosford, and ended up a billionaire at the age of 36. And it was all a bit of a shock.

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 Evan Thornley, tech entrepreneur and Executive Chair at LongView. He takes us on a journey through his earlier years, which led him to jet off to Silicon Valley where his $14.2B story truly began. His rags to riches tale is nothing short of inspiring, proving that no matter where you come from, learning is a lifelong adventure.

Tyrone Shum:
Thornley may be an extremely successful billionaire who has rubbed shoulders with the tech industry elite, but he’s never forgotten his roots. He remains as down-to-Earth as he was growing up in a single-parent household in Gosford, where his upbringing combined with his intelligence motivated him to form a new style of property advisory called LongView. 

Evan Thornley:   

[00:00:35] The truth is, I'm working here 80 hours a week, so I guess others might think I'm the CEO, but officially I'm the executive chair at LongView. We're a very new style property business. We've gone from 40 to about 130 people in the last year or so, so things are moving quickly. I'll talk about that in a minute. But I didn't start here. I'm not a property native. I'm a Silicon Valley native actually.

  

[00:08:42] I grew up in Gosford, New South Wales, just north of Sydney. I ended up in a single parent family on welfare, before it was popular. So in the early 1970s, Gosford was sort of the unemployment and sole parent capital of the nation, it was not a very happy place to grow up. 

  

[00:09:05] And my mum had four kids on her own and there wasn't even a sole parents welfare in those days, the only thing you could do is get what was called the widow's pension. 

  

[00:09:23] Mum had four kids under the age of seven at the age of 27 on her own on the widow's pension. It was pretty tough for her. And that was where I came from. And then I kind of overcorrected a little from there.

Tyrone Shum:   

Thornely attributes part of his leadership abilities to his childhood, where he gained confidence as the second of four children in an unconventional family. 

Evan Thornley:   

[00:09:56] Well, to be honest, Mum struggled a bit for a range of reasons and so we were a little bit free range. We kind of had to bring ourselves up. So it was tough. But I guess I'm grateful for that now, because I've become an entrepreneur and really a serial entrepreneur, this is my 14th startup. 

  

[00:210:15] Probably because of that. Probably because as a kid growing up, if I wanted something, I kind of had to find a way of getting it myself. And that helped make you creative and resourceful. And then over time, gave me confidence to take risks, because you didn't have any choice to take risks when you were younger. 

 

[00:10:29] But when you did, and you learnt how to do it, and you got out of it okay, then it gave me more confidence later in life that perhaps people from more secure backgrounds wouldn't naturally have. So all these things can be a positive if you use them the right way.

Tyrone Shum:   

Long before his 14 startups, Thornley attended his local high school in Gosford on the New South Wales Central Coast. While he didn’t quite fit the mould that his peers did, he found an outlet that suited him well.

Evan Thornley:   

[00:11:06] I just went to the local public school and then the local high school. And I didn't really fit in, if I'm honest. Because Gosford, Central Coast, New South Wales is really a surf culture. And we didn't live close enough to the beach, and Mum wasn't taking me down the beach, so I didn't surf. Not that I didn't want to, but I didn't. 

  

[00:11:26] So I was a kind of nerdy kid sitting at the front of the class, not surfing. So I was a bit of a misfit and, and my thing was really music. So I played drums and that was really the kind of my ticket out.  

 

[00:11:40] When I was 15, I got the chance to move to Melbourne. My dad was living in Melbourne at that stage, and so I moved to Melbourne to play music, basically. 

  

[00:11:52] But then, just through a whole range of sort of bizarre circumstances, good luck, and kindness, I ended up getting a scholarship to Scotch College in Melbourne for my last two years of high school. And they were very generous. And so that set me on a different path. 

  

[00:12:22] And when my band broke up, just before the end of high school, I couldn't pursue my music career in the short term so I took up the option I had to go to law school at Melbourne University and ended up in the big end of town for a while.

Tyrone Shum:   

Although he was passionate about his band and their music, their breakup ultimately changed the course of his life which took him to Melbourne University and catapulted him towards his success. 

Evan Thornley:   

[00:12:58] Melbourne Uni law school then— it may still be now, I don't know— but at that stage was the hardest course to get into in Australia. You had to sweat it pretty hard to get in that door. So it's probably lucky that band broke up.

  

[00:13:24] I'd started a business while I was in law school. [In] my last two years of law school I built a business up on campus and had about 10 people working for me, setting up a chain of computer stores on campus and setting up a national brokerage for student newspaper advertising and a whole bunch other things, which I set up in my spare time while I was going through law school. 

 

[00:13:46] So I got to the end, and I was offered my articles as you have in law, you go to a law firm, but I actually realised that business was my real passion. And so I was lucky enough to— nine interviews later— got a job at McKinsey and Company, the management consulting firm. 

  

[00:14:03] And so I ended up going into management consulting. And that was an amazing finishing school, you learn so much about business with incredibly smart people across a range of industries. So I've made a lot of good friends and it was just a wonderful training ground. 

  

[00:14:17] I was at McKinsey for four and a half years and ended up then going to Kuala Lumpur and New York with McKinsey. And got a real business education real fast with an amazing firm. So that was great.

Tyrone Shum:  

Having his education paid for and setting foot in some of the world’s biggest cities was just the beginning. From there, he took his business education and set his sights on a different venture.

Evan Thornley:   

[00:14:54] My passion was media, and I was trying to get into the media practice in New York and it took me four years to convince the firm to send me over there. So I mainly worked in oil and gas, actually. I still know a little bit about offshore oil and gas and which acreage is prospective and various engineering platforms you need to do it and stuff like that. It's funny how you retain useless information. But yes, I learnt a lot about offshore oil and gas. 

 

[00:14:55] When I was in university, I was president of the student body and I was quite active in student politics on the progressive side. So I thought McKinsey probably wanted to check that I was willing to sort of be part of transnational capitalism. 

  

[00:15:36] So my first study when I started was actually with a private South African owned tobacco company. I think they were testing me out, which was Rothmans. So my first study at McKinsey was looking at the vending machine business in Rothmans, which actually was fascinating. 

Tyrone Shum:   

To give some context and background to his career, he explains what he did as a management consultant.

Evan Thornley:   

[00:16:35] McKinsey is sort of a very particular type of... sort of [an] elite consulting firm. I mean, we basically work for the chairs of the board and the CEOs of large public companies, helping them solve some of their biggest challenges as businesses when it helps to have some outside expertise and fresh ideas brought in at a senior level in a big company. You can't always get that up coming through. 

 

[00:17:08] All of our work was confidential to our clients, but I think it's now 30 years ago, so I can probably [talk about it]. I worked with BHP’s petroleum and it became clear to me that the most important driver of their success was not actually how good their geologists, geophysicists, and platform engineers were. And of course, those were the heart and soul and crown jewels of their company, was the engineering. 

  

[00:17:33] Actually, what determined whether they made money or not, was the fiscal terms that they got their acreage from the host governments, and therefore, government relations turned out to be the most important success factor for them. 

  

[00:17:42] That wasn't something as an engineering oriented organisation, they were likely to kind of really attach themselves to, but you analyse the history of the last 40 years of their business and it was clear that was actually the defining factor. 

 

[00:17:53] So that's the sort of thing you did as a management consultant, is bring fresh eyes, analyse facts without any emotion, because you're not personally tied to it. It's not your career. So you can just look at the facts, look at the numbers and try and objectively say, 'Where does this business make money? And where doesn't it? And why?' 

  

[00:18:12] And often, it doesn't make its money where the people who operate it think that it does. Which seems crazy, but it's true. And I guess honestly, it's exactly that same lens that I've then come into property as an outsider and tried to bring the same lens. 

  

[00:18:31] And it's been really shocking to me how much misunderstanding there is about property and what drives value. And particularly, what really shocks me is that people who should know better— like the economists of the major retail banks, and various other commentators that are all over the newspapers every day— talk unmitigated nonsense about property prices that just have no basis, in fact. 

  

[00:19:02] And so that's always been surprising to me. But I guess my background at McKinsey was just to say, 'Look, I don't know anything about this. So I'll start by looking at the facts and analysing the facts'. And I guess in some ways, that's been very helpful training.

