Ep 49. Co-Investment with Hope Housing
In this episode, Michelle chats with Allyson Bailie from HOPE Investment. Together they discuss how HOPE Investment came about and how they assist with housing affordability.
Here’s what you’ll learn from today’s episode:
How Hope Housing addresses housing affordability for essential workers.
What their plan for the future is.
How their shared equity model assists the homebuyers.
Why HOPE Housing emphasises on education for buyers.
Listen to the Episode Now
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
Allyson Bailie - HOPE Investment
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Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
Transcript
Michelle
Hi and welcome to another episode of the buyer side podcast the property podcast to help you make smarter property buying decisions now if you've been listening to the episodes over the past time you would know that I'm always on the lookout for helping you. Get into the property market by creative solutions if you like and recently I was reading an article in the Australian financial review and it was talking about hope housing and hope housing is a . A co-investment solution that's solving housing affordability for essential workers now if you are an essential workers. You might want to take a listen to this episode because I am very excited to have Alison Bailey who is. The ahead of marketing and operations with me today to explain what hope housing does and how it can help you get on the property ladder quicker and so without further ado Ali. Thank you so much for being on the show today.
Ally
Thanks Michelle, thanks for the opportunity to speak with you.
Michelle
Now I only came across it. In the last couple of months or so but I know hope housing has been going for a while. Could you tell me about how hope housing came about and you know.
What has been. It's sort of processed till today.
Ally
Yeah, so hope was founded by two Tims and the first Tim Sims he is our financial backer. He's the founder and managing director at Pacific Equity Partners which is one of Australia's largest private equity firms.
Fund managers. He has a deep passion for helping people through his philanthropic initiatives and one of those initiatives is hope housing. The second founder is Tim Buskins and Tim Buskins is actually the CEO of Hope Housing. He came to the table with a very strong background in superannuation and also private equity, they came together. I mean they'd worked previously but back in 2018 they came together and they could see clearly, housing affordability was becoming a really big problem for essential workers, they were increasingly being priced out of communities that needed them and they were being forced, you know, to move to the outer rings of Sydney and do a lot of travel. So that's why they came together and said look, we've got to try and solve this. How are we going to do it? They looked around the world for various models and came back with a shared equity solution. So I mean shared equity or co-investing.
It's new in Australia but it's not something new around the world. So it's something that's being done in Canada and the US and also the UK but it's still relatively new here in Australia.
Michelle
I Love Data. Since your last inception how many successful co-purchases have you actually had, I mean how many essentials. Can you help on a yearly basis and are you hoping to help on a yearly basis?
Ally
I mentioned before that Tim and Tim started work on this in 2018. It took a while to get off the ground because it's just such a new idea but we have been in operation since October last year. So in the last twelve months or a little bit over twelve months we've been able to successfully buy 14 homes which has helped 22 essential workers.
Michelle
Great.
Ally
Yes, so it's exciting and it's great to see you know we're getting some track record and we're proving that our model works. We're proving that there's a demand for it and that essential workers really want this sort of help.
Michelle
Yeah, and so is there sort of a standard shared equity process or is it dependent on the essential worker and how much they bring to the table like do you work with them on a one on one basis.
Ally
We actually are like a wholesaler. So one thing that Tim and Tim never wanted to do was disrupt the way people go about financing homes. So right now they go to the bank and they look to see what sort of mortgage they can get together with their deposit. , and so we didn't want to disrupt that process. So we sort of still go to the bank and we've partnered with a police bank that operates Australia - wide but was happy to work with us while we started our pilot in the Sydney region and that's another important point we have just kicked off in the greater Sydney region.
So we're not buying houses all over Australia yet. We're sort of focusing on that Sydney area, so we've partnered with police banks so they go into the bank to see if they know you still have to have a deposit so minimum two and a half percent deposit for our solution. You still need to be able to service a home loan and then we come on top as the co-investor and we will contribute anywhere between 30 and 50% of the purchase price of property. So we've given lenders the tools that they need to be able to calculate what that co-investment from hope.
Is going to be and then yeah, then they get their home loan Approval conditional approval together with a conditional approval on a co-investment from hope together with their deposit. That's how much they can go out and purchase a house for.
Michelle
Ok, excellent. And so they come to you and I mean then they go out and find a property.
Do you get a say in what they buy, where they buy the type of property they buy, do you guide them? Do you give them education? Because for me, that's what this podcast is all about. It's all about education and you just don't know what you don't know particularly first home buyers. It's the wild wild west out there.
