In this episode of Property Investory we will hear his thoughts on retail versus industrial real estate in the age of COVID, his relationships with the commercial vendors he purchases from, and where he plans to take his business— and his family— next.

Timestamps:
Time | Text
2:20 | You Want a Long Lease Life
8:01 | The Confidence Conundrum
10:16 | I Can’t See Industrial Going Out of Fashion
15:21 | It’s A Deal
21:06 | Who Even Owns Commercial Property, Anyway?
26:13 | The Lending Process
29:23 | O’Neill Would Skip Residential— But Doesn’t Recommend That for Everyone
33:01 | This Has Not Been a Quiet Year for Property
37:19 | Greece is the Word
40:38 | Remember Travelling? Those Were the Days...
45:11 | Mentors and Mindsets
49:03 | Looking Backwards— And Forwards

Resources and Links:

[00:15:56] But now interest rates are cheaper, it's still a deal to sell on at $8.3 million, and interest rates when we were buying back them were around 4%. But people are now getting into the low 2% now. So it's cheaper to lend money, which means you can justify spending more. And this trend I think, is going to continue.

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode, we’re continuing our discussion with Scott O’Neill, founder and director of Rethink Investing. Tune in to hear his thoughts on retail versus industrial real estate during the time of COVID, why strong relationships with the commercial vendors are crucial, and where he plans to take his business— and his family— next. 

O’Neill shares more on his journey from residential to commercial real estate, what attracted him to it, and elaborates on his strategy.

Scott O'Neill:  

[00:00:35] After years of investing in residential real estate, the yield was what attracted me to commercial. Like many people, I was trying to replace my income as quick as possible. I didn't want to work forever. And I could just see residential wasn't hitting those goals anymore. 

[00:00:52] And that led me towards studying commercial investing. I remember I probably went through about an 18 month period of just looking at properties— commercial properties— talking to commercial agents, reading every bit of material I could on the topic. And then eventually, I just narrowed down my search. 

[00:01:09] And basically, I wanted a commercial property that was food related at the time. So this is back in early 2015. And I stumbled across some properties in Perth, so I basically bought two, there were two titles, two shops. One was about a 400 square metre, mini supermarket, convenience store, and the other was a fish and chip shop. Now, the reason I was attracted to that property was a couple of things. It was an 8% net yield. So that was far better than anything I've ever bought in my life. And that was exciting. So the cash flow from that was a considerable boost to the income. 

[00:01:51] And I looked at the businesses and number one, the fish shop had been there for about 20 years. And I checked his repayments, he's never missed any, he paid his rent on time, all the time. It seemed like a good long term business model to me. The supermarket— this was the risky part of the purchase, because it only had nine months left on the lease. 

[00:02:20] So when you buy commercial property, you generally want two, three, four, five years on the lease. You want some security. But I was getting a better deal because of the shorter lease. So this is almost a bit of a value upside component of the deal. So when you buy a property with a shorter lease, and you're confident that the tenant will renew, you can actually create equity as soon as you've renewed the lease. So at the end of that nine month period, the tenants basically renew their lease and it went into a five by five year lease. 

[00:02:53] Once I did that, I worked with the rental managers at the time to secure that deal. And then we went back to the bank, got it revalued and it went up basically about 15% on the spot, just because of the bit of market growth, but also an improved lease security on it, which the valuer looked at favourably. And that's when I was hooked. I realised that commercial's not just about cash flow, it's also about equity creation through growth, and even value adds as well. So I was hooked from that moment, that was our first experience, and it was a good one.

Tyrone Shum:   

O’Neill expands on the differences between residential and commercial, this time comparing equity uplift and value add ons.

Scott O'Neill:   

[00:03:59] So there's a number of ways. First one is increasing the rent value. So let's say you've got $50,000 income coming in per annum, and somehow you can increase it to $60,000. That will have a direct correlation to the value. So you want to find properties that are under-rented if you can, but if you can't, you want to buy into a market that's growing. So like a good CBD market, where there's a lot of demand from tenants will generally mean you get growth on your rent in the order of three or 4% per annum. 

