Why Business Owners Should Stop Paying Someone Else’s Mortgage | Luke Randazzo

[00:00] Cold open

Luke: To any owner occupiers that are listening, if you are confident in your business, why would you pay someone else's mortgage off?

Kane: We're selling our third building out of the four. Most people would just give up.

Luke: We still have a bit of a rental crisis, but the people who suffer the most are the renters.

[00:15] Intro and Luke's background

Kane: Hey, I'm Kane Tyler Smith, the founder and CEO of Smartfix and Hypotential. This is Unlocking Business, where we have real conversations around business, leadership, mindset and personal growth. If you've been getting value from these conversations, please take a second to like, subscribe and follow our channels. It helps us reach more people, bring on more guests and share more stories. Now, let's get into this episode.

Kane: Today, I'm joined by Luke Randazzo from Burgess Rawson. You've helped me buy and sell a couple of commercial properties. Beyond that, I've always found you to be a genuine operator who understands property, business and, most importantly, customer service. You have a double degree in commerce and economics and were one of the youngest shareholders and directors of Burgess Rawson, brokering more than 450 million in transactions and hundreds of leasing deals. I know the residential market is chaotic at the moment. What's happening in the commercial world?

[01:03] Where the WA commercial market sits

Luke: Morning, Kane. Thanks for having me. Look, I'm really positive and bullish on the commercial world. The WA market is pretty insulated from the rest of the country and almost the rest of the world, and there's still a lot of capital for good product. The last probably two months, and particularly post-budget, has spooked a few buyers and investors. I think the current Labor government's probably doing their best to discourage investment as a whole, but the resi market's been hit way harder than our commercial markets.

Luke: So I know a lot of people in our industry are actually trying to turn that into a positive, where commercial has been untouched by these new laws and is still open for business for investment. So commercial is good. Different asset classes are performing better than others, but WA is still in a pretty strong position.

Kane: Disencourage is probably a nice way of putting that, because as we just spoke about before, they've pretty much stopped any investors buying any residential unless it's a new build.

[02:07] Residential investor changes and renters

Luke: Correct. Basically any investor buying an existing house as of July 1 that they're not going to use as their primary place of residence is not going to get the benefits of negative gearing or capital gains tax now. So virtually that whole implementation has meant there's no investors in this market anymore, and that encourages the first home buyers to get into the market.

Luke: But my strong position, and I know a lot of people would agree, is that's probably not the correct way to encourage first home buyers or even encourage our residential market to keep growing. You can't just shut out people who are investors. An investor means that someone's saved money, sacrificed and put their neck out, and they also solve the rental issue in WA, where we still have a bit of a rental crisis. The investors will be okay, they'll allocate their capital elsewhere. But the people who suffer the most are the renters. In any global housing market, you have to have renters. Not everyone wants to be a buyer. It's just simple demand and supply, and we will see rents go up.

[03:11] Why rents will go up

Luke: And those who can't necessarily afford to buy a house, or don't want to be a homeowner, will suffer because their rents will go up. You have to remember, not everyone wants to be a homeowner with a 30 or 40 year mortgage, a financial noose around their neck. That's an absolute reality.

Kane: So why will rents go up? Is that because there's not enough investor properties?

Luke: Spot on. If we don't have investors to solve that issue... Basically what's recently been implemented has meant that the government only wants owner occupiers in the market, other than our existing investors who own properties, and a lot of those are spooked as well and will probably sell out at some point too. Existing investors with deals done before last financial year, this doesn't affect them.

Kane: That's right. They're all grandfathered, is the term. So they can continue to negative gear and they're not impacted.

Luke: But I think it's only a matter of time, especially depending on the demographic and age of those investors, before they sell up and simplify as well.

Kane: Interesting.

[04:13] What the government is trying to do

Kane: So what do you think the government's thought process is? Are they trying to make it so that houses for sale are less competitive, because there's not investors potentially outbidding the younger people?

Luke: Yep, and there is some truth to that. As recent as, let's call it, 6 to 12 months ago, there was a really strong theme of East Coast investors buying properties in WA sight unseen and outbidding WA buyers, and that is disheartening for WA buyers. So I can empathise and see that side of things. But I think the government unfortunately has just had this one lens, that we're just helping young people get into the market. There are so many other factors you have to consider, because yes, you're helping young people get in the market, but you're disrupting a whole lot of other things. And like I alluded to, the renters are the ones who are really going to suffer.

Kane: Yeah, they will. That's going to be very interesting to see how it plays out. But those laws don't affect commercial at all.

Luke: No, no, no. And that's where, again, the commercial industry is pivoting now to really sell itself. We're untouched by those tax reforms and as a result we're open for business. Come and invest in commercial anyway.

[05:16] New builds, trades and housing supply

Kane: Okay. One more question on residential then. If I'm an investor and I want to do residential, I can do a new build property, but can you still claim that as a...

Luke: Negative gearing, yes, that's fine. That's my understanding as well.

Kane: So then the flip side of that is it's encouraging new developments and new builds, and new builds then hypothetically solve the supply issue.

Luke: Yeah. There's not enough trades or houses being built. And a big issue in WA as well is a lot of the trades have been diverted to public work, with all this expenditure by state government at the moment. If you're a trade, are you going to take a private job where you think, "Yeah, I'll probably get paid, but there's a chance I won't," or are you going to take a public job? Of course you're going to take a public job. It's guaranteed.

Kane: So when you say public, as in government funded?

Luke: Yeah, Metronet. Government funded projects. So that rips a lot of our labour out as it is as well.

[06:18] The housing shortage and the 5% deposit scheme

Luke: So there's a huge shortage of housing, and that's a national shortage as well. Migration is at an all-time high. Any country needs migration, but obviously it needs to be within a controlled measure, so that you have enough housing for the people coming into the country.

Kane: I suppose that would be affected as well, if we've got migrants coming in that can't buy houses.

Luke: Yeah, absolutely, it's just adding to the melting pot. And then on top of that you throw in the 5% deposit scheme that the government's put in place as well. I just think that's insanity. I think it's actually really unfair to those who are taking advantage of it, and I'm sure there's people who would disagree with that. But if you're putting 5% up, that means you're borrowing 95%. So good luck paying off your principal. And if the market does go down a little bit, and it's been in the news recently, this concept of negative equity, you're already behind.

Luke: People are going to have a lot of sleepless nights if you've got yourself in the market and then your house goes down by 5%. You're not paying any principal off and you're going to have a 40 or 50 year financial noose around your neck, because you're just paying interest.

Kane: Does that put the banks at higher risk as well?

Luke: Yeah, certainly does. Whether it's like a big short, I don't think it's to that extreme of subprime lending, but I just think it's irresponsible to be doing 5% deposits. I'm probably old school in the sense that you should be able to put up 20%, and that kind of warrants being able to buy a house. Borrowing 95% is frightening.

[07:36] Price caps and WA house price growth

Kane: And it applies to properties up to the value of 850K?

Luke: Yes, I think it's for first home buyers, correct.

Kane: And there are rumours that'll go up, though, because the average house price is way higher than that.

