THREE LITTLE-KNOWN FACTS ABOUT LILLIE
-Lillie has dual nationality and still owns her own home in France where she returns annually.
-Before coming to Australia, Lillie worked in Paris as a medical repatriation customer care officer for a travel insurance company.
-Between winters in the French Alps, Lillie spent nine months working in Turkey as a tourist guide.
Early on in her investment endeavors, Lillie Cawthorn recognised the burgeoning potential of industrial real estate. Now, with over 15 properties worldwide, she is dedicated to helping others achieve the same great results.
As a published author, co-director of a company that is the major shareholder of Bawdens Industrial, an investor and a director of a private industrial property trust, Lillie Cawthorn really is the embodiment of immersing one’s self in their passion.
Lillie explains that industrial real estate investment is the perfect vehicle for cautious investors, especially those looking for long-term investment to fund their retirement.
“I feel passionate about inspiring people to take control of their own financial future and not be dependent on a partner or the government,” she says.
“The motivation to write my book came when I realised that out of 700-plus clients (managed by Bawdens Industrial), fewer than 0.02% were women.
“It is my intention to explain, in simple terms, a system that I have followed and that has worked for me. I want to show, without using complicated charts, graphs, financial terminology, or any other confusing jargon, that you can take control of your money and earn extra income by investing in industrial real estate.”
Book in hand, Lillie now travels the country conducting workshops aimed at helping those interested in investing in industrial real estate, to kick start their journey.
While her focus remains on the industrial real estate market at present, it wasn’t always that way.
Where it all began
Lillie grew up on a small dairy farm that her father eventually subdivided into residential lots when dairy farming became unprofitable. She purchased her first property off her father.
“I purchased my first property through him when I was 20 and built a house on it, which I later rented out when I moved overseas,” she says.
“Over time that first property was sold and I used the capital to invest in rundown houses that were structurally sound and only required cosmetic work to upgrade them.
“I did the interior decorating myself, including the painting, only engaging help for smaller building jobs, such as adding a balcony, changing kitchen bench tops or removing walls to enlarge
Of these projects, some of the properties were rented, however Lillie quickly discovered the security bonds and net returns were too low.
“Most significantly, I realised the typical residential tenant has little to no respect for rental properties,” she says.
Eventually, Lillie discovered industrial real estate when she came to Sydney on a holiday, and met her husband.
“At the time he had just made a career move from being a residential real estate sales agent to an industrial real estate sales agent,” she explains.
“We made an investment plan to eventually purchase the agency he was working in and to build an industrial property portfolio to fund an early retirement.”
When asked what drew her to property, Lillie explains it was the tangible nature of the investment.
“You can see it, touch it and control it more, compared to other investment options,” she says.
“While the population continually increases, the size of the earth remains constant. There are also fewer ‘experts’ playing with your money, and taking their cut before you get paid. Industrial real estate is less volatile, unlike the strong fluctuating characteristics of the residential or share markets.”
Formalising a strategy
With more than 15 properties in her portfolio, Lillie says the ultimate goal is to use their investments to fund a retirement using the high net cash flow from the industrial real estate and harness the future long-term capital gain in real estate.
“These days we only invest in industrial because the returns are higher, the security bonds are greater and the tenant leases are longer than in residential,” she says.
“Generally speaking, the industrial tenants respect the property because they are making a living out of it.”
“When I discovered investing in industrial real estate returned a consistent... net profit, I realised I should have done more of it earlier”
In terms of an investment strategy
, Lillie explains it is always the same.
“We look for properties that can be purchased under value in the given market at the time. That may be because the seller requires a quick sale or the property has not been maintained correctly.
“We recently purchased a duplex that fell into this category. The outgoing owner had not renegotiated the rent in five years, hence we were able to put both the building and gardens in order, and then renegotiate the rent with the tenants at the new market rate, thereby realising an immediate increase of 20% overall.”
As the rules changed around selfmanaged super funds, we now purchase our properties through our fund.
Lessons learnt along the way
Lillie reveals her biggest mistake in residential property to date was buying a property based on emotion.
“We bought what we thought was a ‘dream house’ that had termites appearing within six months,” she says.
“When we began the extermination process, it became obvious they would have been in the house when we purchased it. They, and the damage they caused, were well disguised and not disclosed to us. The so-called termite barrier had not been checked by the seller, nor topped up with product since construction only five years earlier.”
Lillie says this experience taught them to triple-check everything and to never take the seller’s word for anything. She also admits this taught them to not become emotionally involved when problems present themselves. “Just get on with fixing the problem and move on.”
In terms of industrial property investment mistakes, Lillie says her biggest regret was being too conservative.
“When I discovered investing in industrial real estate returned a consistent and superior net profit, I realised I should have done more of it earlier,” she says.
“I should have taken on more debt and purchased more properties sooner, but I was a timid investor, always trading carefully. The upside of this is we still own all of our properties. Most still have the same tenants in place, with just one change in 17 years. These properties all earn consistently good net returns and we have only had one building suffer a period of vacancy – and only for a couple of months – even during the GFC period.”
Lillie also recommends negotiating a high security bond with industrial properties – at least a threemonth duration for smaller investments, and more for larger investments.
“This then becomes too much money for them to walk away from and you can act quickly if they fall behind in rent payments, without the fear of them abandoning the property.”
When asked what she would do differently if she had the chance to start over, Lillie said she would leverage the built up equity more quickly and learn to become comfortable with a higher debt level.
TOP 5 NEGOTIATION TIPS
1. Do your homework to understand the current market conditions.
2. Determine your price per square metre for comparable buildings.
3. Attempt to negotiate the cost of required repairs off the asking price.
4. Don’t get emotionally attached, you’re not going to live in it.
5. If the ROI numbers don’t add up to the desired return, walk away.
BENEFITS OF INVESTING IN INDUSTRIAL REAL ESTATE
Compared to residential real estate, Lillie has found the following to be true of industrial property
Longer lease periods
Generally speaking, leases are signed for three years or more. The majority of tenants tend to rollover or renew for a further lease term, often repetitively.
Industrial property returns – that is, income from an investment – in today’s market are 7-10% net. Residential returns are typically 2-5% gross.
Outgoings are paid by the tenant
If the lease is correctly structured, the tenant pays all the outgoings. With residential rentals, the owner pays the management fee, rates, taxes, insurance, water and sewerage bills on the rented property out of the rent they receive.
Fewer tenant problems
It has been my experience that business owners take better care of their income-producing enterprises, and respect their workplace environment more than residential tenants do their homes. Additionally, a correctly structured lease will include a clause whereby the tenant must ‘make good’ the property upon departure.
THREE MISTAKES THE NOVICE INVESTOR COMMONLY MAKES
-Compromising building quality or functionality for price, which ultimately increases the likelihood of longer vacancy periods.
-Thinking geo-diversification reduces risk. It can actually increase risk.
-Attempting to manage your own asset can ultimately cost you more than an experienced asset manager’s fee.