Sydney-based couple SCOTT & MINA O’NEILL retired at 28 after building a $20 million commercial property portfolio in just 10 years. They also set up their own business, to help thousands of others on the same road, and in this edited extract from their new book they share some insight on how you can do it, too…
Thirty-one degrees. Sun on my face. Sand between my toes. Life was pretty relaxed as we lay on a beach on Kos, in the Greek islands. It was 2016 and Mina and I were relishing a six-month break from Australia. We thought we’d hit the jackpot. I had retired from my day job at age 28. At that time we owned 25 residential and commercial properties scattered across four different states.
It hadn’t come easily or by accident, though; we’d worked hard, saved for many years and obsessed over every property decision we made. Thousands of hours had gone into building this portfolio. But we had won back time in our pursuit of a lifelong ambition — to replace both of our incomes so in future we could do what we wanted on our own terms. Now we had taken the brakes off and flown to Greece to eat, drink, visit family and travel around Europe for six whole months, using the passive income we had earned from our properties. It was a deeply humbling feeling.
As I sat by the water and watched the beach chairs being stacked away for winter (signalling it was nearly time to go home), I mentally reviewed our expenses over the past few months. After all our accommodation, plane tickets, eating out and other expenses were added up, our properties still produced more income than we spent. This was our ‘aha’ moment, when we knew life would be different forever. I couldn’t believe it! Our property income was now enough for us to live off — and retire on. It was one of the most exciting moments I have ever felt, because I knew we had ‘made it’ financially. And there was no reason why we couldn’t keep travelling indefinitely. I felt like we had none of the stresses normally triggered by having to go back to jobs neither of us enjoyed.
However, there was an empty feeling there, too, like something was missing, which was strange considering we had reached such a long-held personal goal. It made me think, ‘what’s next? How had we got here?’ We had been offering some investing advice on the side; maybe we could take this to the next level and use our experience as a platform to teach others? And why not? We seemed to be the only people I knew at the time chasing this high-yielding commercial and residential investing strategy that worked so well for us. Many others in the industry were preaching outdated and slower ways to build wealth that we simply didn’t agree with. We could see there was an opportunity to show people what to do and how to do it, and just what was achievable.
It struck me then that our success owed much to the fact that we have always looked beyond our own backyard. Beyond our familiar territory in Sydney, and even beyond the traditional investment focus of residential property — to commercial property. We like to do things differently, to challenge the status quo. We like to take calculated risks, and we soon realised that you can invest outside of where you live. You can look to different asset classes to get you there, and discover that the local residential market is not the only way.
Our success has come from our move to invest in the commercial property market. It has held the key to our future wealth and underpinned why we set up our business, Rethink Investing, to help others on the same road. More than 2,000 investors and counting, in fact. As a result, we’re part of a new generation of investors. We invest very differently from our parents, finding a different path from the one they followed to create their wealth. We chose to focus on higher cash flow investments rather than the outdated negative gearing model, because it works.
Four years after that ‘aha’ moment on the beach, life is very different. When we sat down to write this book, the world had been hit by the coronavirus pandemic. With a newborn baby in our family and like everyone else, we hunkered down, practised ‘social distancing’ and joined the effort to try to ‘flatten the curve’, two novel concepts that have become intimately familiar to all of us this past year. To our surprise only one of our nine commercial property incomes has been impacted by COVID-19.
In the very early days the pandemic affected everything in our business. Things slowed right down in March and April 2020, but they picked up again in May, June and July, after which we experienced some of our busiest months ever. We attribute this rebound to a few factors. Facing job uncertainty, people are more than ever looking for high cash flow. Secondly, the record low interest rates are giving people more reason to invest their cash. Finally, many people now have extra time to concentrate on their investing rather than travelling or working non-stop.
We believe that investing now is one of the greatest opportunities we will ever see. With our commercial properties, we’re seeing net yields of seven percent plus, with interest rates under three percent. That’s a four percent gap! Historically, we expect to see a gap of two per cent. This means right now there’s the opportunity of a lifetime to get the best cash flow returns ever in commercial property. This, in turn, should result in strong capital growth as the gap between these two metrics narrows.
Our message is simple. Don’t think of commercial property as a risky investment just because we’re in a pandemic. We target the most resilient types of businesses. As we’ve seen, our strategy of buying medical, logistics, and other essential services–type investments with strong tenants has proven to be very resilient. In the residential property sector we always target properties that are relatively affordable for both tenants and home buyers while still being in good growth areas with strong yields. And tight vacancy rates are also a must.