Ally
Absolutely and that's our value proposition to essential workers because sort of until now they've had build to rent solutions where you know a big block of units have been put up and there's like a certain percentage that is sort of put aside for essential workers to be able to sort of rent Our our value proposition is obviously home ownership. But also you choose where you want to live and so obviously it is really really important that we educate ourselves.
Home buyers make sure they buy well because they're using our investors' funds as potentially half of the value of the property that they're going to buy, so it's absolutely crucial.
One of the big things that we built as part of creating hope was our asset due diligence process. So not only do we educate homebuyers on the sorts of properties that we like and don't like to watch out for, things that are good to have, things that are not very good to have, red flags.
Michelle
Yes, red flags.
Ally
Absolutely, But we've also built an investment committee that's got a whole range of different you know checkboxes that need to be ticked before we say yeah, we're happy for. We're happy to co-invest in a particular property. You know we do things like we've partnered with opt-in , one of Australia's biggest valuation firms to help us with a pre-purchase valuation and this was the thing that I alluded to earlier. It took us a little while to get this out of the ground because we've really challenged the way people have done business previously. There weren't too many valuation firms out there that were happy to provide a pre-purchase valuation for a year or a fund manager so you know they've always done post-purchase valuations for lenders for banks but never a pre-purchase for a fund manager. So it's really a different way of thinking and we really needed partners to come on board that believed in what we were doing and wanted to help solve the issue and come up with the solution. So you know evaluations of real prepurchase valuations. A really important part of our due diligence.
That is what actually sets the maximum purchase price because you know our investors always say oh you put in an extra 50%. You're just going to increase property prices people are going to be. You know they're going to have their pockets open and they're willing to pay more but in actual fact in practice what we're seeing is even with hope's co-investment. The behaviors of home buyers doesn't really change. They still want a good but they still want a good price for a property so you know because they're putting in half they have to pay a bit of deposit in a home loan so we didn't sort of know that behavior was going to occur but it has. But you know also we've got a great backstop in that we always put a cap on the purchase price of a property. .
Michelle
Yes, that's good I mean I guess that also goes to show that your education is working because people who are flying blind are just like, throwing up that paddle at auction I've seen it many times but the more you educate yourself and your co-investor is how your essential workers that they become much more aware of what it is the actual process if and the gravity of what it is that they're doing and that they're using partially your investment to do so I think it makes sense that you know they done that.
Now Hope housing has backers and people who believe in this so where do you guys get your investors from? because it's something new I'm not familiar with this arena at all. But it really piques my interest because you say your shoe is on the other foot if there's someone out there who really thinks this is a fantastic scheme which I think it is, allowing more essential workers to you know own their own property. Where do you find your funding?
Ally
Yes, so Hope was built on targeting institutional investors like the big Australian Super Funds but what we found is because shared equity and co-investing is such a new concept in Australia the super funds are a little risk adverse and so they want to see a track record. They want to see proof that this thing works before the JP on board and pile in lots and lots of money. We got a lot of engagement from super funds. They're very interested. They're sitting back and watching but what we're finding is right now and what’s working well for us is family foundations, philanthropic investors and even owners of self-managed super funds.
Now these are always smaller ticks of money but they all count and they all make a difference. It's just that we're not able to help as many people as what we could if a big super fund decided to invest in hope. But you know over time we'll build up that track record and the super funds might start.
Moving away from rental solutions and moving into ownership solutions because if the Aussie dream of home ownership hasn't died, we don't want whole big segments of society just being you know renters.
Their entire life because then that becomes a problem for the super funds later on down the track when they go to retire.
Michelle
Yes I mean look super funds are slow moving beasts aren't I and the whole financial industry is a slow moving Beast. It’s a matter of time. You know you show what it actually the benefits are for them as much as you know the people are helping it will be a matter of time because exactly exactly yeah exactly. Yeah, absolutely. So yeah, and so now.
Ally
Well, what's helping their members to achieve what they want to achieve? yeah which is home ownership but you know it'll happen. I mean they're both shared Equity solutions. But I guess the credit for some of the eligibility criteria is a little bit different in that we don't have the same income caps. We actually have no income caps for eligibility in hope whereas the government has the eligibility caps on the ear, which means that we're definitely targeting Maybe a slightly different audit audience. So whereas the government solution might be for early career essential workers hope is definitely.
Michelle
In New South Wales there's always different. Grants and things available from the New South Wales government to help first home buyers, particular segments of the property buying groups to get that first rung on the ladder.
Ally
Sort of mid-career people who you know have gone from being a single person to a married person to all of a sudden having a family but still living in a 2 bedroom unit but never having the ability to.
