podcast

28 properties and an $11.5 million portfolio – how this investor did it

By Tamikah Bretzke
Scott, investor

Scott O’Neill said he didn’t like the look of his future, so he changed it.

In this episode of The Smart Property Investment Show, the Sydney-based engineer explains how determination and a dedication to his craft enabled him to cultivate a 28-strong property portfolio that yields him in excess of $740,000 in rent each year.

Tune in as Scott explores the diversity of his portoflio, how he’s “buying his time back” through property investment, as well as how he’s effectively managing his assets to secure $300,000 in income each year.

You’ll hear all of this and much, much more in this episode of The Smart Property Investment Show!

Make sure you never miss an episode by subscribing to us now on iTunes! 

If you liked this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insight!

Suburbs mentioned in this episode:

Sutherland
Port Macquarie
Maroubra
Ipswich 
Perth

Related articles of interest:

Capital gains slow down while capital city dwellings go up
‘Critical’ Sydney headlines affordability slump, latest figures show
Don’t blame high prices on housing shortfall
What’s the rate tipping point to stop investors?

Full transcript

Phil Tarrant: Phil Tarrant here, host of the Smart Property Investment show. Thanks for joining us today. We’ve got an investor who has been in the game for a little while, he's going to share his story. But before I get there, I just wanted to do a little bit of an update on our portfolio, for all those who have been following what we've been doing for the last four or five years on smartpropertyinvestment.com.au. You can check it all out, everything we've bought, we have been sharing our portfolio growth over all those years, and what we've done, and how we've done it, and what we've done good, and what we've done bad, and what we've done indifferently.

We're going to have an update pretty soon on one of our most recent purchases, and something, which I think will resonate with a lot of our listeners. It's a property that ticks all the boxes by way of its position in our portfolio. It's going to show good capital growth, and also some good yields, so watch this space. I like sharing the story around our portfolio, and as something that's very important to us at Smart Property Investment, we like to get all the real world strategy, the real world experience of investing in property, hence the reason why we like to get lots of different investors in here to share their story. Today, we've got Scott O'Neill. Scott, how you going mate? Thanks for coming in.

Scott O’Neill: Good. Thank you. Thank you for having me.

Phil Tarrant: Now, you're a Sydney guy? You're based in Sydney?

Scott O’Neill: Based in Sydney. Born and raised.

Phil Tarrant: Born and raised. I won't hold that against you. No, I'm a Sydney as well. So you've been investing for a while, tell us about your story, from being someone who probably never thought too much about property investment, and then jumping into property investment. What was the trigger?

Scott O’Neill: My trigger was I was an engineer and I was building railways, every time the railways closed, we were working. That's Christmas, New Year's, Easter, we're always on the railway. I used to see all these fellow engineers, 20 years older than me, most of them seemed to be divorced, overweight and they were moving every two years for work. That kind of got me thinking, I've got to do whatever it takes to bring retirement, even if it was 10 years earlier, I just had to do something. Property was the only thing I even thought about to go into. Shares, I never heard anyone retiring out of shares, so naturally, as an Australian, most people turn to property. I was no different.

Phil Tarrant: Talk me through your work, then. So you would, I guess, follow the railway, so it was either repairing, or maintaining, or building new lines, so you're stuck out in the middle of nowhere.

Scott O’Neill: Yeah, we were just out on the ballast. Really hot days, night time's really cold, just laying new track, and I remember I got the tap on the shoulder we were going regional Victoria next. That was the time to get out, basically, I changed careers a little bit. Stayed as an engineered style, but yeah, got out of the hard line engineering stuff, which kind of seemed a bit repetitive, after a while.

Phil Tarrant: You saw your future, 20 years’ time, and you didn't really like the look of it?

Scott O’Neill: Yeah, I was sitting around a management table, and I noticed there was maybe 10 guys, 20 years older, none of them had wedding rings, I think that was just the fashion half of it. But they all looked tired, and work was their life, they loved it. I didn't love it, engineering was what I did at uni, and it was a means to an end, I'd chose it initially because it paid well as a graduate engineer ... Then six months in, I just realised the money didn't matter, to be honest. It was never going to last.

Phil Tarrant: Did most of these blokes you worked with sort of blow their money, or they sort of savers and investors, or?

Scott O’Neill: The miners do – the guys out in the Western Australia used to smash hundreds of thousands of dollars on travel, and even silly investments. For instance, they'll go buy whatever they could. They come back, get taxed a lot, there's not much to show for it, after the end. Except they age two years every time they travel.