Luke: That's right. And if you look at WA's median house price, we used to always just refer to Sydney as the gold standard, but in the last three years WA has experienced double digit growth every year. It's been incredible. That's probably more a product of, let's wind back 10 years, where growth was quite stagnant. If we had consistent growth, even if it was 4 or 5% a year, then you'd probably not find that we would have this insane correction that we've had over the last three years.

[08:24] Winners and losers

Luke: So a lot of people have benefited, but there's a lot of people who have suffered from it as well, because they've been wanting to get in the market, haven't really jumped in and have just watched the market go ballistic. I'm optimistic, and I do empathise with first home buyers. I'm optimistic that some people can get in the market now with the recent reform. But there's always winners and losers. That's how it works. And again, not to go political, because I'm certainly not interested in being a politician in any sense, but they're kind of damned if they do and damned if they don't. In any decision they generally make, there's going to be a party, major or minor, or a population of people that's going to be upset.

[09:27] Why nobody talks about commercial investing

Kane: Why do you think that through school and early career years, everyone just talks about buying investment properties? Buy your home, buy an investment property in residential, and commercial is never spoken about. I never thought of buying commercial as an investment until probably my late 20s, early 30s. Why is that?

Luke: It's a good question. I think it's a social stigma as well. And look, I agree that if anyone was listening now and wanted my advice, I would say get your house first before doing commercial. I really do believe in that. Get your base and your headquarters, make sure that you're sorted out with a house first, and then explore commercial. Generally for most people financially, that's the order you take.

Luke: If you're buying a house, then you've got to stockpile your reserves again to save that deposit, and you need a bigger deposit to do commercial than you would for resi. Let's talk in real terms: for resi it's 20%, don't worry about the 5%. Commercial, loan-wise, you've probably got to put up 35%. So I don't know many young people who have gone, "I'll go and buy a factory unit or an office investment or a retail asset, something like that, before I buy my house." 99.9% of investors will be buying their home first.

[10:32] Buying your home first, and the risks in commercial

Kane: And you reckon that's the right way to do it? Their principal home, not an investment property?

Luke: Yeah, I do. If you don't buy your principal home, are you going to live with mum and dad till you're 35? Again, it's subject to each person's financial position, but I think it makes sense to have a roof over your head that's yours. There are some gutsy investors out there who might say they rent and then buy commercial.

Luke: But the other thing I would say is you need a level of sophistication when investing in commercial property, because if you don't know what you're doing, you can really get unstuck. You buy something for too much because you buy it on a yield, but little did you know it's over-rented by 15%. Then you have vacancy risk, where a tenant moves out and, depending on the asset, it could take several months to fill it up again, and you're paying the outgoings during that period of time.

[11:33] Commercial vs residential returns

Luke: So I'm not disengaging from commercial. It's what I live and breathe and I love commercial property, but there needs to be an understanding, a level of sophistication, when buying commercial. Most of the time, if a commercial property goes vacant and a residential house goes vacant, it's easier to rent the house out within a short period of time than it is to rent the commercial property out, generally speaking.

Kane: But I suppose on the flip side, when you do get a commercial lease in place it's usually 3 to 5 years, whereas residential is short term.

Luke: Oh, absolutely. And remember in commercial leases the tenant pays all your outgoings. Obviously if it's retail there's a Retail Tenancy Act and there's a few quirks to that, but with commercial the simple term of high risk and high reward is true to form.

Kane: So with a house, the landlord pays council rates, land tax, water rates, strata levies and insurance, all of those things. You invest in commercial and for whatever reason that's the tenant's responsibility. Management fees as well.

[12:37] Buying through a self-managed super fund

Luke: So if you can get it right in commercial, it's probably a lot more lucrative. That's why housing might have a 3 to 4% return and commercial assets can have 6 to 7%.

Kane: Is that right?

Luke: Yep, absolutely.

Kane: It's interesting, because when we started working with you on a commercial property, when I first learned about it, it did sound like a no-brainer for someone like me who has a business that can operate from our commercial building. And then learning about the self-managed super fund scenario, where we can use the money we already have in super to buy property and basically pay no deposit because it's in your super. I learned about that quite late. Is that common? Do a lot of people buy commercial property in self-managed super?

Luke: Yes, it's really prevalent nowadays. And the best type of buyers in commercial, in terms of the ones that are really set up to succeed, are owner occupiers, because you can buy it through your super fund, put your business in there and then pay yourself a rent.

[13:40] Owner occupiers and paying someone else's mortgage

Luke: As long as you're confident in your business and that you can sustain that rent and keep paying your repayments, it's kind of the most ideal circumstance. And to any owner occupiers that are listening, if you are confident in your business and that you're going to have a sustainable business for, let's call it, between 5 and 10 years, then why would you pay someone else's mortgage off? Go and find something and pay it off, and then you've got an asset as well.

Kane: That's what we thought.

Luke: Yep. Definitely. I always use the term that a commercial property for owner occupiers is a vehicle to park your business, and your business should be generating money as well. If you buy right and buy correctly, you might even get a little bit of capital growth in there as well.

Kane: Would that be potentially a fairly high risk situation? Because if the business does start to not go under, but produce less money, they have the flexibility to stop paying the rent to their super. Obviously the super's highly regulated and you legally have to pay market rent within that financial year.

[14:43] Risk of having all your eggs in one basket

Kane: Do you think that's risky for someone then, if they've got all their eggs in one basket, their self-managed super fund property, their business is renting it, the business hits the fan, they could lose everything?

Luke: But if you buy a good property that's relatively universal, universal in the sense that it works for your business, but can it work for someone else's business? Therefore, if your business does start to suffer and you go, "Okay, we've got to downsize, we've got to move out, we've got to do something differently," can you rent it to someone else? Whereas if you've got a super specialised property that only works for Kane's business or Luke's business, and you can't really rent it to someone else unless you make major modifications or major changes, that's when it becomes a little bit trickier.

Luke: But if it's a relatively, again I use the word universal, property that goes, "Okay, yep, it's an office warehouse, any other operator can use it, it's got decent parking, it's easy to access," then we can rent it elsewhere and it still serves a purpose. And then you can separate business and property as well.

[15:46] Fit-outs, make good and incentives

Kane: With that, I know a lot of people when they take on a long-term lease will do a fit-out. Fit-outs are very expensive. Why is it that when the lease ends, and I could be wrong here, most of the time the tenant is required to remove the fit-out? That seems mental to me.

Luke: Yeah. That's called make good, and the make good comes back to the landlord's discretion. If it adds value to the property, then the landlord might say you can leave it here, or we even cut a deal where you don't have to make good, or I'll buy part of your fit-out from you because the next person can come in and utilise it. Alternatively, if it's super specialised to what you do and the landlord goes, "I don't think I'm going to relet it because of the colour of the walls or the product that you've used," you've got to start again. That's a bugbear for a lot of tenants, spending a bomb on someone else's property.

Luke: So that's an interesting one, and that's where those conversations come up of "I just want to buy my own property, because then whatever I spend on it is mine anyway." Alternatively, there are tenants asking landlords for fit-out contributions, because it's the landlord's property that they're going to be upgrading.