[00:04:31] So, as the natural rent growth happens, so will your capital growth on your asset. So you will get growth. It's the biggest myth I've ever heard with commercial, that you don't get strong capital growth. I don't know who made that up. It was definitely not someone who owns commercial property because some of the best capital growth results I've ever had— most of them— have all been out of commercial. So it's not a residential versus commercial thing. 

[00:04:59] If you buy well in commercial where supply and demand is in your favour, you're going to get capital growth. It's as simple as that. Just because it's commercial doesn't mean it's branded as a low growth asset. And I can't stress that enough. The more you understand this space, the more you realise that you don't just invest for cash flow. That's the main reason people get into it. The growth will be the icing on top of the cake.

Tyrone Shum:   

[00:05:29] It's really fascinating. And that's the same thing. When I first started looking at commercial that was my biggest question— will you get growth out of that? I also had that belief as well, because I had absolutely no idea what I was getting into. And then when I did discover about that, as one understand how rentals can actually affect the capital growth, that's when I start to realise Hold on, does that mean, then we could potentially add equity through our increase of rent, which means that we add value by either changing the tenant or adding value to the property, just like what we do in residential, but at a much faster rate compared to residential, because with residential, it's all market driven. Whereas with commercial it comes back down to what kind of tenant so you kind of get in there, isn't it?

Scott O'Neill:   

[00:06:11] Exactly, and you brought a good point up about the change in the tenant thing. So if you buy a lower quality tenant, say, like, a car mechanic, and somehow you replace that with a national logistics business in the same floor space, that someone will pay more for the larger business, because it's got a perceived value of more security. So the greater the security with the tenant, the more someone will pay for a property. It's like a hairdresser versus a dentist. If they're paying the same rent, you're gonna pay more for the dentist, even if it's at the same rent value. 

[00:06:46] So there's a lot of the... it's security of the lease, if you can increase the length of it, the better quality tenant. If you increase the floor space, we can charge more rent. So a common value add might be building a mezzanine inside a warehouse, and then you can charge extra rent for that new floor space inside the building. These things actually add value to your property, and you can take it to the bank and refinance and go again, in many cases. So it's just like residential, but it's probably a little bit more instant when you get it right.

Tyrone Shum:   

COVID has changed a lot for businesses, especially those with physical premises. O’Neill discusses whether he thinks commercial real estate is still a profitable and stable investment, and if investors can still have confidence in brick and mortar stores.

Scott O'Neill:   

[00:08:01] This is where a little bit of experience and market knowledge will really pay off. Because an experienced investor... we've bought over a billion dollars worth of commercial property over the last five years. And that's for clients. So what that means is we get to see what's happening in the market. We don't like office space, number one, because coronavirus has basically shown that people are not valuing an office space as much as they were once. Especially in the CBD, because of social distancing, and lift shops and all that kind of stuff. You don't want to be packing people like sardines into trains and shipping them into the city. 

[00:08:41] So you can't imagine the office market is going to be too healthy for a while. So, generally, stay away from that market. However, office space in suburban areas might be better now because people might value a small office block in their local suburb more. Like accountants, lawyers, physiotherapists. These people need spots, need space, and they want to still bring clients in. There is a need for an office. So it's not just gonna go out of fashion forever. But it is a weaker market.

[00:09:12] Retail is the other one that can be weaker. But then again, there are some retail that are strong. So I like to sort of separate retail into 'destination' versus 'non destination' type retail. A destination retail means you have to go there to enjoy their service. For example, a hairdresser— you're not going to get a hairdresser out to your house, in most cases. So you've got to go there, and that shop front is relevant and it's going to stay relevant long term. However, there is a general weakness in new businesses starting up. The startup culture in retail is lower than, say, the startup in the online world. 

[00:09:53] And this brings me to my next part, industrial, which is more so your online world, so logistics, storage. Even manufacturing at the moment's coming back online in Australia, because supply chains from overseas are slower and weaker at the moment because of everything that's going on. So what that all means is there's a greater demand right now for industrial floor space than there ever has been. 

[00:10:16] So we're seeing vacancy rates drop to all time lows in most corners of the country, which is an opportunity. So it's a sub-sector of the commercial market, which I'm excited about. I think it's quite low risk, there's a long term need for more storage space, especially in capital cities as well, where you're going to basically see increased demand. Also major regional areas where it's next to airports and things like that. I can't see industrial going out of fashion. And there's opportunities in that.

