From engineer to buyer’s agent

By Demii Kalavritinos 08 March 2018 | 1 minute read

Scott O’Neill, founder and director of Rethink Investing, rejoins Phil Tarrant to discuss what has been happening since his appearance on the podcast six months ago, why he went from an engineer to a buyer’s agent, and his secrets to becoming a good buyer’s agent.

Scott O'Neill, Rethink Investing

The Sydney-based investor reveals how his seven-year journey has impacted his career, how he has created wealth through property and how his excitement towards property is not just pure luck – it requires education and dedication as well as a strong love.

He and Phil discuss the skills required to become a buyer’s agent, providing tips to listeners considering the same journey as well as how you, as an investor, can buy better.

You will also find out how feedback contributed to his success, his thoughts on specific property markets and why you need an agent you can trust.

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


If you like 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: Facebook, Twitter 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 insights!




How this investor made a career out of a hobby
What are the realities of property investing?
How to deal with the main types of tenant requests
Why this property investor doesn’t mind being a ‘pain in the ass’ to his buyer’s agent



An agent is a real estate professional licensed to guide property buyers and sellers with their transactions.


An agent is a person authorised to act as a representative in the selling, buying, renting, or management of a property.

About the author

Announcer:    Welcome to the Smart Property Investment Show, with your host Phil Tarrant.

Phil Tarrant: Hello everyone. Thanks for joining us on the Smart Property Investment Show today, it's always a pleasure to have you with us.

            As you know, if you tune in regularly, we like to catch up with people we've had on the show previously, and see where they are, what they're doing, whether they're still investing, growing their portfolio, decreased it. And just the way they see the world and particularly the market flux right now. Where you listen to podcasts or look in the media, you know you'll see Sydney's coming off, it depends who you listen to or what data you look at. Prices are starting to drop a little bit, softening same in Melbourne, obviously Brizzy, we speak about it quite a lot, is moving ahead and will look to move ahead quite nicely, we believe.

            But I've got back in the studio someone today who we caught up about six or seven months ago, was back in August. You can go and check it out, it was on August the 10th, is when we put this podcast up online.

            So both on Smartpropertyinvestment.com.au wherever you listen to your podcasts including iTunes, just find it. It's the 10th of August and it was titled 28 properties and 11.5 million portfolio. How this investor did it. And I'll read it out and welcome our guest into the studio, Scott, how you going mate? Are you well?

Scott O’Neill: Good thank you mate. Thanks for having me.

Phil Tarrant: It's good to have back, so I'll read what we wrote back then. And hopefully it can jog our memory exactly what we spoke about. Do you remember the chat? And you probably remember as well if you tune in regularly, 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 dollars in rent each year.

            What's been going on over the last six months mate? Are you still an engineer or you was an engineer, is that how it works?

Scott O’Neill: No. I think we think like that, numbers wise and how we assess risk, but yeah definitely not thank God.

Phil Tarrant: So not an engineer anymore and from what I understand you are now working with people, supporting them to actually create wealth through properties. A buyer's agent?

Scott O’Neill: Yeah, I just help people do, well buy the same types of properties I had a lot success buying and they're basically properties with slightly better yield than others and things like unit blocks, commercials, duplexes, just anything to get a better income than the average and when you do that you can actually acquire more properties and if you're still in a growth market, at the same time you can get the best of both worlds, cash flow and growth.

Phil Tarrant: Which, is what every investor wants. So, today let's have a chat about this story about becoming a buyer's agent. We'll look into that and also just really a recap on your personal portfolio and where it is right now. And how it might have changed over the last six months.

            The timing of this podcast is really good if you tuned into our last podcast, you would have heard a conversation I had with buyer's agent within Cohen Handler and they've just gone through the process of creating a training academy up for a buyer's agent. It's obviously an attractive market and you have lot more people seeing it as a profession moving forward. And we're very pro buyer's agent, good buyer's agents will buy in this trading market place and they will do survey, greater relevance to people purchasing property moving forward.

            So you're one of those people that made it a career choice. You had a day job, engineer and now you've decided to actually become a buyer's agent. Was that something that you'd been gearing up for a while or was it a light bulb moment? You went, you know what, like I like buying property, I think it's great. I'm good at it. I'm gonna do it as a service.

Scott O’Neill: No, it was pretty much from the start 'cos, I'll use an example of the second property I bought, it was 425 grand, renting for over 800 a week. And with the mortgage, after all costs it was giving me about 15 grand in the pocket.