Phil Tarrant: Every industry sort of cultivates its own sort of culture. We had a guy on here, on the Smart Property Investment show about, it was probably either four or five months ago, Adam, and he was actually a train driver. He said he spent all day just driving, you drive a train, right, as a train engineer? Yeah, got to get the language right. He reckons he just droves goods trains sort of all over the joint, he said he just sat there listening to the podcasts all day and he's got some huge property portfolio as a result of it. He sort of, but anyway, I digressed a little bit, so you went okay I got to do something here. So you must have saved up a bit of money, you probably living pretty cheap out on the rails, sort of getting a lot of the expense's sort of covered. Tell me about the first purchase, what was it, where was it?

Scott O’Neill: So first purchase 2010, so that's when that First Home Owners grant was around, so that saved a bit of a stamp duty but I saved around $65k, and it was quite tough to get a loan. I remember my first property it was so tough, I had four weeks after settlement of penalty interest because we had to keep delaying just because we wouldn't get the approval. So just scraped in there. It was a house in Sutherland, and it was a dual income, so this is ... I got, I wouldn't say it was done right, but it was definitely fortunate, because at the time I was looking at a two-bedroom unit in Miranda, and that was about $450k at the time. The house was $480k, so bit old school, went the land...

Phil Tarrant: Was the best thing with a granny flat, or was it like a sub...

Scott O’Neill: House and granny flat.

Phil Tarrant: Okay.

Scott O’Neill: So it was renting for nearly $700 a week.

Phil Tarrant: Combined?

Scott O’Neill: Combined.

Phil Tarrant: Yeah.

Scott O’Neill: For $480k purchase in Sydney, and it's now valued over a million dollars, I actually looked back the other day what a unit would have been. 'Cause could have bought them at the same price, the unit was worth $600 to $650, and the house is over a million dollars. So that one decision literally, plus the cash flow on top as well, almost $4-$500,000 difference...

Phil Tarrant: It would have been pretty much positively geared from the get go?

Scott O’Neill: Yeah, it was getting nearly $200 a week after all costs, in the pocket. 'Cause I was self-managing the property as well, so wasn't spending any money on managing agents, and there's no maintenance really for it as well. It was just an old place. And yeah it was probably hats off to my wife at the time as well, 'cause I remember showing her the property thinking this thing looks horrible, and it's never going to fly. But she said, "Look does it cost us anything to hold?" I said, "No." And that was the end of it, we went with the pure investment track, and never looked back.

Phil Tarrant: Some of the best gifts come badly wrapped. I've got plenty in my portfolio, which are ugly looking things but you know what, I got tenants in there and they pay good rent and consistently, they're going up in value.

Scott O’Neill: What you want.

Phil Tarrant: So irrespective of how good it looks, you want a thing to perform. So what was the problem with getting finance you think the first time around? 'Cause you had a full time job, and probably got paid alright.

Scott O’Neill: Look I was trying to avoid Lenders Mortgage Insurance, so I was going through, I think it was Citibank at the time, and they were offering like a, it was a 15 per cent to put down. I was just scraping through, just playing with the banks, and I swapped at the last minute. Instead of just getting the deal over the line, I was just being fussy. ‘Cause I was inexperienced, but now I know I would have just got the finance and then shopped around after it. I nearly lost it as a result. So there was things like bank slips, I wasn't in the job too long at the time, so there was just ... I was 23, not much behind us and that was a tough time in lending because back in 2010 it wasn't the best environment as well, it was like one of the worst times to buy according to...

Phil Tarrant: Well everyone was still sort of reeling from the impact of the GFC and sentiment was improving a little bit, but banks were pretty careful with lending their money.

Scott O’Neill: Exactly, so it wasn't easy. It never was easy even like I've got 28 properties now and every single one of them was hard to get finance, and it never really changed. There's always a new problem, the bank says.

Phil Tarrant: Oh, there always is and today's headache is there's always another headache tomorrow. I think it's one of the psyche or the psychology of being a property investor is to know that yeah it's going to be a hassle, yeah it's not always not going to work, yeah it's going to be a real pain in the arse sometimes, but you just got to keep at it. So you've gone from one property to 28 in what period of time?

Scott O’Neill: Seven years.

Phil Tarrant: Okay, so you're not messing around, right?

Scott O’Neill: No.