Michelle
At the moment we've got the shared equity homebuyer Helper just cut a mouthful which is supporting and creating opportunities for lower income single parents older singles first home buyers to live in their own home is hope similar to that I mean obviously that you're targeting essential workers specifically. But the setup is similar to that.
Ally
Move out of that because they just don't have the affordability to do it so we're targeting that group also.
Michelle
But as particularly with the unit prices and the house prices. You know the gap is getting wider and wider and what even from my side as a buyer’s agent I'm finding never before have I had to help families with children move into the next strata unit as opposed to going from strata to torrent titled. You know they can't bridge that gap anymore so they are kind of stuck so they're going from two- bedroom to three -bedroom apartments for example or a townhouse you know etc. So for you guys to be able to help that tier that is really struggling is actually great because it's actually an additional help. Ah not just the same as the shared equity home buyer. Now with you I note that with the shared equity homebuyer, they have a different kind of contribution depending on whether it's a new dwelling or whether it's an established property. Do you make that differentiation too or?
Ally
I can tell you we don't do new dwellings. So , it has to be existing. It has to be an existing property. So when you know and it needs to we don't do any off the plan we want established properties so you know it's got a track record as well.
Michelle
Oh my God I love that I love that even more now because I am such an advocate for people to understand the risks of new builds and with nearly all new builds there are huge risks involved in that. So I love that you're going for it.
Ally
We definitely have a lot more success with off market properties and also just private treaty as opposed to auction so before when I said that we had we've secured 14 properties. Well we've actually reviewed like more than 50 to get those 14 and we've been out bided at auctions and we've actually said no to a few for various reasons that have come out of due diligence processes.
Michelle
Make it harder of course because there's a lot of demand. You know demand is vastly outstripping supply.
This is your client, so what you call them is your code?
Ally
We call them home buyers before as their potential.
It is a real challenge. The people that we are helping have got low deposits or not enough savings so they are having to do a lot of the groundwork themselves.
Michelle
Do your home buyers find the off markets or do they get help with that or?
Ally
Door knocking real estate agent saying or what do you? What I'm after is how much money I've got for you, has anything coming up and do you know anyone that wants to sell so they are yes they are unfortunately they're pretty cash poor. So really, we haven't actually had a buyer that's used a buyer's agent yet.
Michelle
I think that a buyer's agent is obviously an investment into the process and I'm very much aware that not everyone is in that position. But I think the fact that you are bringing a piece of education to the table as well as money is already a huge advantage for them because most first home buyers without a buyer’s agent. They really are just going on what their parents tell them or what they read in the media or and hopefully listening to this podcast too, but they really need that piece of education because that gives them empowerment to go. Okay, no I know that this is not the way it should be or this is what I need to look out for or.
This is the way I should strategise at auction, Etc, etc. that's exactly right? It's taken me a long time to know what I know for sure and I know that all my clients are experts at what they do.
Ally
Yes,I mean they're experts doing their jobs. They're not experts at buying houses are you?
I was going to say the other really big difference between our model and the government model is they also have purchase price.
Property value limits as well. So they'll only enter into properties that are, I think $900000 if you're a single and one point two million dollars if you're a couple we don't have any of those sorts of limits I mean we have a limit but it's $200,0000 so it definitely gets into the inner rings of Sydney as opposed to pushing you to the outer rings because our value proposition is keeping essential workers within the communities that they serve because that whole trap that commute on top of a twelve hour shift is huge know that's another price.
Michelle
It's interesting because it was actually a report that came out just the other day, where it talked about how many and where had the shared equity home buyer helped actually helped people and it was nowhere near really the inner west or anything like that. It was really at least twenty kilometers away and of course those people needed help too. But for you, you guys that is great that you don't have that cap because literally what can you buy for a million dollars nowadays or or 900K within that inner ring that the ten kilometer radius to the CBD, which is where you know particularly like you said you've done a 12 hour day you don't want to add then another hour to your commute either end.
Ally
Yes, and that's just it and these people don't. They can't use the public transport because you know they work their odd hours. So you know they have to drive themselves and I've spoken to a nurse who was having to drive between Sydney and Newcastle and feeling that she was having little naps along the way. It's very unhealthy.
Michelle
That's not only crazy but also slightly dangerous. I remember in my younger years I used to work for British Airways and I was a purser and a cabin crew member and I used to do, long haul flights and I lived and I was also , flipping properties in Lincolnshire which was about a two and a half hour drive and I would come off a flight just off Hong Kong for example having worked an 18 hour day and then drive and sit and drive in the car I mean I don't know how I did that and that wasn't as regular as these essential workers have to get into work.
This is a much better solution now. Tell me once they've bought the property you obviously own a share in the property. Is there an idea then that they help pay off their mortgage and then help pay your part off as well or do you intend to keep it until they sell it down the track? And is there then a shared profit share?