Tyrone Shum:   

The COVID-19 pandemic has changed every aspect of life as we know it. O’Neill shares a recent client example that was a success despite difficult times.

Scott O'Neill:   

In 2018, we purchased property for a couple of clients. And basically, we turned it into a syndicate. So I actually bought into that myself, because obviously, I love the look of the property, it was in ACT, I hadn't owned any properties in that market. So we bought that property for $6.4 million. And it was a very good yield, 8% plus. It had 10 tenants, and the length of leases was averaging about two, so it wasn't super long. But there were 10 of them, all on three year leases that were expiring at different points. 

[00:13:15] So it had everything from a lawyer's office to a gym to three restaurants to a couple of other sort of small retail-like businesses. And what we did in June this year, so June 2020—middle of COVID— we put it on the market. It sold within two weeks at $8.3 million. So it grew by almost $2 million in two years. And it's retail, and it's in the middle of COVID. So that was just a classic example to show that people are prioritising good quality commercial property more than ever. It doesn't matter what's going on with COVID because these businesses are still performing well. 

[00:13:59] Out of those 10 tenants, there was only two of them that had a very short reduction in rent over a two month period. So it was pretty much perfect through there. The ACT is a strong market, we all know that. It's backed by government sectors and public servant jobs. So you wouldn't see a sharp decline in revenue in that area. Which is good. We didn't do, really, anything to that property. It literally just grew that quick in that period of time, because interest rates were dropping. There is a genuine shift from people investing in residential towards commercial for the cash flow. And this is an example, a local high net worth guy bought that property off us. That's the end of that, we're going to be recycling that money into another larger asset to hopefully repeat the process. So during that time, as well, it was collecting an 8% return on the investment. Even just holding it was very profitable.

Tyrone Shum:   

With a substantial 30% increase in a two year period, O’Neill goes into the details of the sale that made it possible.

Scott O'Neill:   

[00:15:21] We bought it well, the increases were... not huge, we're talking probably five to 6% growth in the rent in that time. The reason for the growth was yield compression. So what yield compression is, is people are paying more and more for the same rent value. So that property, let's say it was collecting $650,000 income. At the time we bought it, that was gross income but people would justify... it needed to be about a $6.5 million purchase to justify it. 

[00:15:56] But now interest rates are cheaper, it's still a deal to sell on at $8.3 million, and interest rates when we were buying back them were around 4%. But people are now getting into the low 2% now. So it's cheaper to lend money, which means you can justify spending more. And this trend I think, is going to continue because a lot of the interest rates we've seen in recent times are still flowing through to the market. So I expect there's going to be really good yield compression in most parts of the country. Because the numbers work. And that's the key. Even a 6% net yield is extremely high, when you're only paying 2.5% interest rate.

Tyrone Shum:   

O’Neill shares how he was able to get the deal on the shopping centre, what inspired him to do so, and the process behind it all.

Scott O'Neill:   

[00:17:02] A lot of it’s contact based. So I'm blessed to run a buyer's agency that focuses on commercial property. We've got huge amount of contacts in this space from every corner of the country. The guy that sold us that property was probably one of our most trusted real estate agents in ACT. And it just let us know... it was a pleasant experience negotiating the property. We went down to view it, we vetted the guy, we worked through all the leases in the due diligence, he was very helpful. 

[00:17:34] So it's contact based. Probably about 60 plus percent of our properties are off market. So you would know, by looking at commercial property, there's not much out there. It's hard. And especially now that interest rates have dropped, there's less reason for people to sell. So I do rely on contacts more than anything to generate good deals for our clients. So without that, we're just sitting on the internet like everyone else, and hoping we can outbid someone. Which is not a good strategy. You're not going to get deals that are that good, unless you can work your contacts a bit better.

Tyrone Shum:   

O’Neill details if he typically has any contact with the vendors he deals with in commercial property, and if so, whether that can be a good or a bad thing.