Phil Tarrant: As some would say, quite an accelerated path that you're on, or trajectory. What's the sort of value of your total portfolio now?

Scott O’Neill: It'd be just around $11.5 million.

Phil Tarrant: $11.5 million, and what sort of debt you carrying on it?

Scott O’Neill: To around 6, just over $6 mil.

Phil Tarrant: Six mil, so what's that 60-ish.

Scott O’Neill: Yeah, sitting about 60 LVR.

Phil Tarrant: LVR, you happy with that?

Scott O’Neill: Very, yeah.

Phil Tarrant: That's not bad, so how much have you made yourself in equity over that period of time?

Scott O’Neill: Oh, good question, I've probably...

Phil Tarrant: I'd imagine you've ripped some out over the time.

Scott O’Neill: I think last time I looked at purchase price it would have been around $8 million.

Phil Tarrant: Okay.

Scott O’Neill: It's grown to $11.5m.

Phil Tarrant: Okay.

Scott O’Neill: So that's the, yeah...

Phil Tarrant: Is the impact of time holding the assets long enough for them to go up in value and what's your sort of cash position on your portfolio now?

Scott O’Neill: That's probably the strength of it, so I get about $740,000 rent from that. So I was buying things like unit blocks, duplexes, commercial properties, of recent times commercials been a real big kicker onto that cash flow. Things like what my first property was, just a simple duplex, cheap, got the capital growth upside and yeah the cash flow really helped get me those extra properties. Instead of being tempted to go buy in the Sydney market, you know find five properties in and then just finish off because the cash flows not there, I just stuck to this strategy of just buying over six per cent yield, making sure we're getting it at the right price. It took a lot of time on the phone, like literally four hours every day after work, just trying to find a mostly off market deals, stuff like that. That's how I got the unit blocks in Port Macquarie that did really well. Yeah just basically gave us the equity to move on and now I've just slowed up a little bit, just getting the LVR down. I was running at about 85 for the first year, 85 per cent debt, start again that down below 80 as the debt kind of climbed over $2 million. As the debt increases I'm going to keep trying to get that LVR down. So the next goals to get it 50 per cent, and then just sort of start getting rid of it.

Phil Tarrant: It's funny, just chatting to you, you speak about all these things quite casually right? That sort of shows confidence and experience to me. Speaking with investors with large portfolios is sort of like, yeah this, that and the other, but you probably just covered about four or five really complicated concepts that property investors if they're new to the market really need to understand. So we're talking about your LVR position, and you're saying, "Oh I bought these places up in Port Macquarie, and did really well out of it." You talk about six per cent yields, and spending four hours on the phone hustling up for off market properties. All these different things right, that you make it sound really, really easy, but it requires a lot of work, a lot of dedication, a lot of emphasis, a lot of commitment and a lot of probably giving up doing a lot of other things in order to achieve this.

So to jump from one to 28 in a period of time that you have done, you're not messing around right? What is it do you think? What drives you to build such a substantial portfolio? What are you going to do with it at a point in time?

Scott O’Neill: It was really to buy my time back that's why the cash flow stuck as the priority. I don't own a family home, I rent in Sydney, that's helped as well. Specially with the banks at the moment, and like I travel three to six months a year overseas, so we're on a plane in two weeks and we'll be back in mid-September. So that cash flow, it's about a $300k positive geared portfolio.

Phil Tarrant: So you said, so you're generating $780k I think you said, in terms ... So it's a business essentially.

Scott O’Neill: Exactly.

Phil Tarrant: So you bring in this $780,000 dollars and after you cover all your costs of your business you make a profit of $380,000, did you say?

Scott O’Neill: $300k, on the dot basically.

Phil Tarrant: $300k, in profit, which is income, which you're living off obviously. But the real upside to this is that you've these assets that keep going up in value over time.

Scott O’Neill: Of course, the growth is where you make the wealth. Like even last year, we made seven figures in growth, so the cash flow is great but it's time in the market and because that cash flow’s good I've never sold a property, I have no intention to. Even though it gets tempting – like, I've got a place in Maroubra that's my only unit, that's sort of not in a unit block basically. It's a unit with its strata and all that, and I get tempted to sell that every day, 'cause it's a lot more than what I'd pay for it, and it just looks attractive to cash out. But I think another 10 years, it'll be worth more, got time on my side, so I just wait out and just keep holding and holding. When you see those guys with those large negatively geared portfolios, they're always having to time it, to sell. They've got to worry about the market more. 