Tyrone Shum:   

Thornley, along with Antony Cohen and Cath Stubbings, founded LongView in response to the frustration they experienced with the short-term focus of the real estate industry in Australia.

Evan Thornley:   

[00:01:12] It's interesting, because we've got some core parts of our business that are relatively traditional real estate business. We have a large property management business that has about 4,300 properties under management. And we have a significant buyer's advisory team that buys hundreds of properties every year for clients. 

  

[00:01:30] But we've also got a significant data science team and a whole separate team now that's building— we're about to launch in the next few weeks— our first property investment fund. And that will be offering shared equity investments for young homebuyers who don't have [a] sufficient deposit to get themselves into a home. 

  

[00:01:55] And then there's a bunch of things we hope to do from there. So mainly what I normally do is build new stuff. But I've got a really capable team who lead the traditional parts of the business, and the traditional parts of the business are critical to deliver the new stuff. 

Tyrone Shum:   

LongView itself is six years old, although Thornley has been investing in property for over 30 years in both Australia and the US. He’s observed the property journeys of four and a half thousand property investors over the last six years, seeing the consequences of their journeys firsthand.

Evan Thornley:   

[00:02:56] There's many things that I've learnt. And one of them is all other things being equal, I'd rather own 1% of 100 properties than 100% of one property. For a whole lot of reasons. And all the more so if those 100 properties were really bought well by people who had very good data, and very good field experience. 

  

[00:03:17] So if I could own 1% of some really good properties, of 100 really good properties, then I will almost certainly do much, much better than if I owned 100% of one property that I am trying to figure out for myself how to do it well. 

  

[00:03:31] Because most people in many of the journeys you describe, people get good at this, but they get good at this over a sustained period of time, and they make mistakes, and it's a long lead time game, and every mistake's got stamp duty associated with it. 

  

[00:03:45] So we think that there's a much lower risk way of people getting exactly the same outcomes that they're looking for. Well, actually better outcomes, but the same type of outcomes and usually better outcomes. 

  

[00:03:58] Ultimately, if they ended up investing in a professionally managed fund that does the same things that they would be doing individually, but can do it at scale and with data science and proper field support. 

  

[00:04:10] So that's what we're doing. So the first one of those funds will be not investing in properties directly, but we'll be doing something that suddenly become very flavour of the month in the last month or so, but investing in offering shared equity to usually, but not always, young homebuyers who don't have enough capital for their deposits. 

  

[00:04:31] And so we can provide that capital in exchange for a share of the capital growth on the property. And most importantly, we can help make sure they buy the right property that's a good fit for them and their families, and that is going to be a good investment for them. And then obviously also for our investors. 

  

[00:04:45] So that will be our first fund and then after that we'll be launching, I hope, a large scale rental property fund [for] traditional rental properties, where we hope to ultimately be buying and managing thousands of properties. And then creating an opportunity for people to invest in property in that way, as an alternative to or as a supplement to what they do in their own individual properties.

Tyrone Shum:   

He had found a gap in the market that had gone unnoticed, and he was determined to be the one to start chipping away at it.

Evan Thornley:   

[00:05:33] As you know, the biggest asset class in the country is residential property, it's $10 trillion. The Australian Stock Exchange and everything on it is $3.3 trillion. And yet, there's not a single investment grade option for people to invest in residential property in terms of an equity investor in residential property. [Or] in anything other than new property development. 

  

[00:06:02] And that's not really a property investment, that's a manufacturing investment. Property development is 'I hope that I can sell something for more than it cost me to build it'. That's fine. That's really a manufacturing business. That's not what I would call a property investment. 

  

[00:06:15] A property investment is when you buy a piece of property and you profit from its long-term growth. And so 3% of the residential property market is new build, 97% is existing dwelling. 21% of the residential property $10 trillion is the debt that's provided by the banks. The other 79% is the equity, that is the owners of the property. 

  

[00:06:44] So of that $10 trillion dollars, $7.6 trillion is equity in existing dwellings, and that's a lot of money from two and a half million mums and dads, which is amazing. And yet, not a single option exists for them or others who may not want to buy and manage their own properties to invest in that asset class, in residential property, in bricks and mortar, in the same way as you can invest in almost every other type of investment. 

  

[00:07:16] There's more crypto funds in Australia than there are existing dwelling residential property funds. And that just makes no sense to me whatsoever. So when we say a gap in the market, like, it's hidden in plain sight. There's a $7.6 trillion gap in the market, which pretty soon you're talking real money.

Tyrone Shum:   

[00:07:33] It is, it sounds amazing to be able to tap into it. You just need a percent of that. And that's enough there.

Evan Thornley:   

[00:07:41] Obviously, a lot of your listeners are very much the people who are really working hard to do this themselves, and to learn from other's journeys and their mistakes and their benefits and try [to] get better quicker. And it's fantastic and it's exciting, and it's rewarding. 

  

[00:07:56] But not everybody can, or wants to, or frankly should, be doing that all for themselves. But everybody who wants to invest in property for all the reasons that we all want to invest in property should be able to. 

  

[00:08:08] So that's where we're trying to take LongView over the medium term. And so our traditional— when I call them traditional, they're very sort of tech-enabled and high-quality— but our traditional property management and buyer's advisory businesses serve individual clients and their individual properties. But then those skills and that team will then be able to start doing the same thing for these property investment funds over time.

Tyrone Shum:   

As a management consultant, Thornley acted as a fresh set of eyes for a business by walking in, analysing, and identifying their areas of success. As you may imagine, coming up with an appropriate recommendation for a typical assignment took its fair share of time.

Evan Thornley:   

[00:19:34] Your typical consulting assignment, you work, like, 80 to 100 hours a week, in a really small, super high calibre team. I think McKinsey was the biggest employer of Rhodes Scholars and Harvard Business School graduates and stuff. It was [full of] pretty, pretty smart people.  

  

[00:19:50] Your studies would normally go between three and six months, so you have to get in fast and really get on top of things. And so that's how that worked. But we've applied the same skills here, and I guess this is how LongView has been going six years. 

  

[00:20:02] So whilst I've obviously been a property owner and property investor for 30 or more, 35 years now, really the last six years, I've spent full time as we've been building LongView. And I think you learn more and more as you go along. We've probably learnt as much in the last 12 months as we did in the previous five years. 

  

[00:20:23] We learnt a lot in the previous five years, but your learning actually picks up speed, if you have that mentality, far from getting sort of comfortable in saying, 'Okay, I understand all this now'. 

  

[00:20:33] The more you know, the more you actually learn about things that you don't know, that you didn't know that you didn't know. So we're learning more and more, and now we've got a data science team on board, and we can really get over that. 

 

[00:20:47] And property is a wonderful industry, it's full of high quality data. We're analysing the sale price of every single property in Australia for the last 50 years. So you've got everything that opens and shuts there. And so there's really no excuse for people who should know better, with large companies like banks, or others, or government economists, or people like that. 

  

[00:21:12] For people who've got resources and access to data and analytics, there's really no excuse to peddle the nonsense that gets peddled around property all the time. And if we've seen it, we're talking in the tail end of a federal election campaign where housing policy is probably the single biggest issue. And there's just unmitigated nonsense talked all around. And that's just interesting to me.

Tyrone Shum:   

Over his time as an outside analyst, Thornley learnt things about residential property that he would never have otherwise.

Evan Thornley:   

[00:22:01] There are three huge industries that are associated with residential property, but they're only associated with certain parts of it and have a certain perspective. And there's nobody representing the rest of it, which is us, the mums and dads. 

  

[00:22:14] So there's a huge industry in new property development. There's a huge industry in real estate sales. And there's an absolutely enormous industry in mortgage lending. And so all of the commentary on residential property is driven by those three industries. And of course, they all have an important role to play. 

  

[00:22:33] But if you remember what I said at the start of the conversation, there's two voices that aren't heard in there. The voice of the $7.6 trillion of existing dwelling residential property equity— [there's] no voice for that. The single biggest asset class in the country by a factor of two, no voice, no company, no advocacy, no nothing. 