[16:50] How lease incentives work

Luke: Again, it depends on the asset class. If you talk industrial, and I don't specialise in industrial, but the guys in our office virtually have no incentive, no rent free. But if you go into the office market, incentive is really prevalent, and that's always in the form of rent free or a fit-out contribution. Generally you work out a percentage and then go back to the tenant and say, "How do you want to take this incentive? In the form of rent free, a fit-out contribution, a combination of both, or one or the other?"

Kane: So that's like a negotiation to try and get the tenant to do potentially a longer-term lease.

Luke: Yeah, a longer lease. The size of the incentive in dollar figures, not as a percentage, will be bigger if it's a longer lease. So then it's give and take. The landlord would have technically guaranteed tenure. Say it's a three-year term and I want a five-year term, so 36 months versus 60 months. If you've got 60 months, that means you've got income for another 24 months, so I'll give you more upfront to get that guaranteed tenure for the extra 24 months.

[17:52] Shorter office leases after COVID

Kane: Interesting.

Luke: In saying that, just to divert a little bit, the office market is in an interesting position, where you're probably not seeing as many 5 to 7 year deals. They're more, I'm going to go as far as saying, two to three year deals. Obviously the bigger CBD ones, where there is a greater investment into the fit-out, might take longer deals, but I definitely think post-COVID those terms have gotten shorter.

Kane: And in those scenarios it would be better for the tenant to have shorter terms.

Luke: Well, it's more about the uncertainty of what they need, and post-COVID has struck a lot of uncertainty into office users. I mean, we've got 80 staff and we were all five days a week. Our sales team still come in five days a week because of the nature of what we do, but our property managers would probably do three days a week and then have that flexibility of the other two where they're still working but not necessarily in our office.

Kane: And they still do that to date now?

[18:56] Hybrid work and office space

Luke: Yeah, we do. That leads to the question of what your requirements are for an office. Do you still need an office that's x square metres, or can you work differently? Can you hot desk? Can you have more areas where people can make quiet phone calls? We call it activity based work, where you hot desk and have smaller areas, and people don't necessarily need a big chunky desk five days a week. That's something that not just our business but all businesses are continuously reviewing.

Kane: Do you think it affects people's performance if they have that flexibility and they don't have a designated place to work?

Luke: I think it comes back to the individual and the nature of their role. If you were asking someone who is in IT and doing coding, does it matter if you come to St Georges Terrace to do it, or could you do it from your bedroom at home on a computer, they'd probably go, "It does not matter, I don't need to come in. It's not about culture, here's my work, I'll do it." It doesn't even matter if they're doing it from 9 to 5.

[19:58] Sales teams and working together

Luke: But if you ask someone like myself who's in sales, we've got to be in every single day, because you feed off each other. You actually share information. You listen to each other in the office. So it depends on the individual and also on the nature of what industry you work in.

Kane: Yeah, that is very true. Some people, like you're saying with the coders specifically, just...

Kane: They don't want to be around other people.

Luke: No, they don't. Even within our own office, we've got different departments of valuation, finance, sales and leasing, and property management. We're all, I would almost go as far as saying, different characters, and our jobs require different things. I find the sales and leasing guys can be kind of loud and chaotic on the phones, and the property managers probably think, even though they're in a different part of the office, "Can you guys just be quiet? Let us do our work." So they probably get some peace and quiet and reprieve on the days that they get to work from home.

[21:00] Different people, different working styles

Luke: So I think you've got to have an open mindset and really consider who the individual is, because that's also important. Not just their role, but how they work well. Is it disruptive to have chaos, or do they get more work done when it's peace and quiet, or vice versa? As me personally, I really thrive in that chaotic environment, because you've got everyone around you and you're feeding off each other, but we're all trying to transact. That's the nature of what we do.

Kane: It's a very hard one. We've been in different positions where we've had everyone in individual offices, and half the team in an open area. We're still trying to work it out now and I still don't know what I prefer, to be honest. Sometimes I might work a day from home here or there and I'll get insane amounts of work done. But then if you get into a routine of doing that, it tapers off. So I think it's just that change in scenery. Going back to commercial leases being such a long term...

[22:02] Getting out of a long-term lease

Kane: I understand there's obviously contracts in place for those long terms. What happens if someone has a long-term lease, let's say five years, and the business fails at two years? How can they get out of that, or can't they?

Luke: Look, they can't, unless they take certain actions in terms of defaulting themselves, and then they'll lose the form of security they put in place. Generally that's a bank guarantee or security bond. Industry standard is anywhere from 3 to 6 months of gross rent upfront. So at least the landlord has a little bit of security and, in turn, time to make arrangements.

Luke: Basically, if a tenant did get in that position, they would have to make a decision. One, are we going to assign the lease to someone else? So try and find someone else that they can assign the lease to, and obviously the landlord's got to agree with who that tenant is, so it's got to be of equal or better quality. Two, sublease, so they still keep their name on the head lease, keep paying the rent that they've agreed to, and then sublet to somebody else. Or three, find a surrender option. A surrender is generally quite an expensive option as well, where they might engage a leasing agent, for example, and try and get out altogether. But there's generally costs involved either way.

[23:05] When tenants outgrow their lease

Kane: Does this happen often?

Luke: Not too often, but it does happen in the market, of course it does. Things don't always go as people and businesses plan. It can also happen because businesses are growing. I did an office lease a few years ago for a software company in West Perth that recently called and said, "We now need double the size. Our lease doesn't finish till later in 2027, but we need more space." So I did the same exercise, where here are your options. You can engage us to find a subtenant for you, or we can try and assign the lease, or you can terminate. We can advertise, and you just go down that path. So it's not always doom and gloom, and sometimes it's for a positive reason. In this case, a business is busting at the seams because they've grown really quickly, faster than they anticipated when they signed that three-year lease.

[24:07] Keeping the team in one building

Kane: They probably wouldn't get a second property, because they probably want everyone in the same building.

Luke: Spot on. That was something we offered them, the floor below, because that was coming up in 6 to 12 months, and they said, "No, we want everyone on the same floor. That's how we operate. We don't want a staircase separating us."

Kane: That's so interesting. I think that's something we've learned a lot. We had four buildings at one point, and even though they're in the same complex, next door, 10 metres away, or even up and down the stairs, in my opinion it makes such a huge difference for culture being physically in the same building.

Luke: That separation, yeah. Even if it's so close, it's sometimes easier just to get up and walk and talk to someone. 100%, I couldn't agree more. And I think that's where the sales guys in our office get a bugbear, because we're all extroverted and wanting to talk. We want to get up and tap someone on the shoulder, whereas you have different personalities who prefer to just deal by email or Teams, and that's normal and great as well. But again, I can only refer to my own personal experience.

[25:11] Communication and documentation

Luke: Sales guys want everything here and now. You just want to get up and get an answer straight away. You can keep pushing a transaction, but there are people who just prefer to do it all via emails and Teams chats, slow and steady. So again, it comes back to that theme of it depends on the individual.

Kane: The individual and the business.

