How to retire before 30 through commercial property

Sydney-based investors Scott and Mina O’Neill have put together a pathway to retirement before 30, creating a roadmap for others to emulate their success in building a $23 million portfolio in just 10 years.

Mr and Mrs O’Neill recently launched a new book detailing the ins and outs of commercial property investment, and its advantages over investing in residential property.

While the husband and wife team made their start in the residential sector, they evolved to become firm believers in commercial property at an early stage of their investment journey.

Mr O’Neill said he and his wife’s first property investment was a home in Sutherland near Cronulla, which they acquired in 2010.

“It was a quiet period in the market at the time, I remember there were all these ‘40 per cent crash’ stories in the media, and we bought the property because it had good cash flow. It had a granny flat on it as well. It was a $480,000 purchase, but it was renting at about $600 per week rent,” Mr O’Neill told Australian Property Investor Magazine.

“Even after the mortgage and all of that, we had about a $200/week surplus. We thought ‘even if the market falls, who cares, it’s cash flow positive’. 

“So that’s how we’ve always invested, every time we’ve bought it’s had a good cash flow scenario.

“That property doubled in value in about six years, Sydney was booming and we leveraged off of that to purchase a number of other properties, and then those properties also started growing. 

“We got into unit blocks, but yields were starting to get harder to find, and that’s when we transitioned into commercial property.”

Instead of getting a gross yield of around 5 per cent in residential, Mr O’Neill said the investments in commercial property were providing net yields of 9 per cent to 10 per cent.

“It was multiple times better cash flow from a net perspective, and that just sped up everything for us,” he said.

“We currently own 32 properties and are purchasing another couple, and the portfolio’s value is sitting at around $22 million to $23 million at the moment.

“Currently we have nine commercial properties, which will soon be 11, and the rest are residential.”

In addition to yields, Mrs O’Neill said the other major advantage with investing in commercial property was the quality of the tenants involved.

She said the best-performing commercial properties were those tenanted by national brands, which are reliable in paying rent and often stay in the same property for a long period.

“Unlike residential where you have three-month, six-month and 12-month lease terms, these terms are five years and above and a lot of them do stay for the long term because sometimes you get tenants that do fitouts and they spend a lot of money on the property,” Mrs O’Neill said. 

“And if you have someone that does a fitout for a dentist’s practice, for example, they’ve spent a lot of money on it and they’re more likely to want to stay for the long-term as well.”

The couple’s strategy is based on diversification, not only in asset type but also geographically, with exposure to markets in Sydney, Brisbane, Adelaide and Perth.

Mr O’Neill said industrial property including warehousing and logistics were their top pick for commercial investment, but their portfolio also includes specialty retail and office assets.

“We buy existing properties, always with a tenant in place,” he said.

“We don’t develop because we actually buy below replacement cost in most cases as well.

“There are many markets where you can do that, and you can pretty much get a return from day one without having to muck around with bills and obviously while the returns are this good you jump on them.

“South East Queensland has been a big hit market, but this is the beauty of commercial, it’s really asset by asset and example by example. 

“We don’t go out in the middle of Woop-Woop and buy property, we’re going to be sticking to capital cities generally or major regional areas.

“You have to be open to new markets because stock is so low as well.

“If you want to buy in your own suburb it might be two or three years before you see a worthwhile deal. It’s pretty different from buying a home, where you target one suburb and you hang on the internet every day waiting for a listing. We look Australia-wide.”

Prior to writing their book, Rethink Property Investing, the O’Neills had toyed with the idea of an early retirement, spending an extended time in Europe living off the proceeds of their portfolio.

But while that extended holiday was a fulfilling experience, Mrs O’Neill said the couple soon found themselves wanting to do more than just enjoy a lavish lifestyle overseas.

“Originally we started off doing it ourselves and then we developed a passion to help others,” Mrs O’Neill said.

“It started with friends asking to help invest in certain areas and we’d give them examples, and then it got to a point where we said ‘we can actually help people’, and I actually prefer doing that.

“If you’re doing something that you’re really passionate about and you know what you are doing, you can give really good examples to others as well.

“That’s how we started, and with the book, it’s the process of getting people to understand in print that commercial works as well, it’s just the next stage of property investing. 

“We definitely didn’t want to sit around being bored, and I guess the book is an extension of education as well to the public in that respect.”

The other big factor in wanting to publish a guide to commercial investment, Mr O’Neill said, was a lack of mainstream education around how to get into commercial assets.

“Commercial is just, for lack of a better word, just a bit boring and unsexy, no one cares about it because what are you going to do, discuss the square metre rates for industrial property? It’s unrelatable, but the people in the know are all over this stuff,” he said.

“Most mums and dads actually own commercial property, they just don’t know it. 

“In your super fund you’ve got a listed commercial property fund as one of the dozen or so shares you’re in, it might be Stockland, Westfield or Goodman Group, for example. 

“People just don’t know much about it, which is the point of our book.

“When we started to try to research what to do because we wanted higher yields, we were looking at it from a cash flow point of view and it was a solution, not an interest.

“But then it turned into an interest, because when you buy these commercial properties they are all unique and you’ve got to know the business that you’re buying into.

“That might not interest a lot of people, but if you break it down and look at how to get the best possible cash flow for your money or return on equity in this economy, it is commercial property.

"Residential can’t even compare to it, especially now that residential is getting so expensive.”