  

[00:22:53] And Australia's 5 million tenants— no voice. So, largely speaking, Australia's young homebuyers have no voice, although they've been politically active. 

  

[00:23:05] So the voices that speak the loudest in the media have a particular set of interests and have a particular understanding that is appropriate and relevant to their industry, but is not the way that it makes sense to actually us mums and dads who are investing in property. 

  

[00:23:24] We're looking down the other end of the telescope. It looks different from our end, and there's nobody to give that voice and to give clarity. And so it gets very confusing for people.

Tyrone Shum:   

[00:23:34] And why do you think that has been overlooked, from your [point] of view?

Evan Thornley:   

[00:23:39] The fragmentation. The wonderful thing about property is that two and a half million families in this country can buy an investment property. And thank goodness, many more can own their own homes. 

  

[00:23:54] But there's no aggregation of that in any way, shape, or form, really. There's some small property investors associations and things, which is all great, but really, it's incredibly fragmented. 

  

[00:24:07] And then the only people that really work day to day in the space, which is the real estate industry, is entirely driven by the shortest of short-term short views, which is the view of a real estate sales agent, who can see precisely five weeks into the future and tell you, no matter what's going on, that today's a great time to sell. 

  

[00:24:29] And so you've got a $16 billion industry in real estate sales that has the shortest of short views. In a business that is the longest of long view businesses. I mean, there are ways you can make money with renovating and flipping and stuff and residential property, but the vast majority of the wealth that's made of residential property is made over the long term. 

  

[00:24:51] And there is no body. None of those industries businesses make money out of that long-term growth in property value, so none of them talk about it. So none of them know anything about it and most of what they do talk about it is nonsense.

Tyrone Shum:   

[00:25:03] People want the short-term view, which is interesting. 

Evan Thornley:   

[00:25:06] That really gets brought into property investors. All the stories are The Block and renovate and flip and all this stuff. And that's fine. Obviously, good people who do that well can make some good money doing it. But the vast majority of people have neither the time nor the expertise nor the luck to do that well. 

 

[00:25:24] The vast majority of people own properties for the long term. And the single most important thing— which nobody tells anyone— is that it really matters that you buy the right property. 

  

[00:25:34] Everyone thinks there's a property market, it goes up, I just need to get on the ladder, and then all boats will rise. And we have a conversation literally every day with a client who has bought the wrong property. And they usually say, 'Oh, gosh, I thought it was worth more than that. I thought the market would have gone up by now'. 

  

[00:25:52] And we have to say, 'Actually, the market, on average has gone up. But not for you, because you bought the wrong product'. It's really tough. It's a heartbreaking conversation. And we have that conversation literally every day. 

  

[00:26:07] And yet this industry is full of people that are there to trick people into thinking so long as you get on the ladder— usually, by buying 'my' property if they're a real estate sales agent or property developer— somehow everything then is going to be great. 

  

[00:26:21] Quite perversely, in fact, the people that say that the most, their properties are usually the worst investment. New build apartments are, almost without exception, a catastrophically dreadful investment.

 

[00:26:37] And yet, half or more of that new build apartments are bought by people who think that they're making an investment.

Tyrone Shum:   

His life dream had always been to be in the media business in one way or another. While his career as a musician didn’t eventuate, he was able to achieve his dream in another sense.

Evan Thornley:   

[00:27:14] I eventually got to the New York media practice of the firm, which is what I wanted to do. And that was in 1994. 

  

[00:27:19] And just at that time, this thing called the Internet was just starting. And that was fascinating to me. I got online before the web, actually, before browsers and the web in the original clunky Internet where you had to have like stuff programmed in. Compuserve and all sort[s] of stuff.

  

[00:27:40] And then this thing called Mosaic came out, which was the precursor to Netscape. And I'd heard about it but I hadn't seen it. I was in the office late one night in the New York office of McKinsey. And a mate of mine, a British guy called Richard Blue said, 'I've got Mosaic on my computer. Do you want to see it?' And I'm like, 'Oh, yeah, I've heard all about this thing. It sounds amazing!' 

 

[00:27:58] So he fires this thing up. And three seconds later, we're looking at apartments to rent in London, point and click. This is 1994.  And I just... literally, the light went on. And I just turned to Richard, I said, 'Mate, this is going to change the world. This is going to change the world'. 

 

[00:28:17] And six weeks later, I quit my job, raised money and started an Internet startup, which became Australia's first tech startup listed on the NASDAQ. First tech unicorn, first one to deliver 100 times their money to the investors and the rest is history. 

 

[00:28:34] We really came from that lightbulb moment. The moment I saw what we all now know and don't even think about— here's a browser, you point, you click you go— [the] first time I saw that, I just went, 'Oh, wow. The world is just about the change really big here.'

Tyrone Shum:   

His tech unicorn took him from New York to Silicon Valley, where major technology, Internet, and software companies are born and based. Here, he sat ringside with some of the biggest names that are still around decades later.

Evan Thornley:   

[00:28:53] We were one of the early Internet search firms. And then we pioneered some of the things that everyone takes for granted now in terms of search targeted advertising, so I built a company called LookSmart. 

 

[00:29:16] Back in the day, I think we peaked at a market cap of $14 billion, which was real money in those days. I think we were number six on the Australian Stock Exchange when we dual-listed back on the ASX from the NASDAQ as well. 

  

[00:29:29] A fascinating and wild ride. But yeah, we were the first Australian IT company to cross the pond in that way, end up listing on NASDAQ headquartered out of Silicon Valley. And went through the boom, went through the bust, came out the other side, got the business on track and learnt a lot. There's lots of great war stories from that time. It was an incredible experience.

Tyrone Shum:   

LookSmart was born thanks to Thornley’s client work at McKinsey, where he was serving the oldest media company in the world. 

Evan Thornley:   

[00:30:05] It actually came through my client work at McKinsey. We were serving in the media practice, of all people, Reader's Digest. The oldest and stodgiest media company in the world. 

 

[00:30:16] And I'd help the chairman and CEO there, [a] lovely guy called Jim Shot, kind of explained to his board why the New World was coming and they were not well positioned for it. And he appreciated that work. 

 

[00:30:28] And he tried to hire me to kind of help him turn the company around. And I said, 'Look, I'd love to, but I really want to do some Internet stuff'. And he's like, 'What's that?' 

  

[00:30:37] And I explained it to him. And then I said, 'Jim, in some ways, if you're looking for a growth strategy to build the next generation of customers here, what I'm thinking of doing actually might be relevant to you. I hadn't thought about it till we're speaking now'. 

 

[00:30:50] The Reader's Digest business— the old Reader's Digest magazine that you sort of see in doctor's surgeries and stuff, it's the biggest circulation magazine in the world— didn't make very much money as a magazine. But what it did was it created a mailing list for the 12 million subscribers, I think, for the magazine. And then they do direct mail of books, music and video to that list. And that's where they made all their money. 

  

[00:31:11] So I said, 'Look, the magazine is the big front door that gets everyone in. And then the back end is where you make your money in books, music and video'. And I said, 'Internet search is going to be the new big, big, big front door. And everyone's going to go through search, through that big front door, and then to whatever it is they want to buy. And so search is going to be the power position on the Internet and that's why I want to go do it. And to be honest, you guys could probably think about doing it too. Because last time I checked, you need some growth options in first'. So that was my first ever investor pitch.

  

[00:31:41] I walked out 45 minutes later with $10 million. We swung the bat, right?

Tyrone Shum:   

[00:31:51] Oh, my gosh, that's amazing. And that's where your story really started.

Evan Thornley:   

[00:31:56] Look, all that sounds great. Unfortunately, things move too slowly on what we were doing for Jim, he got fired by the board. And the old guard took the company over and wanted to take it back to the Stone Age. 

  

[00:32:06] And so they called me up and said, 'What's this Internet thing? You guys send us your shutdown plans? We're not spending any money on this'. 