Like back in 2010 when I bought, I remember reading thousands of forums, and everyone was saying Sydney was going to drop 20 to 40 per cent at the time, and I was terrified, I was putting my life savings into a property. What got me to over step the line and make a decision was the good cash flow, I thought, well it's given me nearly 200 a week cash flow positive, why not? I don't care if it doesn't grow this year, I still get my cash flow, and then it'll come good eventually.

Phil Tarrant: Yeah they always say, a lot of people I chat to, timing the market is not possible, you're never going to time the bottom of the market, you're never going to time the top of the market. You want to try and get your timing pretty good right? You want to be buying at the low side, and seeing growth, but you know it's the time that you actually hold the asset. You want to try and hold an asset for multiple cycles, right? Properties supposed to double in value every 8 to 12 years, or whoever you listen to. So if you can get a property holder for two, three cycles, well you hold a property for two cycles, it's going to be four times the value of what you bought. It's really simple math's, it's a bit blunt, but it goes to show that if you can buy property, and hold property, i.e.: don't sell it, and make sure it's not going to cripple you in terms of cash flow, it's not rocket science. 

Scott O’Neill: Exactly.

Phil Tarrant: So what do you do when you travel, do you just sort of go around and see the world?

Scott O’Neill: So like I'm going to the US this year, I'm actually, I don't think I'll buy over there but I'm really looking into it hard. So I'm trying to meet some similar investors over there that have done well. 'Cause I don't, I'm not going to pretend I know the US market, I just want to leverage off what I know to pick what someone else knows a bit better than me. I'm just going to see what comes out of that, 'cause there could be a bit of a free ride with the currency falling against, well Aussie dollar falling against the US. But then again, there's downsides like the horrible ... The fact you need checks to do things, and property management is not as strong as it is in Australia.

Phil Tarrant: You still got to go and get cash from someone, right?

Scott O’Neill: Exactly.

Phil Tarrant: Still gotta pay your rent.

Scott O’Neill: I've got no idea what the tenants are like there and so it is all risk, but like I'm a property nerd basically. I'll keep looking into all those just 'cause it's enjoyable. Yeah just lots of reading and I do sort of keep the ear to the ground in Australia, and yeah, there's plenty to do when you're travelling. That's why, yeah...

Phil Tarrant: So would you describe yourself, there's a couple of ways you can do it, you're one of these guys with the laptop lifestyle i.e.: you can be wherever you are in the world and you can still be doing your job? Or are you a professional property investor, or are you retired, and your hobby is property investment? How do you see yourself?

Scott O’Neill: Like I work in property because I enjoy it, like even finding properties for others now, it's just, it's like chasing the hunt for ... It's like treasure hunting...

Phil Tarrant: So you like the game obviously?

Scott O’Neill: Yeah, like I was helping, after I stopped buying, or was tapped out from the banks, I'd help my sisters buy, or their friends and then their friends. It would sort of just flow on through that way. It was just enjoyable and I think there's a shelf life of three weeks on a beach, doing nothing, so you can't do that.

Phil Tarrant: You'd get bored senseless, yeah I completely agree with you.

Scott O’Neill: So, this is the game for now.

Phil Tarrant: So you're still buying now? You in the game, or you just on the sidelines?

Scott O’Neill: So I buy once a year now, 'cause my finances are too tangled to bother one at a time, so I normally buy around December each year. There's not many buyers around, and there's normally a lot of people trying to offload properties quite quickly around Christmas. So I'll buy three or four on the spot, and then sit out for the rest of the year.

Phil Tarrant: In terms of securing finance, have you got all your stuff cross collateralised or all siloed.

Scott O’Neill: All siloed.

Phil Tarrant: All siloed, which is the smart way to do it.

Scott O’Neill: Spread between the majors, I think I've got a couple with like Aussie Home Loans, but that's about the smallest bank I'm with. I'm always, I haven't fixed many rates, I like being quite nimble with the portfolio and yeah I've just basically spread it out as much as possible, so it's all independent.

Phil Tarrant: So you can still find money though? Like banks or lenders are happy to lend you money?

Scott O’Neill: Yeah, I've found it was, like of recent times, three out of the last four properties I've bought have been commercial. That's almost like a, they take it a little bit more like a business case, so that's been quite go

Phil Tarrant: By commercial you're talking like retail, or like office sort of stuff?

Scott O’Neill: There's probably entry level commercial which has a safe tenant, so I've really, like I would never buy office space 'cause there's a ... You know the trend is people working from home, I like things like medical or convenience stores, like even fast food for instance.