Phil Tarrant: A year? Yeah.

Scott O’Neill: So, I thought, imagine owning 10 of those. You can actually replace your income and I was obsessed from that point. So, just chased high cash flow stuff and they all grew in value too. That was probably the surprising part of the last eight years of doing all this. They have grown a hell of a lot. And that allowed me to have deposits and be in a position to move forward.

            It's been a long road but it was always the plan just to treat it like a business to replace engineering. And got there, it took about seven years.

Phil Tarrant: Okay, so it's a question for you, it's probably a hard question but we chatted about it a bit, you becoming a buyer's agent, that's cool and I think a lot more people will use it and choose it as a career path, that's really cool. You've been doing this for seven or eight years, so it's a reasonable time in the market but and this is some of the criticisms I hear from other people going, anyone could have made money in property over the last seven or eight years right?

Scott O’Neill: Yeah.

Phil Tarrant: If you didn't you're an idiot.

Scott O’Neill: Definitely.

Phil Tarrant: So, I'll put that to you. What is it that makes you a good buyer's agent? You've obviously got a good pedigree of doing your own portfolio, is that more time or luck? Or is that, you know sensible investing and every market has opportunities where you can actually create wealth?

Scott O’Neill: Well, I definitely benefited from the Sydney boom. So I had two properties here, but I never bought again in Sydney. So, really if you're talking about what you mentioned, that boom it's mostly been in Sydney to be honest. And Melbourne a bit as well, but I've been buying all sorts of places, like you know things like, I made, I bought a 710,000 dollar unit block. It was five units, strata titled it individually. The total of the value is worth one point five now.

Phil Tarrant: Okay.

Scott O’Neill: And that was four years ago.

Phil Tarrant: Okay.

Scott O’Neill: That kind of stuff produced equity a lot quicker than the market. Even Sydney, so I was buying properties outside Sydney, getting similar returns, but overall I was getting a better cash flow on top. And it just took thousands of hours of searching for these things and I think I mentioned last time, I letterbox dropped about 300 properties is Port Macquarie. I found every unit block. I had a job on the road a bit. So, I used to keep a note of, yeah, one, two three Smith Street is a unit block and I just kept writing, I'd like to buy this off you. I'll pay above market rate, just to try and get 'em excited. And one came back out of the three hundred.

Phil Tarrant: That's pretty good.

Scott O’Neill: Yeah.

Phil Tarrant: So, what you're saying then is that, it's not luck it's actually hard work, burning the shoe leather. I think there's a lot of armchair investors out there that think being a buyer's agent is sitting there looking up E-data and looking at properties. That's not what it's about right?

Scott O’Neill: You've got to love it. Like, I spend hour after hour, like I read nearly every article to do with property. You're looking at all the stats, 10 different websites. You won't be able to do that for long term, unless you love it.

            So, it's a hobby definitely, but it's like creating a business.

Phil Tarrant: Well it's a hobby that's become a profession now.

Scott O’Neill: Yeah, exactly.

Phil Tarrant: So what is it then do you think that differentiates, now that you are a buyer's agent, you've chosen it as a career path, what is that you think differentiates people who like looking at property versus people who can actually provide that skills, that capabilities as a service for other investors? What's the main thing?

Scott O’Neill: It would be time and effort. Again, 'cos most people, they decide I'm going to go buy a property. Research for three months, buy a property and then they don't do anything for five years. And like the greatest benefit of my job now, buying properties every day of the week for people is I'm in the market every day. So you've got a live feed on the ground and you can start, not relying on what the news is telling you. Because you can tell if you're losing bids to, you know you get gazumped, you know it's going on, on the ground and that takes a lot of the risk out.

            And then you know all the good streets, the bad ones. What tenants are doing in the area at the time. So, that live constant feedback is probably what will allow me to invest even better.

            That was a bit of the surprise package and you know even last year for our business more than over 50% of our properties were off line deals. So getting access to stock, we randomly target lazy agents that want a quick sale. And you know if they drop 30, 40 grand, the vendors expectations are met, it's a win, win for them and like it's a no-frills sale. It's going to be iPhone photos, it's no professional anything. There's no six week campaign, it's just done on the day. So that works for people if they're in financial stress and that's how we've been able to buy better, I guess. So, the more you buy the more chances things like that come up. And as an individual, to find a good property it would take me a month initially. Now we find them every day because you've just got two, three, four hundred agents just messaging you every day. And yeah, that's been a surprise part of everything.