Scott O'Neill:   

[00:18:37] For larger assets, I generally meet the vendor. So, another example— I will go smaller numbers after this one, I promise, but we bought a $11.8 million shopping centre in Bundaberg. It was a similar purchase to this. This one had 15 odd tenants, it had a major supermarket in it. And we met the owner, and the owner was actually involved in building it with his family. He was a very well-off farmer who basically was shifting money into supermarkets and stuff like that. 

[00:19:13] I remember he showed us all pictures of when he built it. It was in the family for years. And he was very emotional about selling it, basically. And it was really good. We knew every tenant by their name and we just... I guess it's good and bad when you meet the owners. If they're a good one like that, then they'll be very open with you. You can just tell they're just really trying to help you feel comfortable but also tell you every issue that they've ever faced with the property, is there a tenant not paying... it's all part of the due diligence, which is very important with commercial.

[00:19:45] But sometimes I've met owners that will try to deceive you as well.  I remember there was one we've met, we flew to a very faraway place in North Queensland. You could tell there was just something not right about it. He was hiding us from going to certain areas, certain doors were locked. It was just almost a waste of time meeting that individual. But this is where it's up to you to do your own due diligence. Meeting owners can be a good and bad thing, really.

Tyrone Shum:   

With commercial property often costing much more than residential, many people assume commercial is always owned by large companies or conglomerates. O’Neill explains how this isn’t always the case.

Scott O'Neill:   

[00:21:06] With the super high value stuff, it's commonly syndicates. So managed funds, and they're actually just divesting their asset, moving on to the next one. So that's your $10 million plus range, generally syndicates, with the exception of a couple of high net worth— but not often. Under $10 million, five to $10 million you're dealing with large scale business owners that may have kind of just worked their way up. They may have been a developer, they may have basically been someone who's like the example I used, it was a farmer. He grew commercial volumes of mangoes all over the country, like he just supplied to every single supermarket in the country. So he was doing very well for himself. And he was putting money into property as a bit of a safety net. 

 

[00:21:58] In this sub $5 million, even just go lower into sort of your $1 million and under, it's just mums and dads who have transitioned out of residential, they've held for a number of years, maybe they're at a very elderly age that they're selling down— a lot of our vendors are 70 plus, who were literally just cashing out for whatever reason, squaring debts off, passing money to family members. Sometimes they're sick, unfortunately, where they're just divesting assets, decluttering their life, essentially. And so that's probably the majority of people we see. And then obviously, there's certain developers selling off the plan stuff and all the usual that you'll see with residential.

Tyrone Shum:   

He shares stories of some of the smaller commercial property deals he has succeeded in, both for himself and for his clients.

Scott O'Neill:   

[00:23:21] A client one we did, it was a very small warehouse, sort of 110 square metres type thing in Brisbane, and we paid $270,000 for it. Everything else in the complex was selling for $330,000 and above. The reason it was cheaper is because the ones that had $330,000 price tags on it— which we also secured for our clients as well— but then this one came up. It had a weak lease on it, so it was under-rented and it was only 12 months left on the lease. So that did not compare to the ones with three year leases. 

[00:23:56] So some clients would never want to pay $270,000 for a weak lease one because they see it as risky. But if you see the greater picture, you'll realise that as soon as you secure a proper lease— and that tenant wanted to stay verbally as well. And this was three years ago and they're still there to this day. But what they did is they renewed the lease and instantly it was valued the same as the others, because there's comparables to go off. So that's just a really simple way of getting good cash flow, but also creating a bit of equity. 

[00:24:30] And I've got a similar example when I bought myself in 2016 in Newcastle, a small warehouse. I paid $405,000 and I actually sold it because I was needing some quick funds to purchase a house in Sydney at the time, and I ended up selling it for $500,000, so it went up 25% in 12 months at the time. The reason that went up by 25% was a similar deal. I renewed a stronger lease but the market  was tightening as well. And that's the thing I want to remind a lot of my clients and people listening— it's not just about trying to find value adds. Value adds short term gains, but you'll make more money in commercial by buying in good quality areas where you get that long term rent growth and perpetual income. 

 

[00:25:18] If you do that, you're gonna make a lot more over a 10 year period than just simply targeting a property that's got a weak lease that you can butter it up to make it look better. It's all about buying in the right fundamentals. And that's what I've always done with clients— we tend to stick to the best quality areas, because it's easy to re-let, there's more capital growth long term, there's less risk, the banks like it more, you name it. It's just better to sort of play it safe.