  

[00:32:13] And I'm like, 'Yeah, okay, well, here's my shutdown plan. It'll cost you this much to pay off the creditors and this much to do this and that, and you're a Fortune 500 company so you'll do the right thing by the employees. And then my shareholder lawsuit, I don't know, you'll probably settle for somewhere between $3 and $5 million. But here's the alternative: Just give me a couple of months of funding and give me my company for nothing. And that'll cost you a quarter as much and if I'm any good, I'll give you a slice of the company and you'll get your money back. And if I'm not, then it cost you a third as much as shutting me down'. 

  

[00:32:46] So I made them an offer they couldn't refuse. And so they gave me my company back for nothing. I gave them a small share of the company, they ended up making 10 times their money. My Australian investors made 100 times their money and things worked out okay. 

  

[00:33:01] But we then walked through the valley of the shadow of death then for nine months. I went within two days of not being able to make payroll nine times in six months, I was raising, like, $50,000 at a time with 65 people on my payroll with my house on the line, with, like everything. It was just a total nightmare. 

  

[00:33:21] But we just got through, we just sneaked through. And then two years later, we went public at $1.2US billion and went up to $14AUD billion by March of 2000. 

  

[00:33:33] So I'm a kid who grew up on welfare, in a single-parent family in Gosford, and ended up a billionaire at the age of 36. And it was all a bit of a shock.

Tyrone Shum:   

[00:33:46] How do you feel now looking back at it, to talk about it?

Evan Thornley:   

[00:33:50] It kind of is surreal. Silicon Valley during the Internet boom was just the wealthiest insane asylum on Earth. I mean, there was just money sloshing around in the streets. An incredible collection of incredibly smart, capable, incredibly hard-working people. 

 

[00:33:04] But it was the Wild West. And we were right in the middle of it. 

  

[00:34:11] I saw Google in a garage. In an office block, but like a garage. So I had a ringside seat to history.

Tyrone Shum:   

With Google, Yahoo, and Bing as the dominant players at the time, Thornley knew it was time to exit— he just needed to find a way to do so successfully.

Evan Thornley:   

[00:34:36] We moved from being search itself to search advertising and working on creating search targeted marketing. So what is now the sort of Google AdWords business model was really pioneered by two other startup companies, which was us and a company called goto.com. 

  

[00:34:51] And so that's where that business ended up going, sort of pioneering a new way of creating revenue within search. And that worked out well, but I came home. 

Tyrone Shum:   

Thornley recognises that everything he now knows about property, he has learnt in the six years since he built LongView. 

Evan Thornley:   

[00:35:30] The thing that's really interesting to me having, as I say, along the journey I've bought and sold a bunch of properties, some as investments, some obviously as homes and holiday homes. And as you can imagine, I've had some pretty nice trophy properties over the years.  

  

[00:35:55] And if I'd known way back then what I know now about property, I would have been a lot more interested in it a lot earlier. Again, it just confuses the heck out of me that the big end of town knows nothing about property. They know everything about every other type of investment and nothing about residential property. 

  

[00:36:20] And yet, the mums and dads of Australia do, and they're the ones who are out the $2 trillion in residential property investing in this country is all mums and dads. But there's nobody to help them. And what led to the founding of LongView is I came back. 

  

[00:36:34] My business partner, Antony Cohen, he and I worked in another tech startup together. And he'd been 28 years at KPMG. And we were both investing in properties and we're sort of like, 'Well, I was at McKinsey, you were at KPMG, who are the good advisors I can go to get good professional advice on residential property?' 

 

[00:36:54] Like if I want good legal advice, I get a good lawyer. If I want good tax advice, I get a good accountant. Who do I go to to get good advice about residential property? Like, we're playing with real money here. It's a million here and a million there. And there's no one. There was no one. And there is no one. 

 

[00:37:08] And so, I talk to clients all the time now, who had they been properly advised, could have, in particular, avoided mistakes. 

 

[00:37:28] My view generally about residential property is: You put in the hard work to make sure you don't make mistakes. The hard grinding work, the good analytics, the good due diligence, the right financing structure, the buying the right property— you do all those things to make sure you don't make mistakes. And if you don't make mistakes, you'll end up doing just fine. 

  

[00:37:48] And sometimes you'll end up doing a lot better than just fine. And most of that upside is luck. So, I think there's not a lot of luck involved in avoiding mistakes. It's hard work to avoid mistakes. And then if you avoid mistakes, you'll do fine. And then if you get upside from there, then you may be a genius or you may just be lucky.

Politics and Parenthood

Tyrone Shum:   

Thornley stayed in the US for eight to nine years, living in New York before making the trek west to Silicon Valley. As much as he enjoyed his time there, as his family grew, so did his desire to return home.

Evan Thornley:   

[00:01:04] Most importantly, our three girls were growing up, and we wanted them to grow up in Australia. I don't like kids going to school through metal detectors on the doors to make it more balanced carrying a gun, that just wasn't my idea of what a childhood should be. 

  

[00:01:18] And secondly: And this is unrelated to everything else, from my days back in the days when I was president of the Student Union at Melbourne Uni, and one of the founders of the National Union of Students, I was involved in student politics back in the day. 

  

[00:01:33] I know at least half the people in the Federal Cabinet and the Federal Opposition now and Federal Parliament, they were all in student politics 35 years ago when I was. And so I had a passion to try and do something about Australian politics. I foolishly wasted 10 years of my life trying to fix the Australian Labor Party, which turns out is unfixable. 

  

[00:01:53] So, that was my other motivation, then I spent a lot of years when I came back trying to do that: Setting up think tanks and trying to get reform in that organisation. 

  

[00:02:02] And I did, hopefully, some really worthwhile things, particularly on the new ideas front. [I] did a lot of work particularly about early childhood, which is so critical. And then, in the middle of the GFC, when Eddie Groves and ABC Learning went broke— the biggest childcare company in the world— I sort of said, 'Well, hang on a minute. These guys are basically crooks'. 

  

[00:02:28] Why have we handed over the education of Australia— zero to six year olds, the single most important time in their lives— to these dodgy operators? Who's going to buy this thing in the middle of the GFC? Answer: No one. Well, why don't we get the good guys together and buy it and put it into a charitable, not for profit organisation that runs the thing for the good of the children? Call me crazy. 

  

[00:02:49] So that is what became Goodstart, which is now the biggest social venture in Australia and still the biggest early learning operator in the world. And Julia Davidson and the team there do an incredible job. 

  

[00:03:03] So I ended up on a bunch of worthy causes, and then buying and selling properties. Property for me was partly a wealth preservation thing, right? I mean, I made my money in the very high risk world of tech. And then you go, 'Okay, well, how do I make sure that I don't necessarily want to roll that dice all the time again'? 

  

[00:03:20] And so I started trying to buy a few investment properties and trying to get some help too, because I realised I just knew nothing about it. And it was surprising to me. I've been around, I know a lot of smart people and seen a lot of stuff. But I felt like I knew nothing about residential property. 

 

[00:03:36] And I was correct, I really did know nothing. But it was so hard to find someone else to help. And my friend and colleague Antony was the same, despite being a senior guy at KPMG for 28 years. So that was really the genesis of LongView, was to say, 'Where do you go to actually get good advice and make good decisions?' And [that was] six years ago.

The Buyer’s Advisor Advocate 

Tyrone Shum:   

Upon his arrival back in Australia, he called upon his friend, a co-founder of job search website called Seek.com.au, to help him get back into property. 

Evan Thornley:   

[00:04:27] Paul was my lawyer when we started Looksmart and we were at university together. Paul put me on to his buyer's agent because I didn't know where to start. He put me on to a terrific buyer's agent, a very famous buyer's agent Melbourne, a guy called Mal James. And I became Mal's best client for a while and he bought me a whole lot of property. 

 

[00:04:41] Thank goodness I learnt early on the power of buyer's advisors, and the value of that. And so I've been an advocate of it, if you'll forgive the pun, an advocate of advisor advocates.  

  

[00:04:52] I've been a believer, as a customer, in the value of buyer's advisors for a long time. And I guess part of what we're trying to do at LongView now is to really bring that quality of advice to the other 98% of property buyers who currently don't get professional support in buying their properties.

Tyrone Shum:    

After creating a lot of wealth through IT and wanting to preserve that wealth, property seemed like the logical next step. He reached a crossroads when he arrived, but always knew which direction he planned to take.