Phil Tarrant: So that's a bit value add then. So what Scott's talking about is off market properties. So, these are the properties that never ever see realestate.com or domain.com it's just, a buyer's agent gets a phone call from an agent, saying, "Hey I've got this. I've got to move it quickly, here's the reasons why, can you find someone?" And this is where you get your bargains right? The alternative is that lazy agent. There's a lot of lazy agents. There's a lot of very good agents out there, but there's also a lot of lazy agents who just don't know how to market property well. So they can't move it, they can't shift it, it's sits on market for months and months and months. No one touches it and then a good buyer's agent will come in and get a deal done. And unless you're doing it every day, it's pretty hard to even make those opportunities happen.

Scott O’Neill: Yeah exactly.

Phil Tarrant: Yeah.

            So you're enjoying it then?

Scott O’Neill: Yeah, I love it.

            It's not work.

            It's a hobby still.

Phil Tarrant: That's good. They always say the secret to being successful in business is to do something you love.

Scott O’Neill: Yeah, and like I don't mind looking up properties at 8PM, 9PM at night and I remember as an engineer if I worked past 5.30 I'd be disgusted. I hated it. I was like I'm not getting paid for this. It's boring work, so it's a different setup, which is good.

Phil Tarrant: So what sort of stuff are you buying at the moment? What do you like? Where are you active? I don't expect you to give away all your secrets, but what sort of stuff are you doing?

Scott O’Neill: Definitely free standing houses, middle ring suburbs.

Phil Tarrant: Which?

Scott O’Neill: South East Brisbane is a real good market at the moment. I like the Gold Coast, the Sunshine Coast. Tazzy, we're doing a lot down there, that's the hottest market in the country.

Phil Tarrant: Is Tasy not done yet? You think it's too late?

Scott O’Neill: I don't think it'll go for a very long time. Again, it's a crystal ball, but I think it'd have maybe two more good years and then it will go back to being Tazzy.

Phil Tarrant: We like Tazzy by the way. Tazzy is a great place, but you know it's hit a bit of a boom cycle at the moment.

Scott O’Neill: Oh exactly.

            In the last 12 months it's grown over 13%. That's better than any other market. I know when we're in there, like there'll be a price guide of 300, hypothetically speaking and someone will then go for 340. We go away and we're just like just in those really hot markets we'll get 320. Expecting to get it, we get the feedback from the agent and then we're no-where near it. So that's a sign of the markets right now.

Phil Tarrant: This goes back to your point before hand about, it's a kinetic market right?

Scott O’Neill: Exactly.

Phil Tarrant: Like every day is different and you know if you're putting 320 in and you're not getting it in for 325, which is the nature of the market, but it's got to stop at some point.

Scott O’Neill: Yeah, exactly.

Phil Tarrant: And is it mainly other buyer's agents down in Tazzy, sort of being active?

Scott O’Neill: Yeah, there's a few, there's a few down there, but it's more like, owner occupier is a big one as well. So there's a lot of population growth down there, which is kind of the opposite that was happening five years ago. So, Tazzy was a shocking market and that's kind of one of the reasons it's good now because it's playing catch up. But it will even out. Like Tazzy will not outperform your Brisbane's, Perth's, Sydney's and Melbourne's of the world. It's just regional at the end of the day.

Phil Tarrant: What's the population of Hobart? It's not that big.

Scott O’Neill: No, less than the Gold Coast I think.

Phil Tarrant: Yeah, it is. It is really small.

            Okay, so you like Tazzy, South East Brisbane, so inner ring suburbs, so you're not talking about CBD locations, you're talking sort of five, 10 K's out? 20 K's out?

Scott O’Neill: There's over supplies in pretty much every CBD in Australia at the moment. So, units are causing a bit of havoc, like the banks have crunched down on them. It's not a good place to buy a unit at the moment. There's more supply coming on, so houses about half an hour drive out from the city, is where the real people live with the backyards, the pets, the two or three kids. And that's a good market to be in because they're going to be basically either renting long term off you or are trying to trade up and buy and push the market up internally.

Phil Tarrant: You seem much sort of, just talking about Brizzy and the fact that you buy 50% of your properties off market, so are you seeing a lot of distressed sales coming through? Are people, out of the pump right now, or is it just sort of business as usual in terms of, what do they call it, the four D's: debt, death, divorce, debt or whatever.