Coming up after the break, we hear about what non-monetary benefits O’Neill’s portfolio has given him...

[00:33:01] It's just given us the freedom. It might even come across how we do business— we don't do this because we need to, we do it because we like it. So we're never pressuring anyone to buy a property.

We reminisce about travelling and discuss O’Neill’s post-COVID travel plans...

[00:40:38] Normally I would probably get up a little bit early, just to check the emails. And then once you know it's under control, it's just a normal day. Sightseeing. We would travel with friends a lot of the time. 

We talk about unconventional mentoring methods and which books inspired O’Neill in his property journey.

[00:45:11] I haven't really ever had a mentor— probably the closest one would be my father's investment mindset. And this might sound a bit random, but he was very negative. 

And that’s next. I’m Tyrone Shum and you’re listening to Property Investory.

<Insert Money Partner Advertisement>

Tyrone Shum:  

For those starting out in commercial property, O’Neill elaborates on how the lending process works and explains some of the terms.

Scott O'Neill:   

[00:26:13] There's two main ways— full doc loans and lease doc loans. So a full doc loan is very similar to your residential application, where you just show your financials, you show the deal you're buying, and you should get the loan if it all stacks up. Remember, commercial property has better income, so you're going to be able to show the bank more income, which means you potentially can lend more. 

[00:26:39] There's also lease docs, which means you don't need to show your financials. As long as you've got the deposit, a lease stock loan will actually give you a loan. And this has been extremely popular with a lot of my clients, because I've mentioned this in a webinar once and I've never been hit with so many questions like 'What's a lease doc loan?' And essentially, it's a loan of about 65% or more, interest rates are... I've heard them around 3.7 to 4.5%. So they're slightly higher than normal. But it's really good if you've got listeners who have got a large portfolio already, and they're struggling to get loans because they can't release more out of their residential real estate. So this is a solution. 

[00:27:24] I use this personally, I own a lot of properties. And for me to get a residential loan, I've got to show the bay 32 different contracts and all the rental income for it. Honestly, it's a six month process. And by the time you get all the info, a month has passed, and you've got to resupply the next month's rent— it's very hard. But when you do a lease doc loan, you just look at the deal standalone. 

[00:27:49] So you can get a bank loan by showing the strength of the lease, and loan terms can be up to 25 years. People think it's just you get a four year lease, then you're gonna get a four year loan. That is the case with some banks, but some will actually go further than that, if you know where to look. And they'll give you up to 25 years. So it becomes a ‘set and forget’ loan that's not associated with your other financials. So if you're a tradie that runs a high cash percentage business and your financials don't look so red hot, then this is a solution. If you're tapped out of residential, this is a solution. It doesn't work for everyone, and you've got to buy a particularly strong property. So I'm not saying it's easy, you've got to buy the best quality that the bank will want to lend in this method too. But it's something people should consider if they want to do something a little bit different.

Tyrone Shum:   

O’Neill shares what he would do differently if he started over again today, still knowing what he knows now.

Scott O'Neill:  

[00:29:23] Obviously, if you have... for example, if I, with my current knowledge level, and I remember everything that's ever happened, I personally would go straight into commercial. And it's because I know what I know. And I don't need to take my time to learn things and that. But I wouldn't recommend that to somebody starting out because if there is greater risk. 

[00:29:50] If you get commercial wrong, the safety nets are lower. You might have longer vacancy. If you don't understand business and leases and all that kind of stuff, it can just become a little bit too confusing. So definitely use an expert if you're inexperienced in that space. I think residential is brilliant, because you can go in with lower cash amounts, so you can do your 10% deposits and lend the rest. It's not a cash flow play anymore, you're therefore at best, breaking even, and hoping there's capital growth. And that's a good play, especially if you're young, and you've got decades on your side of investing. 