Luke: We have a combination of both at the moment. We've got some individual offices, some open areas. We have chats for everything, because sometimes we'll go and speak to someone and have the conversation, but we also will put that in writing so there's a paper trail and so the rest of the team are in the loop. That's a common problem we have: I might have a conversation with someone, we might agree to make a change, we make the change and then forget to tell 10 other people.

Kane: Communicate it back to everyone else.

Luke: Yeah. So we're getting better at that, but a lot of things rely on communication.

Kane: Absolutely. Like our sales team that we have on the road, they're on the road full-time, they would thrive off being able to chat with the guys in person, but it's just not physically possible because they're driving from job to job.

[26:12] How Luke got into commercial real estate

Kane: So we're trying to implement things where once a month we'll get them in for a bit of a sales meeting, but then also maybe we might need to add a second one that is on Teams, like a video call chat, because it is expensive for us to physically get them to the office.

Luke: Yeah, of course. Especially if they're going to all corners of Perth and WA.

Kane: Yeah, makes sense. But...

Luke: To Mandurah and in between. Expensive on fuel and travel and time.

Kane: Yep. So communication and documentation are pretty important in that sense, especially in your industry.

Luke: Oh, big time. Absolutely. Certainly is.

Kane: Highly regulated.

Luke: Yeah.

Kane: What got you into commercial real estate in the first place?

Luke: It was kind of just by chance. I met my mentor, Rob, while selling outdoor furniture, which was a uni job for me in Osborne Park. He and his wife Diana were customers and I sold them some furniture, and then he just said, "I think you'd be good at this. This is what I do and I think you'd be good at it." And that's how it all eventuated.

[27:16] Starting at Burgess Rawson

Luke: I still had a little bit of study to do and some travel. We stayed in touch for a couple of years, and then I was coming home from a six-month holiday, back to full-time work, and was assessing jobs in finance and accounting. I kind of thought, "I don't know if I've got the patience to sit at a desk and look at a spreadsheet for eight or nine hours of the day," and I thought this would be an interesting industry to give a go anyway. So I started in February 2016 at Burgess Rawson and never looked back.

Luke: I really love the industry. No two days are the same, which sounds a bit cliche, but you can really make it happen. That's what's been the best part of this job: your success, or lack of success, is up to you entirely. There's no ceiling on what you can or can't achieve and how fast you want to achieve that.

[28:17] Raising the standards of the industry

Luke: It's either to your benefit or detriment how hard you want to work, and it's been a really fantastic industry to be a part of. I'm really passionate about the industry and improving the standards in the industry as well. Unfortunately I still think that the barriers to entry to be a resi or a commercial real estate agent are far too low. It's a two-week course virtually and you're in. A lot of people might just have one asset their whole life, which a lot of times is just their family home, but it could be one big asset, and then you do a two-week course and you're given the responsibility, and the word I use is privilege, to act on this person's behalf. I don't think we're qualifying real estate agents enough. And I think if you did qualify them more, the industry would have a higher standard.

Luke: Unfortunately, I'm not saying anything people have never heard before, but residential and commercial real estate agents get a bad rap. It's that cliche of the sleazy or untrustworthy real estate agent. It's like one rung above a used car salesman.

[29:21] The real estate licence course

Luke: So my probably broader ambition is to increase the standards of our industry, because if you increase the standards then you have higher quality of work and a more respected and higher performing industry as well.

Kane: Is it the same course to become a commercial real estate agent as residential?

Luke: It's the same. Yep.

Kane: It's literally the same.

Luke: It's a two-week course. You go into REIWA or you can do it online.

Kane: I've actually done it.

Luke: I did it a long time ago.

Kane: Yeah. And then they give you a licence and there you go, you're away. Do you have to do time with someone after the two-week course?

Luke: You have to do the assignment, but no, I don't think you have to, unless it's changed since I did it 10 years ago, which I don't think it has. It's still pretty easy to do.

Kane: That is pretty wild.

Luke: Well, I just think if you had a course that was like any other course, people go to uni or TAFE for several years. I don't know if it has to be several years, but even if it was a course for 6 to 12 months, you'd get people who genuinely want to be in the industry and are willing to put that time in.

[30:23] Why most new agents don't last

Luke: It's like anything, the short-term pain for the long-term gain, because they really want to be in that industry. They told us this at REIWA when I did it 10 years ago: in five years time, I think the stat is like 8% of the people in the room will still be doing real estate. That's the story you hear. You sit in the room and there's so many people that are just trying it because it seems like that easy industry where you can make a lot of money overnight. But the total reality from my own experience is that you're only successful by really grinding it out.

Luke: Especially those first few years are hard. It's helpful if you start young. I think I was 22 or 23 when I started. It helps because I was still living at home, and mum and dad had virtually no expenses. But the first few years are hard, because no one knows who you are. You don't know anything. You really have to establish yourself. So to anyone who's considering the industry, it's got to be a long-term play if you really want to make it.

[31:25] Building a network without social media

Kane: Yeah. I think a big important part of that is definitely that you don't know anyone and no one knows you, and obviously you've done work for me for years.

Luke: Years. Yeah.

Kane: And that's because you have that relationship. You would now have relationships with so many people that would also refer to you as well. So on that note, do you work on your personal brand, social media, to try and keep that going?

Luke: Not really. I'm pretty bad with social media. I couldn't tell you the last time I used LinkedIn or anything like that. The guys in the office are always encouraging it, but for better or worse, I'm probably a little bit old school in that sense. I'm a little bit more under the radar and just deal with real people like you, and it works for me.

Kane: And with those contacts you already have, you're probably busy enough without having to spend time doing it.

Luke: Yeah, it's always busy. I've always referred to it as a snowball: as your career goes on, the snowball keeps getting bigger, and that snowball is your network. What I've always told especially the young guys coming in now is that deals always lead to more transactions.

[32:28] The snowball of deals and referrals

Luke: Because every transaction, I meet Kane who is my buyer, but I've also just dealt with my seller, and then Kane and his seller have a whole network of people. So if you do a good job and the right thing by both sides, they're going to speak to someone, whenever that is, and say, "Oh, Luke did a really good job if you need the right person." That sounds a little bit cliche, but it's so real that if you do a good job, you just keep building your network organically.

Luke: So that's why I don't really do much. Again, maybe I should be doing more on LinkedIn, and I don't have Instagram or anything like that, but I've never really seen that it's yielded. I haven't got a message out of the blue to say, "Hey, I saw that you did this, can you sell my property?" It's never really worked like that. It's probably been more pounding the pavement, and that's a metaphoric term in the sense of still cold calling and trying to pick up business, do a deal, call the neighbours and say, "Hey, we just sold this. What's yours worth?" And then play the long game there.

[33:30] Cold calls that offer information

Kane: Do you do that?

Luke: Oh, absolutely. You have to. It's such an easy call, because you are calling a prospective client and they might have zero interest in selling anyway, but you're offering them information. That's really different to just saying, "Hey Kane, I'm Luke Randazzo from Burgess Rawson, do you want to sell your property?" You go, "Hi Kane, I'm Luke Randazzo from Burgess Rawson. We recently sold the property next door to you." Or even go one further. If you haven't done any deals and you're just starting, go, "The property next to you recently just sold," even if you didn't do the deal.