Scott O’Neill: No, we're definitely getting a few. Like one of the most common ones is a single guy living in a house, he's lost his job. He doesn't want to put a big sign post out the front displaying he's failed. And you know financially, so he'll sell it off line to us. A quick sale, he'll take a bit of a hit on price and then he'll rent back off you. And they're the best tenants because he will not ask for maintenance. He'll just sit there and pretend it's his still. He won't tell any of his friends and family. There's just a transaction that happened behind the scenes.

Phil Tarrant: Is that happening is it?

Scott O’Neill: We're doing that. Like, honestly, probably three to four times a month at moment.

Phil Tarrant: Really?

Scott O’Neill: It's crazy.

Phil Tarrant: So, someone lives somewhere, can't afford it anymore. They still want to live there so they'll sell it and then rent it.

Scott O’Neill: Or even just to get access to their deposit. So, like if you bought, if you've got 20% locked away in a house, that's a lot of money. People want that sometimes and this is a good way of getting it without having to sell up.

Phil Tarrant: Fair enough and how does that work? So the agent is working on behalf of the vendor and if the vendor goes, "I need a quick sale, I need to move quickly," a buyer's agent is easy call right?

Scott O’Neill: Yeah.

Phil Tarrant: Do you want this? Because you're in those markets and you know them intimately, you probably even know down to a street level or sometimes even a house level, how much info do you need to know whether it is not a deal or a no deal? How quickly can you make that call?

Scott O’Neill: You can do it without the agent. So, I just need to know the price guide. Even when they tell me that it's irrelevant. You're going to offer what you want. You just do your own checks on rental appraisal but when you buy every week, you know what four bedroom's renting for et cetera. So, yeah it's quite easy. You can make a decision in five minutes. You've just got to have an agent that you trust to say is the building and pest condition of the house okay. Because they know if they lie to you, you're not going to come back next week and buy again. You won't trust them. So, they're generally, they'll tell you all the cobwebs and then you can factor that in the price.

Phil Tarrant: Okay.

Scott O’Neill: Like, how we've done well with the business is by making decisions really quick. So, we buy within a day. Like sign contracts and everything. And that is attractive to many people who are wanting a quick sale. It's a win, win situation. Like the vendors need to sell for whatever reason and they save on marketing costs, like it costs a fair bit of money to list on realestate.com and Domain and put sign posts and that's a fair bit of money that they may not have.

Phil Tarrant: Yeah.

Scott O’Neill: Yeah and time. Like six week campaigns are kind of the norm. You can skip all that. Sometimes it's worth 20 or 30 grand.

Phil Tarrant: So, if you're doing this and let's use Brisbane as an example, if you transaction these type of properties, as a buyer's agent and you don't need to have a buyer's agent, use a buyer's agent to do this, you probably just not going to know about the opportunities right? So this is the benefit bit, Brizzy is different to Sydney, is different to Melbourne, different to Hobart et cetera, so the way in which contracts are formulated, Queensland has its own set of contracts versus New South Wales for example. If you're doing that deal, so you say to an agent, "What is it? When do they want to sell? What do they want to sell?" You get all that intel, then you say, "What's the pest and building like?" And they'll go, "Look it's got this, it's got that," so you want some clarity there. When you go, "Okay, it sounds good. Heres my offer," it gets accepted. Contract. What sort of conditions do you normally load into the contract so, would it be conditional to a pest and building inspection?

Scott O’Neill: Yeah, 14 days for building and pest.

Phil Tarrant: Yep.

Scott O’Neill: And 21 days for finance.

Phil Tarrant: For finance.

Scott O’Neill: Finance is a brilliant clause because you just get your broker to email you saying, I could not obtain finance. Exit the deal, you get your deposit back. We either put a 1,000 or 5,000 down as a holding deposit. So it's pretty risk free?

Phil Tarrant: I use that a lot myself up in Queensland. So when deals come in from my buyer's agent, it's just like, just control the property. You know, so what you do, you're talking about control of the property, so essentially it's giving you the option to buy it, but it's giving you plenty of scope to get out of it.

Scott O’Neill: To think about it?

Phil Tarrant: Yeah, so you have 14 days for building and pest, so you sign a contract?

Scott O’Neill: Yep.