Evan Thornley:   

[00:05:37] I've had money with money managers who invest in commercial property, both debt and equity. And they seemed to know what they were doing. And that was fine. So I had some money there. 

  

[00:05:45] But I guess for me personally, like all the other mums and dads, you sort of want to invest in something you feel, you know and understand. Or at least can see, touch and feel. And I think the danger is that people think that because they live in a house, and they kind of feel like they know something about houses, that therefore they know how to know something about investing in houses. And that can often be very, very misleading. It's so different to what everyone thinks it is.

Tyrone Shum:   

Thornley recognises that he’s been plugged-in to many of the big changes that have happened in the world throughout his career, and has a talent for spotting potential dangers and jumping when the time is right. 

Evan Thornley:   

[00:06:38] My first sort of serious— when I say serious, it was a modest block of four apartments in a leafy street on top of the hill in St. Kilda— I thought it'd be interesting to get on top of Airbnb, and buy a small block of apartments and move them into Airbnb. And that wasn't crazy. I mean, I really didn't know what I was doing. But it worked out okay. Until COVID.

  

[00:07:19] If I've got any skill in life, it's being able to see the future, usually ahead of most other folks. So the moment this thing was breaking, I'm like, 'Okay, so my Airbnb is toast, we're going to move this into a traditional rental, and we better do it fast because there's gonna be a flood of extra stock coming on the market. And all the overseas students [are] not gonna able to come back, and the kids are gonna get moved back in with Mum and Dad, and we're going to see vacancy rates exploding across Melbourne'. So yeah, pivoted hard early and at least got out alive on that.

Tyrone Shum:   

[00:07:49] So I guess from that point of view, you had a bunch of apartments, you [were] able to pivot very, very quickly on that. Did you see any, from all your other experiences, other property purchases, any sort of aha moments that sort of just [made you go] like, 'Oh, wow, property is the best way to go'? Because with all your knowledge now…

Evan Thornley:   

[00:08:07] I think the really interesting thing is we moved around a lot and made a lot of money and did a lot of things, and so bought and sold a lot of property, often in relatively short timeframes. And having made a lot of money in Silicon Valley, to be honest, [I] did a lot of it with cash. 

  

[00:08:25] And so I really didn't get proper exposure to the real core discipline of property investing, which is to buy a good property that's gonna have good long term capital growth and then to make sure that the bank stumps up most of the money. 

  

[00:09:22] Then I think the second aha moment I had was as we started putting together a pitch deck to high net worth families who don't invest in residential property. 'So, why is this the only asset class you don't invest in?' And I started just doing some basic sort of McKinsey style analysis. 

  

[00:09:38] And I didn't know— and most people don't seem to know— that Australia has close to the highest population growth rate in the world. And has had for three generations. And Australia has almost without exception, the most concentrated population in the world outside of city states like Singapore or Monaco. We have 52% of our population in just three urban centres.  

  

[00:10:03] And so, the enduring fact of Australian residential property [is] those two things. And for as long as we maintain close to the highest population growth rate and the highest population concentration in the world, then well-located urban land will remain a scarcer and scarcer asset. And it will continue to go up about 9% compound per annum.  

He then began to realise that every property market is a trade off between capital growth and yield, and that Australia has a fantastic capital growth market which makes way for a less than stellar yield market.

Evan Thornley:  

[00:10:36] And yet, so many people, both mums and dads and even corporations with build to rent and a whole lot of other stuff, are taking the thinking from America and Europe and other yield-driven markets and applying it sort of derivatively in Australia, and of course, coming a cropper. 

  

[00:11:05] So once I understood that Australia of all places was all about capital growth. And once I understood bank leverage, then I understood, 'Okay, if I can make sure that I buy properties that do get 7% compound annual growth in the underlying asset, and then I get four or five times gearing by using the bank's money, suddenly I'm making returns on equity of 25 [or] 28 [or] 35% with relatively low risk. Hang on a minute, that nearly as good as my private equity investments, and they're risky as hell'. 

  

[00:11:36] So then— I'm a bit slow, right, I'm 57— I finally went risk-adjusted, well-bought residential property is easily the best investment in Australia, which is why the mums and dads are not stupid. And the institutions are, actually. But then as we analysed our clients' investment performance, we found out that our clients, the four and a half thousand of them, on average, get nearly 3% lower capital growth in the housing market average. Which means the vast majority of them bought the wrong assets.  

  

[00:12:11] And so, whilst our clients pay us about $11 million a year to do a first-class job of managing their properties— we're probably arguably one of the best property managers in the country— they're, I think, losing effectively, in terms of lost opportunity, $100 million a year on those self same properties, because they bought the wrong properties. 

  

[00:12:32] And so it was when we discovered that that we said, 'Gosh, we've got to get into helping people buy well'. Because you can do the best job in the world of managing a property for a client. But if they bought the wrong property, it will never be a successful investment for them. And then that's the heartbreaking thing for us, seeing clients coming to that or unfortunately for us having to— because our job is to help people make good decisions— give them the bad news that actually, unfortunately, this property is not growing. And even more unfortunately, waiting for the market to grow with you on it is not gonna happen either. So it's a really tough conversation to have with people.

Tyrone Shum:   

Most people in this situation initially think that they have a great investment on their hands before making this realisation, leading to a large churn in property investment.

Evan Thornley:   

[00:13:25] Hundreds of thousands of people every year exit property investment as an idea and never come back. No one talks about that, because they run sprukes all the upside, but they exit the industry because they get their fingers burnt really badly. 

  

[00:13:37] And so what we try and do, we call it changing trains. We say, 'Look, you're on a really slow train here. There's no easy answer. But here's the best thing you can do: Get off at the next station, go on, walk up, go across, go down another platform, and then get on a fast train. I'm not gonna lie to you, it's going to cost money to change trains. But when you get on that fast train, within 18 months, you'll have made back all the money that you lost on that slow train. And by 10 years from now, you'll be so far into the distance'. 

  

[00:14:10] It's not an easy decision to make, but it's 100% the right decision to make. And that's challenging advice to give to people. And some people will take it and some people won't. But what we hope to do more and more of is help people buy the right properties in the first place. 

  

[00:14:27] In my ideal world, you'd never sell a property, which is why real estate sales agents are gonna hate me. In my ideal world, if you buy the right property you never sell, right? You let it grow and you leverage off and you buy another one. That's what good property investing hopefully leads to.

Tyrone Shum: 

With data science about capital growth being so nuanced, it can be a very complex, hours-long discussion. However, Thornley can boil it down to its roots in one sentence.

 

Evan Thornley: 

[00:15:25] Buy solid, older dwellings on well located blocks of land. Land appreciates, buildings depreciate. You want as many cents in your dollar of investment going into the land and as few cents in the dollar going into the building as you can get away with. 

  

[00:15:43] Making sure of course, that that solid, older dwelling is the right solid, older dwelling. That it's either a good place for you to live if you're buying it as your home, or a good place for good quality tenants to live. So, not every solid older dwelling, or not every older dwelling is solid in that sense. 

  

[00:15:58] And so that's the heart. That's how you don't make mistakes in property investment. You buy the right solid, older dwelling on a well-located block of land. And by well-located of course, that in some cases means that has long-term future development potential and other things. So, that's the key. 

  

[00:16:15] And so ironically, the renovator model is giving away the crown jewels for the sake of a small tiara. The real wealth creation is going to be in the dirt under that old needing-a-renovation house. And yes, you can make some money buying it, renovating it, and flipping it. Though after you can't really well, because you just smoked all your stamp duty for starters. 

  

[00:16:38] But if you did nothing or very little, just make sure that's a good dwelling for you or somebody else to live in, then you'll make the money in the dirt. And you'll make the money in the dirt mainly with the bank's money. And time.

Tyrone Shum:   

While location is certainly important, Thornley sees it as the second tier of important criteria rather than the first and foremost.

Evan Thornley:   

[00:17:44] The hot suburb thing or the hot region thing, this is an invention of property developers and real estate sales agents to sell whatever piece of crap they have to sell. 