Luke: You're ringing and giving some information, which means, "Hey Kane, I'm offering you some value." That's all it is. Then Kane makes a decision, goes into more follow-up questions, like "Okay, what did it sell for? I might be in the market to sell in the next three years," or "Hey, thanks, no worries." Can I take your email, can we keep in touch? And that might be a five, six or seven year plan. That's why I go back to that point, it's got to be the long game.

Kane: How much time do you spend doing those cold calls?

Luke: You've got to do, I would say, 10 a week, and that doesn't sound like much, but if you do 10 calls a week over a year, that's 500 calls, or just points of contact.

[34:33] How I bought the buildings next door

Kane: How many times has it happened where you've been able to get a deal in place fairly quickly?

Luke: I would say quickly is less common. Medium to long game is more likely. But I think it does work.

Kane: It'd have to work. It's so funny you say that, because obviously you've done these deals for us. In our complex, when we were turning over good money, we bought unit 1, which was through you, wasn't it, and unit 9.

Luke: Yes.

Kane: When we bought those through you, we had the fish and chip shop on the corner, as you know, and I just called him and said, "Hey, would you be interested in selling your property? We're opposite you and we need the space and I love your building." I think it was a week or two, and it was a hard no. "No, no, no, we're all good, I've just got new tenants in." I think that was it. We'd just got new tenants in for the new fish and chip shop or whatever it was.

[35:36] Planting the seed with neighbours

Kane: I think it was two weeks later he called me and said, "Oh, the tenants left the country, gone back to wherever they were from. We're keen to sell." And then we managed to buy.

Luke: You just plant the seed. If you don't ask, you don't get. 100%.

Kane: And then the neighbour in unit 7, which is the building we're in now, same thing. We said, "Hey, we really want your building." It was so funny, she's an interesting person. We had so much back and forth with her about parking and her raging at us for parking in her bays. But one day we bought her a hamper and said, "Look, we're so sorry for the parking. We know it's a nightmare. Our traders don't listen. Here's a hamper." Best thing we ever did. And then a bit later on we said, "If you ever want to sell, let us know." "I'm not selling to you guys. No way." Okay. Keep bumping into her, keep waving to her, be nice, do the right thing. And one day she's like, "Okay, you can have them."

Kane: There were two side by side, and we managed to get the other person as well, the concrete guys, the other building, because there were two. He had wanted to sell it forever, but he never asked. So I asked a question and eventually got it done.

[36:39] Customer service and following up

Luke: Yeah, it's a people game. You've got to always remind yourself that behind every business or every deal, you're just dealing with people. You're not dealing with a computer. It's a people game. So if you're consistent and keep doing the right thing by people, eventually something happens.

Kane: And that's what I mentioned at the start of the intro, about you and your customer service. I have dealt with a lot of real estate agents in my time and I do find it hard to find ones that understand what customer service is or provide a high level of customer service. It does annoy me, because I'm like, why don't you just do your job properly and you'll get so much repeat work. It's insane. It's actually insane.

Luke: It comes back to what I was alluding to, the low standards in the industry. You just think, how hard is customer service? It's not brain surgery. It's not hard. If someone calls you, call them back if you miss their call. It's so simple. Or if you've taken someone through an inspection, make a note and follow them up. It's the most basic principles, but if you don't do them...

[37:42] Following up on quotes at Smartfix

Kane: That's a good point, because with Smartfix, our trade business, we're heavy on follow-up now. You've spent the money to get the leads in, which we obviously do. We send the guys to site to do the quote, send them the quote, and most people leave it at that, but we don't. We will call them now. We'll arrange a phone call. We say, "If you want to speak to your partner tonight, we'll give you a call tomorrow afternoon, or whenever suits you," and book in that time to call them. And the amount of work we get from that is crazy. I don't have stats, but I'd say it's 10 to 15% of extra work that we've got from doing it. Just follow up.

Luke: Yeah, just follow up.

Kane: It's not that hard.

Luke: It's not. I was myself working on it, and I could be so much better with my system, and there's guys in the office who have a better system. But if you have a good system and utilise the programs, like we use Salesforce, and Salesforce has the new task and follow-up, so you get a reminder come up on your computer screen, even if that's in six months or 12 months or two weeks, whatever it is. It's hardly tech, it's just to make your life easier.

[38:46] Phone calls beat automated follow-ups

Luke: You don't have to be a genius or anything. You just have to have a system and then have a sense of discipline to follow up as well.

Kane: And I know you can automate follow-ups with emails and SMSs, but compared to a phone call we found it's significantly...

Luke: Agreed.

Kane: You have to call.

Luke: That's right. At least once.

Kane: At least once.

Luke: Agreed.

Kane: Our work is obviously going to be different to yours, because your deals are way higher than our average job value, which is probably like $800. Whereas yours is different. So sometimes the guys will get slack and they're like, "I don't want to call that one, it's only $400." It's like, just do it. Just do the things, because if they agree to that job with you and then something else happens in two weeks time, they're probably going to call us again. Whereas if you don't follow up, they end up using someone else that...

Luke: Maybe they followed up.

Kane: Yep. You become their person or their contractor of choice. Definitely. So just simple things, but we can all do it a lot better.

[39:49] Where to invest $1 million today

Kane: If someone had a million dollars to invest today, how do you think they should invest?

Luke: Okay, I'll put a caveat on that question: has that person bought their house yet? Because I've made my position pretty clear, and that's my own personal opinion, I really think you should buy your house first. So assume they've bought their house, and now it might be a young couple in their 30s. They've bought their house and they've paid a good whack of their mortgage off, and now they've built up another deposit to try and do something else, where they can spend up to a million bucks. Is that the scenario? We'll work on that.

Luke: I would encourage commercial investment at that point, especially given what we alluded to earlier, the fact that negative gearing is out of the picture now. Housing is virtually off the table as an investor. You've got your house to live in, and one to invest in isn't really financially or commercially viable. I would encourage buying in commercial, but with the caveat that you need to buy well. And by well I mean, is there any rental upside? Is there any vacancy risk that you can take on but you're confident to rent it out later? If you do have vacancy risk, is it going to be empty for 3 to 6 months? Buying the right commercial property is everything.

[40:54] Industrial, retail and office

Luke: The asset classes that are performing quite well at the moment, in my opinion, are industrial, and I still like retail as well. Retail has a few quirks, because management fees, for example, are not recoverable from the tenant. Market reviews can go up or down, whereas most commercial leases have what's called a ratchet clause, where at the market review we generally build in the fact that the rent can't go down. Retail is a true market rent. But those would be the two asset classes I would suggest, retail or industrial. Office is still taboo post-COVID, which I kind of touched on already.

Luke: The only other thing I would say is that unfortunately a million dollars doesn't really get you much anymore. So you are most likely looking at buying a strata. Getting a quality green title asset is possible, but you're not really going to get something in the metro area, or within, let's call it, 30 kilometres of the CBD. You'd be pretty lucky to get something standalone for a million bucks nowadays, that's green title.