I want to explain to you how some commercial and residential properties will perform very differently in the COVID-19 environment. First, how has the coronavirus affected the commercial market? The answer is that the effect has varied greatly. For example, CBD office space has struggled, and will continue to do so. Fewer people will commute to our capital city centres on public transport in order to sit in an air-conditioned office tower where the risk of infection is greater.
Retail is another property type facing harder times. Forced closures have made it difficult for customers to visit their favourite stores, which has led to more online purchasing. This leads me to the opportunity part. As more people purchase goods online, there is a greater need for logistics and storage. This has meant that warehouses in many areas have been more in demand from tenants and owners alike. Medical properties and other essential service-type businesses have also powered through the COVID-19 environment with greater ease, compared with the discretionary spending, retail-type businesses.
There are many reasons why each type of business will perform better or worse in this climate, but we’ve always said that property is a long game. So you need to see the bigger picture and understand how businesses work in general before you buy property. In relation to COVID-19, here’s what we’re seeing…
• Interest rates: These are at all-time lows and they don’t look like they will rise for a long time. This means the net cash flow you receive on your commercial property has never been better.
• Due diligence: This has never been easier to complete. Before COVID-19, it was much harder to distinguish a strong business from a weak one. This is because a key marker when assessing a property purchase — how a tenant will perform – is easier to determine during the pandemic. We ask for bank statements, because from them we can readily check if the tenant has paid 100 per cent of their rent, if they’ve had no rental reduction and no JobKeeper allowances, and if they have retained the same number of employees through the tough times. This gives us a lot of confidence in the business prior to purchase.
• Growth: Commercial property is growing in value off the back of falling interest rates and increased buyer demand. There is also a severe shortage of stock. In some areas stock levels have fallen by 50 percent, with many owners reluctant to sell their assets while they see no better options out there for making a good return on their investment. Increased demand but lower supply is fuelling the growth equation. Of course, some sectors are suffering (such as the CBD office market, as noted), but others have never seen such great demand. This demand is largely from residential investors who have turned to commercial property in search of better returns. Increased demand over limited supply = capital growth, which is the central premise of the book you are now holding.
All of the knowledge and experience we have built up over the years informs the way we help our clients through our business, Rethink Investing, and in turn inspired us to write this book, in which we offer guidance to help you on your own journey to wealth and independence. There’s much to learn, but we were determined to keep it engaging and relatable, drawing on our ‘7 Steps’, a blueprint we use every day when working with our clients.
Our long-held passion is to help others on their investing journey and to reach out to more and more people by sharing a proven process that can be replicated again and again. As we have grown, so has our portfolio — now valued at well over $20 million. At the time of writing we enjoy a passive income (after our home mortgage has been taken care of) of more than $450, 000 a year from 32 properties. With the exception of 2020 (constrained by COVID-19 travel restrictions), we still travel to Europe every year to visit family and escape Australia’s winter for Greece’s summer. After ‘reintvesting’ for nearly 10 years, we finally bought a family home to live in.
Back at the start of our journey, the option of investing in commercial property seemed like it was out of our reach, but now we embrace it, confident in its power as a tool for building passive wealth. We made it happen by taking risks and pivoting from the typical.
In this book you’ll find that, with a few exceptions, we speak to you with one voice. We’ve always invested in property together, and have shared the load in running our business, so rather than attributing every decision or action to one or the other of us, it made sense to simplify matters by using the first-person plural.
Of course we bring different strengths to the business. Mina looks after the property management and running our portfolio. This includes managing the many insurances, tax matters, different rental managers and the general day to day of the portfolio. With 32 properties this is a big job that needs extremely good organisational skills, one of Mina’s strengths. She also basically built the business, including all backend, databases, business structure, marketing, website design management, administration, accounting, HR — you name it!
My (Scott’s) greatest skills include understanding the market and negotiating purchases while following first principles — in a nutshell, buying the right property in the right market at the right price. I have negotiated thousands of property purchases for Rethink Investing’s clients. This depth of experience is one of the reasons we have done so well. See you on the other side of the backyard fence! ■
ABOUT THE AUTHOR
Scott & Mina are founders of Rethink Investing, Australia’s number one buyers’ agency for commercial property investors. After retiring at the age of 28, they now live off the passive income generated by their personal $20 million property portfolio and have helped over 1,800 clients purchase around well over $1 billion in Australian real estate. Find out how you can do the same at rethinkinvesting.com
RETHINK PROPERTY INVESTING (published by Wiley $29.95rrp) by Scott and Mina O’Neill is available now at all good bookstores
For the full article grab the May 2021 issue of MAXIM Australia from newsagents and convenience locations. Subscribe here.