  

[00:17:56] I can show you wonderful properties and terrible properties in every suburb in every region in Australia. As we say to our clients, 'You don't buy a suburb, you buy a property'. The most important thing is that we buy the right property. 

 

[00:18:10] Of course, if you buy it in an area that is at a good stage in its lifecycle, you'll do slightly better. And if you buy right at the top in the wrong stage in the wrong place, you'll do worse. I'm not saying those factors are not relevant. I'm just saying they're not the biggest numbers on the page. 

 

[00:18:28] The biggest number on the page is what's the quality of that location, relative to where it is, and how much of your money is going into the dirt versus how much your money's going into building. 

  

[00:18:40] This is just facts, mate. We've analysed, I don't know what it is, 46 million property transactions or something like that. And I'm summarising all of that back into a couple of sentences. So the most important thing is that you buy a good property in a good location within its region. 

  

[00:19:02] And the principal driver is going to be land value growth, and the principal driver of land value growth is going to be population growth. So, the likely population growth of where you're buying is [a] critical factor. But again, the major urban centres in Australia are all getting— to a greater or lesser extent, certainly Sydney, Melbourne, southeast Queensland— you cannot go wrong long-term in any of those three markets. 

  

[00:19:31] But of course, right at this moment in the clock, would you rather be buying into Brisbane and Sydney? Probably. But that's not how you make a decision. 

Diversity in aspects such as location and timing are important components when it comes to property, as the unexpected can pop up at any time.

[00:19:55] You don't want all your eggs in one basket. And then that's part of the genesis for us about ultimately I'd rather own 1% of 100 properties than 100% of one. And make sure all 100 are really well-bought and they're top quartile or top decile assets. Then I really can't go wrong. I've got liquidity, I've got diversity, I've got better quality underlying returns, I don't have the operating headaches of being a landlord and everything that entails. 

  

[00:20:23] To me, that will be the holy grail of the way property investment could become for a lot of people. And my passion about that is not just that that would be a much better outcome for mum and dad property investors. My passion is, where I come from, where most of the people I grew up with, are renters. We have the most insecure, undignified rental system in the Western world. 

 

[00:20:47] And it's not because all landlords are bastards. 5% of landlords are bastards, 95% of landlords are decent people, mums and dads in the suburbs. But having every single home owned by one person, usually the only investment property they have, they quite understandably and rightly need to have flexibility about what they do with it. Maybe they move back into it, maybe their daughter's coming home from Canada, maybe they want to sell it. And so everyone's on short term leases. 

 

[00:21:14] A lot of landlords, of course, at various stages are not well-placed to say, 'Fix that water membrane. What's that, $8,000? What do I get for that? I don't have that sort of money'. It's not that the landlords are at fault, it's that we created a system which is entirely this nexus between the individual landlords in the individual home and the individual tenant. And that turns out to mean that tenants get a rotten experience. And not because their landlords are bad people. 

 

[00:21:40] So if we had these pooled arrangements, where 1,000 landlords owed one one thousandth of 1,000 properties, and we bought good properties, they would make a lot more money, they'd have a lot less headaches. And if we own those properties for the long term, then those tenants could have secure, dignified tenancy and it would really feel like it was their home. 

 

[00:22:03] So that's our long view of where we want to see housing in this country go in terms of investment properties. Most importantly, what we want to see is as many of those tenants as possible be able to afford to buy their own home. And that's why we launched our shared equity to help them get a deposit so that they can become homeowners themselves.

Tyrone Shum:   

[00:22:18] That's a very smart strategy. How will that actually impact as well rental? Because if, as we've discussed, we know that equity, or capital growth is the key driver for Australia. And that's where the wealth is. As you know, the rental returns are very poor, especially in Sydney and Melbourne, between 2% and 3% gross.

Evan Thornley:   

[00:22:39] Net can be, you know, after land tax, almost nothing. It can be negative. 

 

[00:22:45] I've got our clients who are negatively... I wouldn't say they're negatively geared, because they've got no debt on the thing, and it's still negative cash flow, they get good capital growth. And I'm like, 'Boy, you can better than this'.

Tyrone Shum:   

[00:22:55] And you go, why would we want to keep an investment like that? Because ultimately, what's the point of my investment? I think it's for cash flow. You want that passive income. Because otherwise, why are you putting so much money and effort into buying this? But property doesn't turn out to be that way all the time.

Evan Thornley:   

[00:23:09] If you want steady cash flow, yes, over the long term, you can get that from a residential property portfolio. But honestly, you will be better off— look, I've got plenty of places that I can stick my money and get 7% or 8% steady cash flow. I wouldn't be buying a property portfolio to deliver me that. I'm buying a property portfolio to give me levered equity returns in the mid to high teens. But it won't be good for cash flow. It'll be good for wealth creation.

Tyrone Shum:   

Thornley will do anything he can for his clients, especially when he’s had to inform them their property portfolio isn’t performing as well as they would like. As a result, he’s implemented a strategy to help improve people’s situations.

Evan Thornley:   

[00:24:18] We started out in the very traditional side of the business to really get to understand how things work. And so I found the best property manager in Melbourne, and bought that business and had her come and help lead our effort there. Cat Stubbings, who leads our property management team, is incredible. 

 

[00:24:34] And then we bought all the other really good property management businesses in Melbourne with all the other terrific female property management entrepreneurs that built those businesses. They're all working with us now. 

 

[00:24:44] So we started out obviously, if you don't do that part well, you haven't earnt the right to have the trust of your clients on anything more significant. If you can't keep it tenanted with a trustworthy tenant to make sure the rent's coming in and make sure the property is properly maintained, then you haven't earnt the right to the trust to tell people bigger things about what they do. 

 

[00:25:05] We think we've now earnt that trust. Our customer satisfaction numbers are 70 NPS points above industry benchmark. And so now we're starting to pioneer internally, what we call the LongView conversation. Which is where we— having earnt the trust of our clients by doing a really good job in their basic need of property management, or their basic need on the buyers advisory front— we then get to know them. And just start talking about where they are in their lives, what's happening with their properties, what help they need. 

With clients in situations where they knew they needed help but didn’t know where to get it, they’re often pleasantly surprised to find that help has been right there under their noses the whole time. 

 

[00:25:58] So we're starting to have a lot of these LongView conversations, and they can end up anywhere. I had a client in recently, they were thinking, 'We think we might sell our our rental property in Reservoir in north Melbourne. It's our old family home, we've moved somewhere else. What do you think about that?' I'm like, 'I don't know, it depends on your circumstances. Let's talk about it. It depends on the property'. We had a chat. 

 

[00:26:16] And we were talking. It was clear that the most important thing in their life was their daughter, who had become a sole parent, and their young grandson. And we got talking about schools and education and stuff. It was very clear that, sadly, neither they nor their daughter would ever be able to afford to send their grandson to a good private school. 

 

[00:26:37] And so I said, 'Well, how about we do sell the property in Reservoir in this case, and use the money to help your daughter buy a home in a really good public school zone? And that way, among other things, if you buy well in the right public school zone, it's actually a very good investment. But then you'll have secured the education for your grandson'. So that's the type of conversations we have. 

 

[00:27:04] We had a client, and sadly, so many of those wonderful clients, really hardworking people. He's a plumber, she's a teacher, [they] live in Altona Meadows, which is modest suburb west of Melbourne. Their daughters go to Altona High, which is a good school and Altona proper down on the beach is a much nicer location. 

 

[00:27:48] But they've worked hard, put money aside, and bought two investment properties, one each for one of the girls, hoping when they grow up, at least they'll have some good. But they've been put into those properties by some spruiker and they were new build apartments in town. Guess what? They were going absolutely nowhere. And I said, 'Look, I know this is going to sound like really weird advice, but here's my advice to you. I think you should sell those two properties and buy yourself a really lovely period home in central Altona. Buy yourself a nice home to live in'. 

His clients in these situations are often hardworking people who have put themselves last and their families first and sacrificed everything for them, so it’s not uncommon for them to see Thornley’s advice as too good to be true.