[41:59] Green title vs strata

Kane: So green title is its own property. It's not got other tenants within the same complex.

Luke: Yep. Not a strata. That's right.

Kane: I suppose retail would be the opposite. Retail would potentially be something in a shopping centre or...

Luke: Yeah, strip shops or something like that. That's right.

Kane: Whereas you don't own the building, the outside, you own from the walls in.

Luke: Yeah, that's right. It depends. This complex here is a survey strata, which you don't see as much of, where you actually buy a parcel of land within a greater parcel of land. But most commonly it's called built form strata, where you are buying the building, the physical improvements, within a greater complex.

Kane: So what does industrial look like, strata wise?

Luke: Just in general, if you mentioned retail or industrial?

Kane: Yep.

Luke: You're buying a little office warehouse. I don't do industrial, but a million bucks, at a rate per square metre of between three and four grand a metre now for blue chip locations. Osborne Park, Balcatta, I think they're toward that $4,000 a square metre, which is just insane given there's old offices in West Perth that are transacting for less than that.

[43:02] What a million dollars buys

Luke: So again, if you're buying a 300 square metre office warehouse in, let's call it for argument's sake, Malaga, at around $3,000 a square metre, that gets you up toward that million bucks.

Kane: Would that not be classed as commercial? What's the difference between industrial and commercial?

Luke: It's all commercial. That's the banner, and then all the retail assets come under it. So you have resi, commercial, and then you have asset classes: office, medical, industrial, retail, service commercial.

Kane: So the ones on here are industrial.

Luke: Yeah, these are industrial. And obviously unit 9 is an office, but I would classify this as a light industrial complex.

Kane: Yep. Wow.

Luke: Because you've got roller door access, warehouses with truss heights, that kind of thing.

Kane: And they are obviously versatile depending on the person doing the fit-out.

Luke: Absolutely.

[44:04] Office and warehouse mix

Kane: We obviously made this into an entire office space, but other ones sometimes you might have like half office, half warehouse.

Luke: Yep. Normally it's probably a little bit more common to have a greater warehouse proportion to office.

Kane: Always, isn't it? That's always been our pain when we've been looking at trying to move or buy a bigger property. Nothing really has a good combination of half office, half warehouse.

Luke: You'd have to build the office in, or go and buy an office building.

Kane: Where, though?

Luke: Yeah, and when you're talking suburban, it's a little bit harder.

Kane: Maybe Osborne Park if you're lucky. If not, you'd be going to the city.

Luke: Yeah, there'd be a few from here to the city, but when you talk areas like Malaga or Wangara or even Osborne Park, the ratio of warehouse or industrial properties versus offices is far weighted to warehouses, because they're industrial areas. Go to West Perth and you're not going to find any warehouses, or Subiaco. Yeah, they're a dime a dozen.

[45:07] Parking, strata complexes and medical

Luke: So it's just how it works. And with those areas that are further away from the city that are more industrial, you have to be careful with laws around how many parking bays you've got, because a lot of places don't really...

Kane: In the strata complexes, yeah, that's always kind of a big dispute. Or not a dispute, but always a point of pain if you do have a heaving complex and everyone needs parking, and they're all trying to run their own businesses. It's chaos.

Luke: There was a complex I was working on, probably eight or nine years ago, on Albany Highway in Kenwick when I first started, and I think it was 22 industrial units but one big driveway, and each unit had two or three bays. It was full as well. So you had 22 different businesses, and it's just chaos, because it's "that's my common parking, that was mine," and you've got panel beaters and wreckers, and it's just...

Kane: Skip bins everywhere.

Luke: Skip bins, and it was just...

Kane: Why is that? Because it's even the same now. If you drive through Neerabup it's the same thing, just chaos. When we were looking, maybe early this year, potentially going to it's the same thing. It's like a 400 to 500 metre warehouse, three designated bays and street side parking.

[46:09] Why developers squeeze parking

Luke: It comes back to your DA. If you're a developer, you are going to get more money if you sell a bigger building, right? And parking is generally just an amenity that is included when buying a property. This is for any development, and I'd go as far as saying even for mixed use or resi developments, parking is an essential in the sense that it's a nice to have, but often if a developer can squeeze the envelope and get more building size and minimise that parking, then they're going to do that. Selling a 400 square metre building on 101 is more profitable for them than selling a 350 square metre building with 50 square metres of parking. You might add three or four bays, which is really attractive to a buyer, but would a buyer pay more than for having the bigger building? And generally when you're valuing it, you're valuing it on the building size.

Kane: And that'll be why there's always maybe 50 square metres of office space, because you have to have x amount of parking per square metre of office space.

[47:11] Medical and parking

Luke: It kind of depends on the nature of the asset and the industry. The main one when you're talking parking is medical. Each local council generally has in their town planning scheme a rule of thumb that you have to have x amount of bays per practitioner. So that is generally where parking is the biggest issue. Whereas in industrial areas, people will park on the kerbs and the side of the roads and make it work. It's an issue in the sense that you've got an oversupply of cars, but you just make it work. But in medical, if you actually want to get a medical development approved, or a change of use approved, parking is the linchpin of getting it approved or not.

Kane: Okay.

Luke: Because then you also have your patients coming in and out the whole time. Whereas an industrial business, it depends what type of business obviously. If you're customer focused, you need more parking. But an industrial business often will just need its staff to be able to park somewhere.

[48:14] Parking ratios for GPs and gyms

Kane: And might have fewer customers, more deliveries or something like that. Whereas if you're running a GP practice...

Luke: You're turning over patients every 20 minutes.

Kane: And what is the ratio for them?

Luke: It depends on the council. Often it's four bays per consultant or practitioner. So you do have to have pretty generous parking if you're running a GP, that's why you see car parks...

Kane: Because they're always running late, so two or three people are waiting, overlapping.

Luke: That's right, that's exactly right. So that's why, in getting medical developments, or even just a change of use from office to medical, parking is everything.

Kane: Would retail be somewhat similar, like a gym somewhere? I know around here, with a new day and Busters, the car park is chaotic now.

Luke: Yep, a gym's a great example as well. You don't have that same level of control, I suppose, as you would with medical.

[49:17] Gyms, budget fallout and rate rises

Luke: With medical you can forecast it. The doctor can only literally see so many people during the day, and if you've got more than one doctor then you need more parking. But with a gym it's probably just chaos, because there's no real ceiling on it.

Kane: You might have 200 members, you might have three in at midday, but you might have 150 at 4 or 5.

Luke: 5:00, that's exactly right. So gyms are chaos. I know the Revo that went in on Oxford Street in Mount Hawthorn, as an example, I don't think there's an abundance of parking around there. So you can just see young uni students parking wherever they can on Oxford Street or around the surrounding suburb. That's put a bit of pressure on that little locality, just as an example.

Kane: On-street parking especially. You obviously work a lot with business owners that are buying and selling property. What patterns do you see happening at the moment with the recent budget and tax changes?