Phil Tarrant: Would you like a flat upstairs or something, that sort of stuff?

Scott O’Neill: Like imagine a Thai restaurant, that's in front of a major shopping centre, there's going to be tenants there for the next 50 years, people have got to eat, as long as the population growth around it there's going to be people continually need that spot. So they're the types of commercials I've been targeting, office space, some kind of industrial stuff is okay, but yeah it scares me a little bit to be honest.

Phil Tarrant: You've got to be comfortable with it.

Scott O’Neill: Exactly.

Phil Tarrant: It's different sort of playing field, right? Your lease is very different, in those sort of sense. In terms of your residential properties, what's the spread there? So you bought this place down in Sutherland, did you say?

Scott O’Neill: Sutherland.

Phil Tarrant: Sutherland, which is now worth a million bucks, and you bought that at the right time, but what's your portfolio look like, quickly, is it mainly New South Wales, is it Queensland? Is it all over the joint?

Scott O’Neill: All over the joint, but it's ... Break it up probably 30 per cent New South Wales, 40 per cent Queensland, and the rest spread. I've got like two commercials in Perth. I found Perth was a real good hunting ground because everyone's terrified of that market. But if you find a commercial with a five-year lease, doesn't really matter too much. So you're just getting it at a better price than you would in two times, for instance. So you've got a couple over there, one in Adelaide, which is probably my least favourite one, so haven't been back to Adelaide since. Yeah that's the spread.

Phil Tarrant: So you buy, you've only got one unit in the portfolio, so the rest are actually commercial stuff, or houses?

Scott O’Neill: Yeah.

Phil Tarrant: Houses, so where you located in the Sydney market, which suburbs?

Scott O’Neill: Maroubra is the unit, and the Sydney market is just that one house, but it's worth a million dollars.

Phil Tarrant: Okay, represents a large part of it.

Scott O’Neill: Yeah, represents a bit.

Phil Tarrant: And up in Brissy, whereabouts are you?

Scott O’Neill: So mostly middle rink suburbs up there, so I've got places in like HillcrestHillcrest, TAS Hillcrest, QLD Hillcrest, SA, got a couple out in Ipswich, Loganlea’s another one, but like I'm buying things like duplex's and houses with just good land component. That's comparing back to what we're talking about, the Sutherland versus the Sutherland house, the land component just grows so much further. Even though these houses don't look spectacular half the time, 10 years’ time you put townhouses on them, for instance.

Phil Tarrant: Yeah, so you're buying stuff that's zoned beyond just standard residential, you looking for that sort of medium density, high density?

Scott O’Neill: Yeah, a lot of it is just low density, but you know it's close enough to be in those corridors where it could get rezoned. But it might be five, 10 years away. Just sort of getting it while it's cheap, evenly geared property, or positively gear, and then just sit on it, increase the rent as soon as you can and...

Phil Tarrant: Well you get $300k put in your pocket every year for four, five of those, so holding onto stuff is not a problem. Have you got any sort of poor performs in there, in terms of the cash flow play?

Scott O’Neill: Probably the Adelaide one.

Phil Tarrant: Where in Adelaide are you?

Scott O’Neill: Happy ValleyHappy Valley, SA Happy Valley, QLD.

Phil Tarrant: So not so happy?

Scott O’Neill: No, what happened though, 'cause I didn't have the contacts out there that I, like contacts are a big thing, having a rental appraisal that's correct, and trusted maintenance guys, and got a building report. It just turned out to be there was another $15k I had to spend on it just to get it tenant ready, but the building report didn't reflect that. The agent overstated the rents and then I called up three others and they all sort of confirmed it was okay. So basically everyone, they weren't in on it, but they all...

Phil Tarrant: I mean look at this block from Sydney, let's get him.

Scott O’Neill: Yeah exactly, so like long story short, ended up having to spend $15, $20k extra to get it tenant ready, and then the rent was about 20 per cent lower than I thought. That hasn't happened to me before where it's been just below expectation in every way. Then on top of it the Adelaide market it's pretty lukewarm, there's not much going on growth wise. It's just, yeah, it's just been pretty quiet so far it's not a disaster by any means, it covers itself. I think it rents for $410 and I paid about $340k for it, but the maintenance killed me on that one.

Phil Tarrant: Yeah, so what's the jewel in the crown? Outside of, sounds like your Sutherland property here in Sydney, what's...