Phil Tarrant: Give a 1,000 bucks, sit it in a trust account somewhere. You've got 14 days to get a pest and building in there and then if it comes back, you go that's about right. That's what the agent said or less. So there's more problems you go, look revise price it's going to be this now, so it gives you a negotiation tool and then 21 days on finance. So you've got 21 days to get approved finance or unconditional finance for the property. Then if you can't get that for whatever reason, even if you can't get it for a reason, you can still exit the deal without any problems whatsoever?

Scott O’Neill: Exactly.

Phil Tarrant: So, it's a bit of a game? It's a bit of strategy, it's a bit of tactics?

Scott O’Neill: Yeah.

            And you can't do this in New South Wales. Like, if you buy here you've got to get your building and pest first. I find that really frustrating. I remember when I bought my second property in Sydney, it was about nine in a row, so I think I paid for about six or seven building and pest. And I never even had the property. I kept getting smashed in the price and then the one time I bought one, I didn't get the building report and there were problems

Phil Tarrant: Yeah, that's always the way.

Scott O’Neill: So it's very seller friendly.

Phil Tarrant: So this is really an important point, if you're tuning in. Every market's got different nuances of how you buy. How contracts are formulated. So if you're buying up in Brizzy we don't want to give away too many secrets, but this is what you guys do. That you use your pest and building as a tool to either stall or to drive the price down. And you can use your finance as a tool to exit the contract if you can't get …

Scott O’Neill: Exactly.

Phil Tarrant: Which I don't recommend you don't do.

            You shouldn't be doing. You should be getting pre-approval to know you can actually get access to the cash. But, it's a tool.

            Okay, that's cool.

            So you're mainly active in Hobart and Brizzy at the moment? What sort of price points are you looking at? Sort of, if it's middle ring stuff ...

Scott O’Neill: 350 to 500. But like the other side of this stuff we're doing, we're doing a lot of commercial.

Phil Tarrant: Yeah, I was going to ask you about this. So we concentrate a lot on residential property and buying with a buyer's agent, resi property and it's very popular, it's growing in popularity, so what's going on commercially? So you like commercial property at the moment do you?

Scott O’Neill: Yeah, that's here my passion is, 100%. Like, the cash flow you get from it is incredible. I'll give you one critique example, so there was this guy I went to school with, we bought two commercials, straight up, he's never bought a property. So he's a little bit daunted. He paid total value of 780 and the net return, he had a 70% debt on both properties and the net return after maintenance, insurances, rental management, land tax, everything was 41 grand a year.

Phil Tarrant: Okay.

Scott O’Neill: So, imagine spending 800 grand in residential, you'd be lucky to get five grand a year. So the cash flow's like a ratio, like 40 times better.

Phil Tarrant: So 41 grand after costs?

Scott O’Neill: After all costs.

Phil Tarrant: Including holding costs of the debt?

Scott O’Neill: Everything.

Phil Tarrant: Okay, so that's 41,000 bucks in his pocket?

Scott O’Neill: Exactly. And we did some calculations, with the rent rises, it was going up by 4% a year, it was going to pay itself off, if you just put that 41 grand or the 44 the next year, or whatever it is-

Phil Tarrant: So, it had a P9 mortgage right? Principal Insurance mortgage?

Scott O’Neill: That was interest only for that calculation.

Phil Tarrant: Okay.

Scott O’Neill: But it would pay for itself off in about nine point five years without you putting one cent in.

Phil Tarrant: Okay.

Scott O’Neill: That's why I love commercial. You just buy these things and they've got to be the right ones, like medical assets, really well placed warehouses. Just none of that off the space kind of stuff, 'cos that goes vacant. But, you can literally just buy a property, forget about it and in 10 years you've got no debt on it. You can't do that in residential.

Phil Tarrant: So what you're talking about then is that the income generated after all the costs of holding the property including a debt, you just recycle back into paying down the mortgage?

Scott O’Neill: Exactly.

Phil Tarrant: Until it turns into a zero sum game and then that 41, using that example would end up being maybe double that in terms of just cash flow? Which you've got to pay tax on but you pay tax if you're making money.