[00:30:27] Me personally, some of the regrets I have with my own portfolios— I currently own 32. I don't necessarily want to own 32, it's a hassle. If I had to start from scratch, I'd buy less high value ones. And basically, there's a few things to that— better quality tenants, less touchpoints, longer leases, even better cash flow as well. And that's what I'd do if I was literally starting my portfolio from scratch with my current funds. I wouldn't go and buy 32, I'd probably buy 10 high quality ones, or even less, to be honest. Maybe even five very high quality ones. And then that would probably be better than my current portfolio. 

[00:31:12] But I wouldn't have been able to wait that long, because I was really actively buying. Like many people, when you can buy, you buy, and that probably helped in a way at the time to utilise more equity down the track. So it's all dependent on your budget. If you've got a million dollars to spend, maybe it's better just to buy two $500,000 ones to spread the risk. But if you've got a really high paying job, and there's more money coming in next month and the month after, maybe go up to your limit, then know you can buy next year as well.

Tyrone Shum:   

O’Neill’s expansive portfolio has afforded him the lifestyle he had always wanted. He explains how, and where, he lives when he’s off the clock.

Scott O'Neill:   

[00:33:01] It's just given us the freedom. It might even come across how we do business— we don't do this because we need to, we do it because we like it. So we're never pressuring anyone to buy a property. Ever since I started the business with the exception of this year, I've spent three months overseas where I literally barely do any work. So if we were money hungry, we wouldn't do that. We would literally stay and work, because that does cost the business a lot of revenue every time we do that. But it's enjoyable to do that. 

[00:33:35] So the cash flow, the ultimate goal is just to keep the lifestyle. It is hard running a business, because I'm surprised how quick we've grown. It was never really the intention when we started out to grow to the point... we've got 11 staff now. And it's busy. I think it's important to sort of step back. But it's been hard this year, like because it is so busy with COVID and everyone is investing. It's sort of done the opposite to what many others would have thought— this has not been a quiet year for property. And certain markets have declined briefly. But others have actually boomed through it. 

[00:34:14] So our lifestyle is literally... we're definitely planning to go overseas for a long period of time next year, if we're allowed, we'll see. But the cash flow is really done that. I remember when COVID first hit— and this is probably an important thing to mention. I remember in March and April, the world looked like it was about to end. I was sitting down and going 'All right, I wonder how bad this is going to be for business, because surely no one's going to want to invest'. 

[00:34:45] And, honestly, the portfolio was the backup and it wasn't stressful. We had bills for the office and obviously staff and all that kind of stuff, but it was all okay. As long as even half the tenants were paying their rent, everything would stay floating for a long period of time. So that's what the cash flow does. If we had a negatively geared large portfolio, and that happened, I probably wouldn't have slept. So it creates comfort, that's the best way to sum it up.

Tyrone Shum:  

O’Neill explains how he structures his business during the work year and his time off— when the world isn’t in the midst of a pandemic.

Scott O'Neill:   

[00:35:51] It's almost like a Christmas shutdown, you know how you have your 'I'm shutting down from this period' on your email signature? I just give clients a large warning. We spend a lot of time in sort of Eastern Europe and Greece and all that kind of stuff. So that's the worst timezone possible for Australia. The hours you sleep are the work hours, the nine to five in Australia, so it doesn't work well. And the only way I do work is either getting up really early or staying up very late. I might just catch up on emails once a day for two hours a day. Probably make a phone call once every three days. It's not regular. It's quite simple. We don't take work on— well I don't, I don't take clients on leading up to those periods. 

[00:36:42] And you've just got to let people know you're going MIA for a while. But then at the same time, the emails will forever chase you. There's no escaping that. But luckily, it's enjoyable too, it's not like, 'This is a business that I didn't sign up for'. I love property, and helping people invest means it's worthwhile opening those emails every day. 

Tyrone Shum:   

We all want to hear and talk about travel right now, and O’Neill has many stories of overseas travel to share.

Scott O'Neill:   

[00:37:19] We've bought a house in Greece. So that's our new base. What we do is fly there, and then you all see friends in London... last trip we did, we flew up to Scotland and went to London, then Croatia, then Malta, and you basically just do laps, and then go back to Greece. And then might do a Greek island or two. And then back to Australia. A few years earlier we literally flew to Greece, just to see Mina's family and then flew to New York from there— Athens to New York— and then literally did the whole US trip and then down into South America and flew dodgy little planes and all that kind of stuff around these very remote parts of that central America area. 