[00:28:03] I'm sitting here going, 'Hey, you get this lovely period home on 700 square metres, five minutes walk from Altona station and the beach. And that thing's going to double in value all day long over the next 10 years, tax free. You're gonna get to live in a beautiful home, your daughters are gonna be able to walk to school, yours is going to be the home that your daughters' friends come home to, because you'll be the closest to the school. Everything's going to work out great. And you'll make literally twice the money that you would have made by hanging on to these things that you feel that you need to hang on to because you're trying to do the right thing'. 

  

[00:28:34] So that's what we call the LongView conversation. It can end up in all sorts of different places we don't expect and the client doesn't expect. Because every client is different. Every client is in a different stage in life. Every property is different. And unless somebody's willing to take the time to really understand your situation, and your properties and your needs, then they're in no position to give you advice about anything. And as we know, the only advice the real estate sales industry, all $16 billion of it, will ever give anyone is: 'Did you know today is a great time to sell?'

 

[00:28:54] Because your property's worth $32,000 commission to me. 

Tyrone Shum:   

The data science used at LongView is mostly historical data, and although it updates when a transaction occurs, the bulk of their advice is based on over 50 years’ worth of price data on individual assets. This remains as relevant as ever, as it teaches us two lessons.

Evan Thornley:   

[00:30:19] There's a really important difference that many buyers advisors and buyer's advocates actually don't understand the difference on this. And they're good people, they do great work, but this is a subtle, but really important point. 

  

[00:30:07] Everyone knows, and every good buyer's adviser will tell you— let's take a simple example— ‘Buy in a side street, not on a main road. Side streets will always be worth more than main roads’. And of course, that is true and of course, they're nicer places to live. So I'm not disputing that for a moment. 

 

[00:30:44] But on its facts, here's the thing. If the side street on average is a 20% premium to the main road today, and if 10 years from now, a side street is a 20% premium to the main road, then actually, from an investment point of view, they performed identically. There's a difference between a price premium— what is worth more than something else today— and a growth premium— what is going to grow faster than something else over time. They're different questions. 

  

[00:31:14] And most people, including many in the industry, confuse a price premium of what's going to be worth more today, with a growth premium, what is going to grow faster. 

  

[00:31:27] And so, for example, in good public school districts in Melbourne, you get a price premium. You often get 20% more on one side of the road than the other because it's in another school zone. 

 

[00:31:41] And so in and of itself, that's not necessarily an investment reason to buy. I think as an owner occupier, if you can get your kids into good government school, that's easily the most smart transaction you'll ever make as the education will be just as good and cost you nothing after tax income, and you'll make good capital growth on your property. 

 

Tyrone Shum:
However, as it turns out, that price premium has been growing in some school districts.

[00:32:04] In the Glen Waverley Secondary College districts 20 years ago [or] 15 years ago, you paid a 15% premium to be inside the district versus outside the district. Now you're paying a 40% premium to be inside the district than outside the district. 

  

[00:32:19] And so while Glen Waverly as a suburb had very good capital growth, 8.1% over this period, so doubling every 9.2 years. So very good, much better than a much more salubrious suburb like Brighton, which only did 6.2%, so that was interesting itself. 

  

[00:32:34] But the Glen Waverley Secondary College School district, as a subset of Glen Waverley, did 11.1% per annum over that period. So doubling every... whatever it is, seven a half years. Amazing. Okay, so the data science tells you something interesting there. You didn't just get a price premium, you got a growth premium. 

 

[00:32:50] But— and here's the second part— we just appraised a property for a client inside the Glen Waverley Secondary College School district. And we had to give them the heartbreaking news that that property was now worth 20% less than what they paid for it 10 years ago.

  

[00:33:10] You buy a property, you can guess what the property was: A one bedroom, off-the-plan apartment that they bought for $375,000 and was now worth $320,000. 10 years later. When the high land content properties around the corner, in the same suburb, in the same school district, had done 11.1% per annum. It had doubled in seven years. So, there's a difference between price premiums and growth premiums. And you don't buy a suburb, you buy a property.

  

[00:33:48] It's really heartbreaking.

  

[00:33:51] We talked about ourselves increasing, we might have used this phrase, the property doctor. I felt like I'm the cancer specialist on that one, right? Like, just how do you give someone just terrible news? This is just terrible news. And, you are the— I don't want to make light of serious health issues— But you are saying this is actually terrible news, and it's not going to get better. It's really not.

 

[00:34:13] But some sales agent probably got paid a 6% commission to sell that thing instead of 2%. Some property developer made tons of money on it. And our mums and dads got resold. And it's just the injustice of that.  

 

[00:34:33] I grew up poor as shit, right? Like, I know what it's like to have to struggle for everything you've got. And to see mums and dads, the injustice of that, to me is a real fire in the belly. 

 

[00:34:45] That's a lot of the reason we're doing what we're doing at LongView. We want the next generation of kids to be able to buy their homes, especially if they don't have the 'Bank of Mum and Dad' to help them. And we want the renters to get a better experience than we've got. And we want the Mum and Dad property investors to get a fair deal, to get proper advice, to get a good, safe investment in good quality property or hopefully in our world, multiple properties to share multiple properties. And I'm sure the other guys will still make enough money and they'll be fine.

Tyrone Shum:   

Thornley’s integrity is one of his greatest assets, and its value will never decrease. He uses that integrity to help others and to make a positive difference, which is what inspired the name of his company LongView.

Evan Thornley:   

[00:35:41] There's a reason we called it LongView. This is property, it's a long game, but it's about homes. At the end of the day, residential property is about homes. And we want everyone to be able to feel like they live in a good home. Whether they're an owner, the owner of that home where they live, or they're a tenant in that home, or they're the owner of a home that somebody else lives in. Everyone's entitled to live in a place that they can really call home.

Tyrone Shum:   

Thornley has certainly learnt most of what he knows from others who knew what they were doing, and is the first to acknowledge it.

Evan Thornley:   

[00:36:57] As Mal James' best client for a number of years, I've learnt a huge amount about buying well from Mal, who's one of the day ends of the buying advisory profession in Melbourne. [I'm] very grateful to him, he's a lovely guy.  

 

[00:37:15] Finding the right property mentors, I think, is really critical. But sometimes those property mentors... also there's folks who have a lot of experience in property and who may well have made good money in property, but not all of those people are necessarily the right mentors. Again, it kind of goes back to the situation. 

  

[00:37:40] I definitely think, as I say, I think property is a team sport. You need a good mortgage advisor. The number one thing is you've got to buy the right asset. And so good professional advice, based on both experience and data, will minimise the chances that you don't buy a good asset and maximise the chances that you do. 

  

[00:38:00] The second most important thing will be that you finance that property correctly. And so getting good advice about what proportion of debt and equity and then getting the best deal on the debt through a good mortgage broker. 

 

[00:38:13] So I learnt a ton, actually, from a couple of really high quality mortgage brokers. We often refer clients who need help to some of the better mortgage brokers in Melbourne. Jonathan Kline Spinks and Bruce Bramall and Phoebe Blamey and a number other folks [who are] just terrific. Small boutique mortgage brokers who really care about their clients and really go the extra mile. Incredibly important. 

 

[00:38:38] So, somebody who can buy with experience and data, somebody who can give really good advice on mortgage— if you have those two people on your team, then you're off to a flying start. 

 

[00:38:52] And then of course, the third thing you need is property management done properly, by people who give a [you know what]. And literally 95% of the property management businesses in this country are owned by people who don't care about property management. They're owned by your local real estate sales agent. 

  

[00:39:06] And that's why we started LongView in property management. We just said, 'How about we run property management for the sake of the landlords and the tenants, not for the sake of getting sales?' 

  

[00:39:14] And there are other fine property managers. The great thing about the property management industry is it's so fragmented. That I know all the other really great property management firms, certainly in Melbourne, [and] a lot of them around the country and we're great admirers of all of them. 

Thornley’s integrity and moral code comes into play here as well, as he dismisses the idea of competing and instead shares everything he can about his business.

  

[00:39:36] I'm not in competition with another property manager in Melbourne. Like, we're in the top 10 of property managers in Melbourne, I've got 1.5% market share. So I'm not going to be competing with another single firm on any more than one in 100 properties. So, I have so much more to learn by sharing things with my colleagues. I see them as colleagues more than competitors. 