Scott O’Neill: Best one by far … I've got a medical centre in Perth. So I paid $680k for it, and it's renting for just over $100k a year. The tenant pays all the outgoings. Huge return, and then there's also another room where we're about to rent it out to a physio. So that's going to probably net about $15k extra a year, so it's going to be $110,000 rent. It was just an off-market deal, the agent just, I don't know what happened, I just thought there was something wrong with it the whole time. The price literally looked like it was half a million dollars too cheap, and I haven't revalued it or anything like that, I've just sat on it...

Phil Tarrant: Is it the old, too good to be true...

Scott O’Neill: I still think that, I'm still wondering if there's like a massive easement that's about to require me to knock it down. But it all checked out, and it...

Phil Tarrant: A lot of people, chatting with investors, a lot of people are sort of turning their eyes west to the Perth market. They've been doing pretty tough over there, property investors, and associated industries, like real estate agents getting hammered and etc, etc. I had a good chat with Damian Collins who heads up a business, they're called Momentum Wealth – he sort of knows the Perth market inside out. Check it out, listen to it, it's a bonus episode we did probably a couple of weeks ago. But his sort of sentiments towards the Perth market it's their cycles are huge, it's like doom and bust, essentially.

His pick on Perth was that it's probably not going to get any worse than what it is right now, and there's indicators that things may be, there's a little bit more optimism, more positive sentiment towards growth moving forward. So he said, "Don't rush out there straight away, you've got time on your side, but look toward Perth because the opportunities will start coming up." You obviously got it near to a right time, with a slightly different sort of asset, in terms of a commercial premises. But I think the basics of what you've done that is off market deals, that's when you get the best stuff. So how many of the properties that you've purchased you've got off market, so just through hustling and connecting with real estate agents?

Scott O’Neill: Over half.

Phil Tarrant: Okay.

Scott O’Neill: But like another example was a really good, probably my second best buy was in Port Macquarie, it was a block of five units, paid $710k for it, and about the time the unit’s worth about $230 each in Port Macquarie.

Phil Tarrant: So how'd you jag that? Just calling up and...

Scott O’Neill: It was just listed online and I was working there at the time so I literally just ran, organised an inspection, got the builder with me, left work, and checked it out. It was looking okay and then it was listed for $710k. I knew the agent had never seen a unit block sold, so he didn't know what to value it, and I knew I was going to strata title it, so I was going to split it up, and do all that. So I had the guy with me that knew how to strata title and we bought it on the day for asking price. I tried to negotiate it, I went for $600k, $650k, $660k, he kept saying, "No." There was literally five people in Sydney driving up that weekend, and that's where I just said, "Look, I'll buy it now."

Phil Tarrant: It's funny, I had a chat with a guy called Glenn Coutinho, who's a good agent down in Melbourne, one of the top agencies – RT – can’t remember the business. But he said, what's your best tip as a real estate agent for buying properties and he just went, "Just pay the asking price, don't mess around trying to haggle for $5, 1$0, $20 grand because if you miss out on it." So if you lost that place for $10 or $20 grand, you'd be kicking yourself today, right?

Scott O’Neill: I know.

Phil Tarrant: You'd be kicking yourself, but your natural inclination is to try and haggle with the block right, try and get it even cheaper than what it is, even though you're looking a gift horse in the mouth really. You strata’d that block?

Scott O’Neill: Yeah, so basically that's valued around $1.3m now as well, so that was just a classic example of, like the agent didn't know what he was selling, like five units under one title, how often do you see those?

Phil Tarrant: People looking for, investors I know looking for them all the time. They come up often now and they're hard to get.

Scott O’Neill: 'Cause I think like few years ago all the super fund guys got in on the act, so they actually pushed the prices of unit blocks up massively. So the yields were compressed, so you didn't even need to strata title it, you just buy a unit block and just wait for people to want to pay more.

Phil Tarrant: So you bought this for $7...

Scott O’Neill: $710k.

Phil Tarrant: $710k, and it's strata’d now?

Scott O’Neill: I actually strata’d it and then unstrata’d it, because I had five sets of rates and then I realised I don't want to sell this because it's ... it was cash flow positive, and so that goes back to I was thinking initially, flip and get out of the market. Port Macquarie got a good long term future, it's got the retiring population from Sydney, and there's plenty of infrastructure going on up there. It's not finished in its run, it's very late in the piece but again 10 years’ time it'll be worth more than today, so I actually...