[00:38:08] It's just like normal travel that people do, we just do it for longer periods of time, because we don't have the four week annual leave limit. When you run a business, you can either have zero holidays, because you actually work harder as a business owner, I think— well, I did— than an employee. But you do have the freedom to do that stuff a little bit more, but it is stressful setting it up. Because if you don't, your business might fall over.

Tyrone Shum:   

But how does an entrepreneur achieve that balance between work and travel? O’Neill explains the tried and tested method that works for him.

Scott O'Neill:   

[00:39:12] I'm lucky, my staff has been there for a long time and in the end we toned down the marketing and stuff like that, so we don't attract as many clients— hopefully— into those periods. It's manageable, it's a small business, you can control things a little bit in that department. But yeah, it's about setting it up. So if emergencies happen they get fixed. It's like any business. Then once you do that you can travel a little bit more rather than work around the clock, which is sort of the habit you get into. 

[00:39:50] Like this year, without the travel, I've never worked so much in my life. Because there's no break and you just work because the work's there. Simple as that. Like I said, like the property investment side of things is sort of similar to business in a way, if you set your properties up, you've got to have property managers managing it, you've got to buy the right ones that won't cause you too many dramas. And if you do, it should happen in the background a bit more.

Tyrone Shum:   

To further fuel our wanderlust, O’Neill expands on what a typical day of travelling in various countries looks like for him, and poses a question to the listeners.

Scott O'Neill:   

[00:40:38] Normally I would probably get up a little bit early, just to check the emails. And then once you know it's under control, it's just a normal day. Sightseeing. We would travel with friends a lot of the time. So that meant lots of drinking and late nights and stuff like that. And we've got a baby now, so we haven't done the overseas yet with her. So that will be very different. But looking forward to that, except for the flight, especially the Europe 24 hour flight. I actually don't know. If anyone's got advice there, I'm keen to hear it! 

[00:41:12] But that's something we'll have to work through. But I think we do holiday like we're doing it for a two week period, but for a long period. So after that, you want to get back into your health and all the usual stuff you get back into. But it's just like any other day— sightseeing, friends, and flying a lot, basically.

Tyrone Shum:   

When travelling for months at a time, it changes your lifestyle considerably. With O’Neill in Greece for two or three months at a time, he delves into what that looks like for him.

Scott O'Neill:   

[00:42:37] People need routine. And if you don't have that, it actually can make you less stable, less happy, everything. So, you mentioned that two months— I've felt that. I remember when we went to Europe for six months, a number of years ago, the first month was amazing. And you deal with jet lag for the first week anyway, so scrap that, and then the next week, you get into the rhythm, and then that kind of flows on for the next few weeks. 

[00:43:03] But the second month, you start going 'Oh, what's happening back home?' It's almost a strange feeling. But that's why we travel with people, because it's like a whole new start each time. If you just sit by yourself in an area looking at statues, and museums and all that kind of stuff, yet it's got a very quick shelf life. Because every statue looks the same at some point. So it doesn't really matter. But travelling with people is the key. 

 

[00:43:32] And then for us, it was about setting up an actual home in Europe, and we picked the island Mina grew up on— that's Kos in Greece and it's a great spot right near Turkey, and it's surrounded by water. And basically, it's where we'll park up. Long term, we'll keep escaping the winter there as almost like a habit. So we sort of leave June each year and get back around October. And that's the long term goal.

Tyrone Shum:  

O’Neill shares the unconventional method of mentoring he had when he was younger, and how taking off the rose coloured glasses can help.

Scott O'Neill:   

[00:45:11] I haven't really ever had a mentor— probably the closest one would be my father's investment mindset. And this might sound a bit random, but he was very negative. So you'd show a property or a deal and foremost, he'd talk it down, all the time, show the worst. He was an accountant, basically by trade, and it was very numbers based. And it sort of led me to look at most things poorly. Like, I look at an investment and almost judge it. Like going down the shops and going, 'Oh, yeah, look, that business is going to struggle'. You know, you think that kind of negative mindset. 