 

[00:39:55] And I'd say the same about buyer's advisors. I'm spending more and more time, we're going to try and play a bigger role in really bringing the buyers advisory profession together more. Because we don't compete with each other. Our competition is do it yourself. That's the competition that's got 95% [or] 98% market share, is, 'No I don't need your help buying a property. I know what I'm doing. I've done it before'. 

 

[00:40:16] So that part of it I really enjoy. There are some really wonderful property management companies right around the country and some really wonderful buying advisory firms and buying professionals. And I learn the most from talking to my colleagues in the industry and try and share everything that we're learning with them as well.

Tyrone Shum:   

[00:40:45] If you could take a time machine back and meet yourself, say 10 years ago, what do you think you would have said to him?

Evan Thornley:   

[00:40:53] Buy solid, older dwellings on well-located pieces of land. With the bank's money!

Tyrone Shum:   

[00:41:04] Speaking of which, you mentioned yes, you're buying properties that cash, at what point did you realise you could actually buy with the bank's money?

Evan Thornley:   

[00:41:12] I feel I didn't need to, so why would I do that? Obviously I was in a very fortunate position to do that. But I didn't understand leverage. I really did not understand, 'Oh, hang on a minute, if I buy a $1 million property with $200,000 of mine and $800,000 of theirs and I buy a good property— which is the key thing, buying good property, one that will double in value in 10 years, not one that won't— then 10 years from now it's worth $2 million. So that means my equity has gone from $200,000 to $1.2 million and the bank gets their $800,000 back'. The moment I understood that, my life changed.

[00:08:43] So I've only learnt about what they call in the trade, levered equity returns later in life. And not really understanding the power of leverage. I just couldn't understand, actually, why people invested in property at all, because when you look at it on a yield basis, it's a rubbish investment. 

 

[00:08:59] So for the longest time, I couldn't understand why anyone invested in property because I really didn't understand how leverage works. And so the real aha moment completely for me was when when I actually understood that all the upside is yours. And so then, of course, the critical question becomes: Which properties are going to get that capital growth and which ones aren't? 

 

[00:41:48] Here's the thing, right? Like, I mean, I've run a public company, I was at McKinsey with a whole bunch of Rhodes Scholars. I've worked with some of the smartest people in the world. No one had ever told me that. And if nobody told me that, then goodness knows a lot of other people hadn't been told that. I only learnt really late in life, 'Hey, brother, here's how it works. Land appreciates, buildings depreciate'.

 

[00:42:16] We all get seduced by the real estate sales and property development industry's fascination with beautiful things. Hey, I love beautiful things. I love beautiful cars, too, but they're worth 25% less the day you drive it off the new sales lot, right? Like, that's just how it works. So if you want beautiful things, have them in your home. Don't buy them as an investment.

Tyrone Shum:   

[00:42:39] So, looking forward to the future. What are you most excited about, not only just for LongView, but for yourself? For the next five years, what are you excited about in your journey as a property investor?

Evan Thornley:   

[00:42:54] It's hard to not be talking my own book. I guess you've heard what we hope to do both in shared equity and then in creating a large scale rental funds. So I am super excited about those things. 

 

[00:43:05] For me, personally, I think the great excitement in that is the impact it has on our clients, but also our team. We've built an incredible team of people here, this incredible culture. It's a real team organisation, and there's a bit of parental pride, I think as an entrepreneur, in the organisation that you've built, in the careers that you help people to have, in seeing them grow and develop and creating opportunities for them. So, that's probably personally a great joy for me is building the organisation itself and what LongView is becoming, as an organisation and as a place to work. 

 

[00:43:41] And, ultimately, we're a service business. And so it turns out to be really simple. There is no path to client satisfaction in the service business that doesn't drive through staff satisfaction first. And the more you look after your people, the more they will look after the clients and the more they'll look after each other. And so it's a great joy to build a good organisation full of caring people and talented people who are team players, because it's a fun place for them to work. And then we do our best work for our clients.  

 

[00:44:13] When you can see a real transformation in a client's life because you've helped them make better property decisions, that's incredibly rewarding.

Tyrone Shum:   

Thornley has built multi billion dollar businesses— plural— throughout his career, with LongView being the latest. He feels as property is all about fundamentals, and the same can be said for business.

Evan Thornley:   

[00:44:56] You've got to have a business model that's based in a correct understanding of the underlying economics. When you have that, you tend to come up with a business model that's different to other people's. So then you're differentiated. 

 

[00:45:08] And then it's all about building a great team and a great culture. 

 

[00:45:14] The key to building great startups is what I call creating gravity. Once you create a bit of gravity in the core, when there's a group of great people, other great people want to join that group of great people. The more great people there are, the more investors want to build and be part of your business. The more that happens, the more the clients love what you're doing, the more their strategic partners do, the more the media gets interested in what you do, you get that nucleus, right? Get a small, great team of good people and a great culture and then it'll keep attracting people, money, clients, partners, attention. 

 

[00:45:49] So those rules, but you can't do all those things if the underlying premise of the business was not based in correct fundamentals. So, I think all those things are true in every successful business that I've seen. And in any successful business I've been privileged to be part of that's been true, and in every business I've been privileged enough to fail in, that's also been true that we didn't get those things right. 

[00:46:16] Usually we didn't build the business with a correct understanding of the fundamentals, particularly around the customers and the way their needs were or weren't and we weren't close enough to our customers. We had an idea that there's something we wanted to do, but it wasn't necessarily what customers wanted to do, then those businesses failed. Not all of our startups have been successful.

  

[00:46:48] A lot of people build a business because that business does something that they like doing. And that's cool, but that's not the best way to build a business. 

 

[00:46:56] The best way of building a business is to find something where some group of customers has a really pressing need, that you can genuinely help them meet. And then build the company around that.

Tyrone Shum:   

[00:47:19] You've achieved a lot. And you've had a lot of success through not only business, but also property as well. How much of that is due to skill, intelligence and hard work? And how much of it is due to luck?

Evan Thornley:   

[00:47:35] I think what is true in property is true in business. If you do the hard work with the correct fundamentals, it's pretty unlikely that you'll do badly. And if you're in a business— and property investing is one of those businesses where so long as you don't do badly, you'll probably do okay, or better than okay— then that hard work will always be justified. 

 

[00:48:03] When does that turn into, like, unmitigated blue sky? Every once in a while? Sometimes that's because you've had some special insight or you've done something exceptionally well and that's very rewarding. But it's equally as likely to be due to luck. And the purpose of doing the hard work on the good fundamentals is if bad luck comes along, you've got a strong enough foundation that you can get through that. 

 

[00:48:28] We just came into COVID, right? We just had the Melbourne rental market go through the biggest disruption in 100 years. Rental vacancy rates went from 1.8% to 6.1% in six weeks. And we have a rental guarantee offer to our clients, which means we're guaranteed the rent, so that they didn't have to worry about it. 

 

[00:48:49] But we did two years of risk planning, and had a credit committee that meets every day on every single rental guarantee. We built it the right way. And we did hard, hard work on those fundamentals. And we've done a whole bunch of modeling of what would happen if something crazy happened. Not knowing that, as it turns out, it was just around the corner. And we got through that just fine. 

 

[00:49:07] But if we hadn't have done that hard work, we would have been wiped out by that piece of bad luck, as many unfortunately other businesses were. And I'm not saying in many cases, that wasn't their fault, the hard luck was so overwhelming with what happened with COVID. But I think that to me is just a good example of... you know, we could have offered a rental guarantee to anyone at any time, and it's a great product and people love it. But if we'd done that, without doing the really hard grinding work that no one saw behind the scenes with the modeling and the credit process and the structuring of what we did and the way we kept our systems in place and a whole bunch of other things, we would have lost our shirts on that in COVID. And we didn't. 

 

[00:49:52] And so the hard work stopped the bad luck hurting us. And then we're in a position to catch any good luck that comes along. And good luck and bad luck comes along, so if you can mitigate the bad luck and you can catch the good luck, things will work out good.

Thank you to Evan Thornley, our guest on this episode of Property Investory.