Ally
Yes we definitely prefer to share. So if we've bought 50% upfront and they haven't bought out any of our share along the way when they go to sell whatever they sell at for we get within the capital gains.
Obviously we're only twelve months in but there's an education piece that needs to come about. Educating essential workers on the importance of, building up their share of their equity share in the property so that they can have access to capital gains, we definitely obviously need to pay off their home loan and that would be their number one priority. Buying out hope along the way is also a really important aspect as well. But you know we can't force people to do that.it's all just going to be through education, if they get a pay rise or if they get a windfall. It’s really important to educate them on the importance of buying out hope because that turns our money over which means that we can then reinvest that money into buying another house for another essential working family.
Michelle
Yes, absolutely and then if they get to keep more of that capital growth when they do sell that gives them that next leg up in their next purchase and hopefully they can do it by themselves by then?
Do you have a cap on how many people you're hoping to help in the coming year Twenty Twenty four?
Ally
Yes, so completely Uncapped We've developed processes and and we've got systems that will scale so we're ready to take on the world. But we're hamstrung at the moment by our invent by investors. So the number of people that are coming on board and investing funds.
We’ve developed great systems and processes that can probably get 30 to 40 essential workers into homes per month and obviously we've got a team of you know people working to try and raise the capital we need to be able to do that.
We built it first and now we're waiting for the funds to come through so we've tested everything and everything works. We've bought these 14 homes and we've helped 22 essential workers. We know it works.
We've got more than 2000 people on our wait list. Back in October we had a current affair approach us off the back of the strain of a financial review article that they'd seen and since then we've been absolutely inundated with people. Just saying like you're out. You're our dream client, come to us like when is it our turn?
We've built a great backend system and we're just now waiting for the investors to jump on board.
Michelle
Wow, are you just? In the meantime I mean you've got 2000 people on the waitlist. Are you still allowing people to be added to the end of the waitlist or have you closed your waitlist for now.
Ally
Yes, it's probably a good idea to close the waitlist. But we just keep engaging you but the waitlist is still open and we're developing some really good communications with those people. Good Dialogue. They're sharing information about their situation that helps us to build out our case with investors and we're keeping them up to date with investor activity. So for all the money that we've gotten in so far we've allocated that to essential workers so we still have a handful of essential workers that are approved out there looking for homes right now. They just haven’t found the right one.
Michelle
Don't do that just yet because I need my listeners to jump on your waitlist.
Ally
More investment funds will be able to open the gates again.
Absolutely yes, we've got lots of information there. There's a form that you can fill in to put your name down on the waitlist. , you can send us an email via you.
Michelle
Excellent. So in the meantime if you are such a person and you hope housing has picked your interest , go to hopehousing.com.au and that's probably the best way to get in touch with Allie’s team.
Also for those investors out there who are thinking this is a good idea and it is. It is a good idea to make a difference with the money that you want to invest with, there is actually a tab onhopehousing.com.au specifically for investors to reach out to them and make a difference because I think this is the way forward for more essential workers out there to to get into the property market and have that security that simply the rental market doesn't afford you? and have a decent life between your work shifts as well. What did you say? Allie.
Ally
I was going to say you've got homeowners in the home as opposed to renters in the home. So there's a lot of proof out there that homes that people own go for more than homes that people have rented.
Michelle
There is actually research that shows that homeowner properties actually perform better than investor owned properties which is very interesting. Yes.
But it's true though and I always say this to my investor clients when we are looking for properties to purchase. We put our own occupier hat on and because tenants it is their home. So It's got to have the same checklists as an investment probably should have and vice versa. If You're a homeowner you've got to put on your thinking hat as an investor on is this a good location quality does it have good internal light. Is it not a cave? Ah you know it's not the castle surrounded by.
High Density etc does it have amenities. You know there's so many things that need to tick but lucky for the people who work with home hope housing. They do get that piece of education which is why as an investor you're going to get a better outcome of.
Thank you so much for coming on. I really appreciate you taking the time. I know you guys are extremely busy right now? but thank you so much for taking the time to explain hope housing to me and everyone listening and I wish you all the greatest success and thanks again.
Ally
Once again Michelle it’s lovely to talk to you and your listeners as well. Thank you for the opportunity.
Michelle
Listen if you have enjoyed this episode and you want to know more about hope housing the website is hopehousing.com.au you can check out all the information on there. If you have any questions for me specifically that you want me to tackle anything and everything to do with property do get in touch, the email is hello@buyyourside.com.au you thank you so much for listening and until next time.