Phil Tarrant: So you started that, what did you pay to strata it?

Scott O’Neill: It was about two grand in Council fees, I had to put car parks in, so that's about $15,000, an integrated fire system, that was about 10. Not much more than that.

Phil Tarrant: Okay.

Scott O’Neill: So there was bits and pieces, but it was just to make it compliment, safety wise. Once that was done, it's just the paperwork, which I didn't handle, the private certifier did that. You got to pick ones that are in with the Council, this guy worked 20 years in the Council.

Phil Tarrant: Yeah so he knows all the people, knows the systems.

Scott O’Neill: So it like just went through.

Phil Tarrant: That's where it makes sense to pay for good advice, right?

Scott O’Neill: Exactly.

Phil Tarrant: How much did it cost you to un-strata it all?

Scott O’Neill: Basically was just uncapping like the water metres, there wasn't much to do. So we actually just held off the actual surveys and that, we just sort of held those back and just didn't go through with it.

Phil Tarrant: So it sounds like, it's been a good run, do you think how much is it based on you being a smart, shrewd investor and how much is just down to luck you reckon?

Scott O’Neill: Oh I'm pretty obsessive with like the numbers and that. When I first bought that first property that was a bit of fortune, 100 per cent, I knew it was cash flow positive, but I had no idea how big of a difference it would have made if I'd bought the wrong asset in the first place. So I would have, I'd be lucky to have five properties now, if I'd bought a unit at the time. So that kind of leapfrogged me into making a lot of other purchases I couldn't have otherwise. But I put a lot of time into it, like I used to self-manage at one stage about 9 or 12, 10 odd properties and that blew up because things went wrong at the same time.

Phil Tarrant: So you get them all managed now, do you?

Scott O’Neill: Of course, yeah, 'cause I had a couple of bad experiences with getting people off Gumtree and what happens is they'll buy past the real estate agent, so I had tenants all the time but they would be the worst ones. The ones that couldn't get leased other places.

Phil Tarrant: Then nick off and not pay your rent and all that sort of stuff.

Scott O’Neill: Exactly, so that was probably my worst experience when it all blew up with a couple of bad experiences with tenants. Then that's why good rental manager, love 'em, they take all the time out.

Phil Tarrant: They're worth their weight in gold. So chatting with people that work in property buyers agents and accountants and stuff, they always talk about some of the worst, I'm not going to say the worst, some of the hardest people to work with from an advice perspective are engineers. They said they're real quite tough characters to work with, 'cause they're so analytically orientated. So it's a part of their brain that works really well is their sort of analysing of situations or products or whatever it is. I do sort of concur that, my brother-in-law is an engineer and he's sort of the same. Engineers are engineers, right?

Scott O’Neill: Of course.

Phil Tarrant: Have you found that, you've obviously got the same sort of mind set, do you think it's sort of been limiting to you at all in terms of being over critical, over thinking stuff, versus just going with the flow and trusting your gut a little bit more than your brain?

Scott O’Neill: It sounds silly, like 'cause of the portfolio...

Phil Tarrant: Is that a fair saying?

Scott O’Neill: Yeah, 100 per cent, but like yeah definitely risk adverse, but I think it's helped, 'cause this is how I think, whenever I buy a property I think, "Oh what if the GSE number two hits tomorrow? And interest rates go up to 9, 10 per cent? Banks are trying to get their cash back." Then I think, "What types of properties will do well in that environment?" That's why the medical centre was good, people are going to get sick, fast food, people are going to eat.

Phil Tarrant: And then get sick.

Scott O’Neill: Yeah, exactly, and even like the houses, you've probably bought some yourself, you buying the bottom third price bracket because the middle class will probably end up renting if they lose all their jobs and you're probably going to have more tenants in the doomsday times. So it's not recession proof, but I think I got to be happy with that worst case scenario, and that's why I sleep well with the properties I've got, 'cause they're not reliant on doing well. Like you see these guys buying properties in Sydney now, hedging their bets it's going to grow 10 per cent next year, what if interest rates go up? They're gone, they don't get their growth. They're the guys that will lose out, if...

Phil Tarrant: There's blokes like me and you will be sitting there waiting for that puddle on the street to happen, and you buy these property's sort of under market value 'cause people are desperate to sell, right?

Scott O’Neill: Exactly.

Phil Tarrant: It's a great time to be a property investor.

Scott O’Neill: Cash up when it's bad.