Scott O’Neill: The other side to it, it's a lot cheaper. It's due to finance and I don't know there's 50 times more buyers in residential, paying more for properties. So, you were getting properties like, I'll use one example, we were looking at an 80 square metre, it was like a little dentist in a high rise, so it was like office space. We got it in Brisbane for 220 grand and in that same building there was residential unit selling for 520, so the price was just completely different. Yet, we were getting more rent. It's a no brainer price wise. So, prices are lower in commercial for the equivalent product. I think it will be a growth industry in the next five to 10 years because everyone's got fairly average yields in residential now. In Sydney, it's what 2.8% the yield, Melbourne's worse like 2.7, that's not good enough to retire. So, people who've got all this equity, they're either going to sell down and pay debt off or potentially look at higher cash flow assets. And commercial's the best way I know at the moment to get that.

Phil Tarrant: You're working that space as well then as well as resi?

Scott O’Neill: Definitely.

Phil Tarrant: Okay, interesting. So in commercial property, maybe let's drill down into this a little bit. So, for our listeners that aren't familiar with it Scott, what is a commercial property? It includes a whole bunch of things, what is commercial?

Scott O’Neill: Basically there's a business tenant.

Phil Tarrant: Okay.

Scott O’Neill: And the differences are they've got long leases. Normally three to five years and then they've got options.

Phil Tarrant: Yep.

Scott O’Neill: You get in-built increases, between CPI to 5% increases per annum.

Phil Tarrant: If you pay a 100 bucks a square metre today, you put into the contract that you might pay 4%, so a 104 dollars the next year and then it will compound another 10%?

Scott O’Neill: So you can give yourself guaranteed growth that way.

            Then you look on top at things like, it's got to be a market where there's more demand getting created. So, I'll use the Gold Coast as an example, the warehouses there, there's so much construction going on, so small warehouses are in massive demand because all your tilers and plumbers-

Phil Tarrant: They want to store their crap.

Scott O’Neill: Basically storage. And everyone's desperate for them, so the square metre rates are growing, pretty quick in many areas. That's capital growth.

            I actually had this one client who bought in Western Sydney, down south west, three years ago. He paid about one point five for his warehouse and he just got it reevaluated at three point eight. And that's way quicker than the residential growth.

Phil Tarrant: But the value, the way banks view commercial assets are very different than residential assets, so banks will value it on the cash flow it generates essentially versus land size, what the building is and stuff like that. So, often it's a little bit harder if, we've got commercial premises here obviously, sort of retail and office space and whenever I sign a new contract for whatever, they always want the actual top line rate and then they offer and I put in inverted commas, incentives because it's actually valued up on the gross cash flow that can generate off the back of it right? So this is what we're talking about here.

            So he's got a valuation of one point two, to three point something, purely because he's got a good yielding cash flow?

Scott O’Neill: Yeah, the rent's sky rocketed, basically.

            And yeah, you're right, you just back calculate the rent and depending on the market, they've got an implied yield. Maybe it's 7 or 8% net and as long as the rent grows, then that yield stays the same. That's your new price.

            But, one good thing as well is people, like I saw this with unit blocks when I was buying them. I used to be able to go in New South Wales and find 8 to 10% gross returning yielding properties, now those same properties are likely to be six. So people stated to accept a lower yield, basically because they paid more and the rents have stayed the same. So you can get growth from yield compression as well. And I definitely think that will happen, because the banks are going bigger market share in commercial loans. Like ANZ does 20% deposits now. I've just moved my ING, everything into ING, it's 4.69% interest only.

Phil Tarrant: Commercial?

Scott O’Neill: Yeah. Commercial, so it's better than residential.

Phil Tarrant: And are they lending? Because you said the guy you went to school with, 70% debt 30% deposits, so are they taking 20% deposits now? In commercial?

Scott O’Neill: No. INZ is, ING has 75% LVR. So it's a good sign, as the banks lend money, like the reason Sydney boomed so much is money got cheap.

Phil Tarrant: Yeah.

Scott O’Neill: So, banks control a lot of the growth. So, because they're getting squeezed with APRA at the moment in the residential space, like they're not lending there and  that's why Sydney's dropped, what is it four or five months in a row now?

Phil Tarrant: Mm-hmm (affirmative).

Scott O’Neill: Because no one can get a bank loan for the original price, so commercial is going to be the opposite to that I think. There's going to be more money flow into that space. This is a general comment, there will be markets that don't. And markets that will. But, yeah, I think it will be a, it's the best way to build a passive income and I think it's safer as well.

            You've just got to buy the right assets. They've got to have expensive fit outs for instance.

Phil Tarrant: Yeah. Well this is much like residential property, it's got to be the right product in the right area for the right demographic at the right time. And irrespective if it's commercial or residential that principal still holds true.