Luke: Too early to say, to be honest. In terms of actual action, I would just say that the market has probably been a little bit spooked, is the word I would use, between having three consecutive rate rises and then the budget coming out. I don't like to get too political, but I do feel it's anti-aspirational is probably the best way to put it, or anti-ambitious. So there's a bit of uncertainty there. End of financial year can also lead to decision makers holding off making a decision till the new financial year as well.

Luke: But all in all, like I alluded to at the start, I'm so bullish on WA, and there's still lots of capital, and for the right type of assets people are still making decisions, which is fantastic. My feeling is that the repercussions of the budget on the commercial market will hopefully be put in our rear vision mirror and people will get on with business as they always do in WA. We're a really resilient market, and it's a good one to be a part of, because WA business owners just get on with it, which is great.

[51:23] Rate rises and inflation

Kane: I agree. That's what we usually say. With a budget, sometimes it's two to four weeks and everyone just forgets and moves on.

Luke: Yeah, I agree.

Kane: There's rumours that there's two more rate increases this year. Is that right?

Luke: Is that the rumour?

Kane: Yeah, definitely one, but it will come back to what inflation looks like. They're a product of one another. And when is the inflation...

Luke: I'm not sure when they're going to make a decision around that. I think our last CPI is over 4%, so it's definitely not under control. But in terms of when they'll actually make a decision around how that impacts, you'll have to wait for the RBA to make the next announcement.

Kane: Yeah, sit and wait.

Luke: What we hope for, best case scenario, is it stays as is.

Kane: As is would be best case scenario.

Luke: I'm sure any business owner listening would agree they just pay too much tax. So you don't need a rate rise as well to compound all that cash flow going out the door. And I know businesses are working very hard to be profitable, stay afloat and pay staff.

Kane: Yeah. We've just had, you're probably aware, super now. You have to pay super on the same day as payroll.

[52:26] Is now a good time to start a business?

Luke: Yep.

Kane: We have to pay payroll tax monthly now. PAYG, we pay weekly, and our BAS GST has gone from quarterly to monthly. So all those cash flow situations are at the same time. And yet it's very difficult to...

Luke: So let me ask you this question. As a business owner, are you encouraged to go out and do your own business? I know you did it years ago, but if you were starting a business up tomorrow, is this current climate encouraging young entrepreneurs and business owners to do what you've done and go out on their own?

Kane: No way.

Luke: So risky.

Kane: Right? As you know, we had a terrible year last year. We lost a heap of money. We've had to sell. We're selling our third building out of the four, so we're going to be left with one building with a third of the team, which for the business is already better. We lost a heap of money. It's so risky. Most people would just give up, and you go bankrupt and then you don't pay all your tax bills.

[53:29] Discouraging the next wave of business owners

Luke: Yep. So as a society, I think it's being set up to discourage the next wave of people like you who did put your neck out and sacrifice and go for it, right? Go for having your own business, employing people, people have families, and that's how it works. And the next wave of young people like you are going to be discouraged to do that. It'll basically send the message to say, "Play it safe. Stay in your lane. Play it safe." Which I just think is a travesty, to be honest.

Kane: Well, the timing, it sounds like you're saying that most people are going to be employees, with AI disrupting the market on top of everything we've spoken about. It could be an interesting time.

Luke: Yeah, it's just so disappointing. Australia, and WA especially, is literally the land of opportunity. And whether it's tech or the industry you're in or the industry I'm in, you're just not encouraged to do it anymore, which is so disappointing.

[54:33] Opportunity in a thin market

Kane: It's so true. We're probably the largest electrical and aircon business in WA, specifically residential, and we've only got like 20 vans on the road. To me that just says there's huge opportunity here. There's not crazy amounts of competition. There's a lot of one-man bands and stuff, and statistically speaking it's like one in five or one in seven businesses don't get past the first five years or something. So most people don't hang around.

Kane: Going back to customer service, that's why I think we're usually pretty successful, because we do have a high level of customer service. We do what we say. We pay the highest rates to our trades, which means we do charge more. But if the customer service is there, people pay more. They'll pay a premium to have the job done properly by a reputable business that isn't going to disappear in two years time.

Luke: Couldn't agree more. But if you had a bit more support externally, it would be good as well, wouldn't it? In terms of recent reform, it's kind of the opposite, which is really disappointing as a business owner, and you're a business owner as well.

[55:36] Tax and government spending

Kane: What's the situation with all the memes about company ownership? Are there rule changes as well about selling a business?

Luke: I'm not across that, to be honest with you.

Kane: All those ones where it's like...

Luke: Like I said, I'm not on Instagram.

Kane: Okay.

Luke: I think that just comes back to the tax that business owners pay, and the fact that every single angle you turn, you're getting taxed. The level of tax you pay in this country is exorbitant. But from my background in economics it's pretty simple: if government is spending x amount, they have to tax a certain amount to match that. So, not to make this conversation about politics, government expenditure federally is just out of total control, and they have to match that expenditure by taxing the Australian people.

[56:38] Best advice from Rob and his dad

Kane: Got to hope the GST doesn't go up.

Luke: Yeah, but who knows? Who knows until expenditure gets under control. I mean, the blowout for the NDIS, it's like a $50 billion industry now. It's insanity. So hopefully we can get some control there and then small and medium business owners maybe get a break.

Kane: That'd be nice.

Luke: Yeah, it'd be good. As they say, the cliche, they're the backbone of the economy. So they need to be supported, not put under more pressure.

Kane: For sure. Should we turn the tables?

Luke: Yeah, let's do it.

Kane: Let's do it. What's the best piece of advice you've ever received?

Luke: Oh, that's a good question. Personally or professionally?

Kane: Professionally.

Luke: Good question. Rob was in many ways, and still is, my mentor, and I think I learned a lot from just copying what he did. It was simple. It's not things I didn't know, like, to be honest, to work hard. But I just followed a lot of the things he did.

[57:42] Work hard, do the right thing, know your product

Luke: My dad has run his own business for over 30 years and he's always been my number one role model, in terms of how to be a good man and also as a professional. There are consistent themes between those two guys. It's always work really hard, but always do the right thing. And I found that doing the right thing just means being honest and disclosing, and all those kind of things. If you do those two things and couple that with product knowledge, because if you've got no idea of what you're doing or saying then you won't go anywhere, but if you put those three things together, then in my opinion that sets anyone up to succeed in whatever industry you're in.

Luke: So be honest and transparent, work really hard, and then know your product back to front. That comes back to whether you're selling outdoor furniture like I was many years ago, or selling real estate, or selling electrical services. Your product and your service is everything. So, a long-winded way to answer that, but I try to keep it simple in that sense.

[58:46] Luke's dad's business

Kane: What business does your dad do?

Luke: Dad runs a limestone business in Landsdale. They have quarries in Nowergup, which is a bit around here actually, a little bit further north, and quarry natural limestone and also process reconstituted limestone, which goes into freeway extensions and subdivisions. They've been a big player in the WA materials and construction industry for over 30 years.

Kane: It's interesting, because even though that's a completely different business to what you're in now and what I'm in, there's so many things in business that translate. Obviously they would have sales, they would have customer service...