Phil Tarrant: Yeah, I don't like the idea of capitalising other people’s misfortune, but a lot of people really mismanage becoming property investor. They listen to stuff like The Smart Property Investment Show and we try to give the real world take, we're not like, hey do this and you get rich tomorrow. It's just not the way it works, right?

Scott O’Neill: Of course.

Phil Tarrant: It's hard work, it takes a lot of effort, and emphasis and if anything’s too good to be true like your Perth thing, which has yet to prove itself, but it generally is. So good, safe solid assets like you've picked up, which is probably not that dissimilar from our portfolio. If everything goes wrong, I'm pretty sure that, even if the properties that we have come off 10 per cent or so, in terms of valuation, they've had good growth on them, yes, but if they come off and it's going to cost me a little bit more to hold them they're not that expensive. They're not like $3 million dollar waterfront mansions that I never get tenants in. It's sort of place that people want to go and rent it. That gives me that sleep at night factor, sounds like you're the same way.

But mate, Scott, there's lots of other ways we can take this chat, we've only really just touched the tip of the iceberg. As I mentioned you spoke sort of quite confidently about it, because it's just second nature to you, some of these sort of concepts around using equity to buy more property, cash flow. We covered a lot but my message to our listeners would be if you're looking to emulate anything from Scott, I'd look to emulate his passion for property, his engineers brain to critically analysis and assess stuff. But I guess also put the sort of human element on it as well which is pretty key. If there is one thing you could say for someone that's gone from zero to 27...

Scott O’Neill: 28.

Phil Tarrant: 28 properties in a short period of time, what would it be?

Scott O’Neill: Sounds a bit cliché, just only look at the numbers. I see so many people buy 'cause their uncle said buy this area 'cause I feel like it's going to grow, and that's it. They make decisions on purely growth, but if you look at it as a PNL statement, what's the cash flow in and out, and then kind of predict things around sort of population growth ... I just break the numbers down in every way you can, that's how you reduce your risk.

Phil Tarrant: I'm going to pick up on that point because we'll do a quick, do another real quick chat, which we'll do as a bonus episode. I think it'll be important around how to go from zero to 28 in seven years. I think I really want you to crystallise those key steps for me and leave you a little bit of time to think about that right now. But Scott, mate, really appreciate you coming, it's good, thanks for getting in touch. Scott contacted the team via [email protected], I believe?

Scott O’Neill: Yup.

Phil Tarrant: And yeah we do get back, so if you want to come on the show, we're always looking for interesting stories and Scott represents probably less than one per cent of all property investors in the size of your portfolio. But I think whether or not you've got five, you've got 10, you've got zero, and you want to get in the game, get in contact with us and come on and share your stories. It's not that painful is it Scott? It's pretty easy.

Scott O’Neill: Not at all. 

Phil Tarrant: Feel relaxed? 

Scott O’Neill: Nice and easy. 

Phil Tarrant: That's good, so remember to check out the website smartpropertyinvestment.com.au we're going to write up some stuff about this chat and have some stories from Scott on there. I'm going to try and get him to maybe break down his portfolio a little bit more, I'm sure you've got some spreadsheets, with plenty of numbers on it that we could, show how to do it. But we're on all social stuff, Facebook, Twitter, LinkedIn. Please keep those reviews coming on iTunes, five star rankings is the one we like, if you don't think we're worth five stars let me know. Email us at [email protected] – always interested in some critical feedback, as long as it's constructive. I'm not yet really bullied on anything, am I Adam? Adam's shaking his head, no. I haven't got too many haters, no? It's all okay. We'll be back again next week, thanks for joining us on The Smart Property Investment Show. We’ll see you next time.

Listen to other instalments of The Smart Property Investment Show:
Episode 95: The top 10 things every investor should check before buying a property
Episode 94: BONUS EPISODE: From 1 to 28 properties – what's his secret?
Episode 92: BONUS EPISODE: Investor reveals top tips for better property management
Episode 91: Why being 'pedantic' about property will enable this investor to be debt-free by 45
Episode 90: Portfolio update: SPI gives the inside scoop on its latest property purchase
Episode 89: Renovating as a couple: two young investors share their story
Episode 88: Everything you want to know about the short-term rental market revealed
Episode 87: BONUS EPISODE: Former Olympian shares his property development know-how
Episode 86: How a former Olympian found new sport in property development: Ed Fernon's success story
Episode 85: Q&A session with Paul Glossop – more questions answered!
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