[00:45:50] But then when you see one that you don't feel like that, and you go 'All right, that's an actual good investment'. I don't look at everything through rose coloured glasses, I look at it from the opposite. And when you have that kind of mindset, you pick the right ones, and you don't just go too quick on a deal. I don't run with emotion. And I learnt a lot of that from him. Because he'd tell me I'd be an idiot to buy that. 

 

[00:46:13] And half the properties I've even bought, I've been an idiot for buying those. It makes you think, you go, 'I better not take this for granted', or 'Better not just rush in to buy this', and I'll always make my own judgement. And that's where I am. I don't have an official mentor. It's just self taught through time. There's not many people in the commercial space that you can look up to, because a lot of the high end, commercial guys are super private as well. You never hear about them. So it's a bit of an empty space. But that's why I have self taught as much as I could.

Tyrone Shum:   

He shares the book that has impacted his journey, how he discovered there was a gap in the commercial real estate book department, and what he plans to do about it.

Scott O'Neill:   

[00:47:42] It's called the Secret Life of Real Estate and Banking. It's a very long winded book, but it talks about the property cycles of the US since the 1700s and just maps it out. And once you read that, you feel like you know your place in the economy quite well, it kind of just puts everything in perspective. So that was a really good one. Commercial wise— the last two years, I've been writing a book for commercial, for the very reason I didn't think there was much out there. So I've just put my experiences and my wife’s in a book. So that's something we'll be putting out next year. Then outside that it's probably just your classic Rich Dad, Poor Dad stuff, like the mindset books are so important, because it makes you realise that you've got to invest for cash flow, and not just speculate. And that's what those books teach you. And it also teaches the importance of not just doing formal education, but actual real life education. And this is where this stuff comes in.

Tyrone Shum:   

If O’Neill could go back in time and meet himself ten years ago, what would he have said to him?

Scott O'Neill:   

[00:49:03] I would have loved to know more about commercial earlier on, I think that would be the biggest difference. I've got 23 residential properties and nine commercial properties. I wish that ratio was the other way around. Because it just be, I think, an even better position. But I'm pretty content how it went. We've had stressful moments where we've pushed the buck too much to buy a property and the banks have said no last minute, and all those kinds of things. But overall, it's just sort of hardened us into a real good around investor. So I probably wouldn't even want to talk to myself. I'd rather just let it run and hopefully it'll happen again.

Tyrone Shum:   

O’Neill also shares what he’s excited about in business, and his plans for the next five years.

Scott O'Neill:   

[00:50:03] Probably just continuing the business as is, enjoy it, I just hope I keep enjoying it to the same degree. We're building a house to live in, so I can't wait for that to be over. We haven't started but it will start next year and that's going to be not fun, obviously.

Tyrone Shum:   

[00:50:22] Especially with a baby, I was gonna say!

Scott O'Neill:   

[00:50:24] Yeah, it's gonna mean we're gonna move twice— like out of this property and then into another— I look forward to just getting that done. And then, I'm looking to buy more commercial property and probably sell out of a couple of residential to declutter our life further. And that's the five year goal, really.

Tyrone Shum:   

He finally discusses his portfolio and how much of his success he thinks is due to hard work, and how much is due to luck.

Scott O'Neill:   

[00:51:09] There's probably a little bit of luck that we haven't had, I guess. The amount we've done, there's normally more mistakes. Obviously, you can get unlucky. So I think there's been a bit of that. But look, honestly, before I do anything... you think of it for a month straight, and you think of everything that can go wrong, and all that. So everything's very calculated. So I always knew this business would do well— probably not this well, I always knew the properties would do well, they're probably in line with expectations. I think the next five years could be even better than the previous five years for properties. So I've got high hopes in that department. And yeah, I think just having a good upbringing, and obviously getting into property at an early age was very important. 

[00:52:02] And just, like I said, not having a big mistake moment, which I nearly did. Even that first property I bought in Sutherland, that rose to a million dollars in five, six years after I bought it. So it doubled in price. If I bought a unit, which I was about to, that same property would have only grown $250,000. So that's a $250,000 swing, just from picking the right property. And that would have made a big difference as well. So again, that's probably the luck side, just just going with the correct decision, when I almost didn't, a number of times.

Thank you to Scott O’Neill, our guest on this episode of Property Investory.