Luke: Staff.

Kane: And everything in between. Staff.

Luke: Yep. Managing staff. That's what I've always admired about Dad's business, and that's been a driver for me to be a business owner as well, that idea of being able to influence the decisions that the business makes. And I love that idea of supporting employees, because every employee has somewhere they go home to at night, and families or mortgages or whatever it is. Having employees that your business can support, I think that's pretty cool as well.

[59:50] Burgess Rawson culture and Hive Residential

Kane: So you mentioned earlier, you have 80 within your business?

Luke: Yeah, we have a staff of 80. That's right. The majority are based at our St Georges Terrace address and then we have a few that are offsite at some of the facilities and bigger buildings that we manage as well. So it's a combination. Our workforce is divided into departments. We have a massive property management department, valuations, our finance and trust team, and then our sales and leasing team as well. And we also have a residential business that we own.

Kane: And that operates from the same building?

Luke: Yep, from St Georges Terrace. But the resi guys are sometimes on site because they do project marketing, so they might be working out of sales offices and things like that. It's quite a diverse business, which brings in, like I've alluded to, different personalities and different cultures and people from all sorts of countries. I just think it's pretty awesome, because you're all working under the same banner, but you've got all these people with different backgrounds and stories and different drivers and motivations.

[1:00:53] Aiming to be the best mid-tier agency in WA

Luke: I'm really proud of the culture that we've built at Burgess Rawson. Not giving it a plug or anything, but I think it's the type of business that people actually like to come to work at. That concept of an open door policy and being transparent back to staff, and trying to identify who we are as a business. Our mantra has always been to try and be a premium and the best mid-tier agency in WA. That's our goal as a business.

Kane: And with mid-tier, do you mean in value range of property?

Luke: Mid-tier in terms of where we specialise. We're not trying to sell big CBD towers. That's not our area of expertise. We're not trying to be a CBRE or a JLL. Occasionally you do some institutional work, but the majority is with mum and dads, and that's where we thrive and we do our best work. I'm sure it's the same as your business. You've got to identify where you want to play, because if you try and be a jack of all trades, as I say, you're a master of none.

[1:01:57] Sticking to your niche

Luke: So I'm sure you can probably resonate with your area of business, in terms of where you guys specialise and what works for you.

Kane: Yeah, definitely learned a lot about that this year, and we've spoken about it in pretty much every podcast. We try to do every single trade, literally all the trades, and because me as a business owner doesn't fully understand how to do those other jobs, it's just impossible to stick to your niche.

Luke: Yeah. And I think there's something to be said for that even in your personal business, that you identify that and then run more linear towards where your core competency is. Do what you know.

Kane: Yeah, stick to your niche.

[01:02:30] Hive Residential

Kane: So with your residential part, is that the same business, different business name?

Luke: That trades as Hive Residential. And we've got several sales reps, but they're all Burgess Rawson people.

Kane: I was going to ask, is there any crossover at all?

Luke: Yeah. It used to be Burgess Rawson Residential and then we've rebranded it.

Kane: Why did you rebrand?

Luke: Well, we're a commercial agency, and that's what we're known for, as a commercial agency. So it's been a really positive move and it gives those guys a bit of separation while still being part of our family.

Kane: So it's called Hive?

[1:03:00] Selling residential vs commercial

Luke: Yeah. Hive, like a beehive. Hive Residential. And like I said, they're all Burgess Rawson people. They've been at our company for 10-odd years, some more. So they're part of the fabric of our business, but it gives them that separation so they can do their own thing as well.

Kane: How different is it between residential and commercial?

Luke: Total different ballgame. You're doing the same thing, and all those qualities that I alluded to, of working hard and following up and being honest, that's sales. It doesn't matter, like I said, if you're selling kitchen sinks or selling real estate. Resi is definitely, and I've never sold resi, but from my understanding, a more emotional sale, because you're selling to people the place where they live. It's where they go to sleep every night. That's where they make their dinners, that's where their kids grow up. So you've got to sell the dream, which sounds ridiculous, but you do.

[1:04:04] An emotional sale vs a black and white one

Luke: You sell the dream and it's an emotional sale. Whereas I find in commercial, you're selling to business owners. So it's about how many bums on seats can you get? If you're leasing, what is the rent, and then how much are we turning over? Can we pay that sort of rent? What does our growth look like?

Luke: You don't need to really sell the dream of growth in residential, other than, are you guys going to have more than one or two kids, or are you going to downsize? They're easier questions to ask. Whereas in that example I gave of the software business signing a lease, they didn't know they were going to double in size. I think a family knows, if they've got two kids, if they're going to have another two kids. Generally you plan those things. So I would say it's a much more emotional sell in residential, whereas commercial is more black and white. There can be emotion attached, because you do have owners who love their building, and that might be the building they started the business in 20 years ago. So there is emotion, but it's a different type of emotion.

Kane: Yeah, that is so true. I just think that if we moved houses like we moved offices, I'd probably be divorced.

[1:05:06] Memories, yield and gut feel

Luke: Yeah, absolutely. That's the house where you have your memories. So it's totally different. You have work memories, a lot different to family memories. So it's much more black and white in that sense. Those guys have a different skill set, where they can sell the dream a little bit differently, whereas we sell the business dream, or the commercial dream, if that makes more sense.

Kane: It just comes back to what works for your business.

Luke: Yeah. So true.

Kane: We've learned so much over the last few years. Even like the rental yield thing that I was speaking with you and my finance broker about. If the rental yield doesn't make sense on paper, we're not going to get the loan anyway.

Luke: Things are more factual.

Kane: Absolutely.

Luke: Price per square metre. Residential doesn't work like that. It's not like $3,000 per square metre. Residential is how many bedrooms, how close to the beach, how close to the schools, is it on a main road, is it a cul-de-sac.

[1:06:10] Where to find Luke

Kane: Did you fall in love with the house, that kind of thing, whereas I don't think you have to fall in love, it's gut feel.

Luke: Yeah, you don't have to really fall in love with an office warehouse. It's got to be functional. So there's a big difference in that sense as well.

Kane: Where can people find Burgess Rawson?

Luke: Yep. I would say go on our website. I do have a LinkedIn profile, I just don't use it very much, but go on our website, Burgess Rawson, and my email and phone number are there. Like I said, it's a long game, so I'm always happy if people even just want to go, "What's my property worth? Could you give me a feeling?" or "I'm in the market to buy something, what do you recommend?" Just call me. Talk about commercial real estate. I love it. Because I'm so passionate about the industry, having those conversations is really good, because you get more people in the market, you help people get out of the market, get other people back in. It's all commercial real estate, so it's all good.

Kane: Thanks so much for coming on.

Luke: No worries. Thanks for having me, Kane.

Kane: Thanks for tuning in to this episode of Unlocking Business. If you've enjoyed this conversation, please take a second to like, subscribe and follow our channels. It really helps us to bring on more guests and have great conversations. If you'd like to connect with today's guest, the details are in the description below. I'm Kane Tyler Smith. I'll see you on the next one.