            And also, I go through some high streets of Western Sydney that used to be very vibrant and now there's a lot closed shops. You know corner stores and all this sort of stuff. A lot of that's gone right, so you can really blow your dough commercially if you do buy the wrong stuff right? And a lot of this is obviously connected with consumer confidence, business confidence and lenders willingness and appetite to lend local council, state council development into commercial benefits. Tax breaks, there's a whole bunch of different levers that can get pulled to change the way in which commercial property can-

Scott O’Neill: And for those reasons, most of my commercial buyers are actually business owners as well because they understand business.

Phil Tarrant: Yeah.

Scott O’Neill: They feel comfortable with the product because of that. You don't see people whose first property, never have looked into business before jump into this stuff. It's too risky and they would buy the wrong thing.

Phil Tarrant: So a lot of people would think of commercial property, say you've got industrial? So, it might be factories and what not or warehouses out in those business park builds that you see out of the suburbs. You've got office space and then you have retail essentially, so shops. And that's essentially the three segments of commercial. It's obviously then thinking, oh there a fish and chip shop down in the corner shop, I think it will be really cheap, so I think I'll go and buy. So we're not talking about picking up those sort of assets? They're like no, leave that alone, is that your view?

Scott O’Neill: Correct. One thing we love is dentists for instance. Because, they've got 200,000 dollar fit outs for, I dunno a 150 square metre place. And they make good money the dentists. If you bump their rent up by 10 grand, are they going to move? And you think about how a dentist gets their business. It's off the street.

Phil Tarrant: It's all local area stuff.

Scott O’Neill: Local, word of mouth. So if they move their business, not only do they spend 200 grand to do it again. They need to start marketing again and start from scratch.

Phil Tarrant: They're sticky.

Scott O’Neill: They won't move.

            So, if you end up with stuff like that, you can't guarantee anything in life, but you can feel pretty safe that you're going to have no vacancy for as long as that guy is in working age or the old girl. So, if they're in their 40's for instance, you know they've probably got 20 years left to work. Don't buy one if the dentist is 65, type of thing because he'll probably be retiring and closing up shop soon. So, you've got to look into that as well. You've got to know the tenant. Don't just believe the agent and go with that.

Phil Tarrant: There's also the beauty of commercial property ownership as an investor is most of the stuff associated is paid by someone else right? It's called outgoings, so you know, increases to the baseline cost of electricity, power all that sort of stuff. You can chuck that in. You can often pass on all costs associated with the property.

Scott O’Neill: Well, most of the Queensland contracts, leases you can even pass rental management back on them. You can pass your land tax. So, it is 100% of outgoings. That's one of the best things about it. It's fun not having to see invoices all day. You just get a net payout. And you're done. You get all the bills sent to the premises so you don't even know what's coming in. It's on them, so they pay their own insurance, it's literally hands free stuff.

Phil Tarrant: And how does it work also, I know there's tax incentives with and maybe you can explain this Scott, tax incentives or depreciation across fit outs. So you're talking about 200,000 dollar fit out, often what a landlord will do is that they will incentivize the person to, or help them or contribute to a fit out of something. So if it's 200,000 dollars, you might pony up a 100. They might pony up a 100, but then that's a depreciating asset, that if you've got a good accountant can look to maximise your cash flow and get a return based on the ongoing annual depreciation of that fit out.

Scott O’Neill: And that's a good point. You know how they tweak the residential depreciation laws? They haven't with commercial, so you can still enjoy the full depreciation and I'll use another example, we're looking at this gym slash medical centre. It was in one building and it was a million dollar build. And we looked at the depreciation report. It was getting between 45 and 50,000 a year in depreciation. Like, that's a lot of tax to offset. So, you get all that cash flow and then offset all that depreciation. It's good tax incentive, definitely.

Phil Tarrant: Obviously talking about the positives of commercial real estate, we touched on potentially one of the negatives. Some people might see it as a positive is lower LVR's. So, you may need to contribute 30% of the deposit rather than 20% of the deposit, but where else, buyer beware challenges issues with commercial property ownership?

Scott O’Neill: So, one of the common ones is the lease the guy renting has got some under the table arrangement with the seller. Because, remember the value is determined on the rent. So let's say the market rent is 50 grand and he's paying 75,000, effectively his property is worth call it 250 grand more if it was in that price bracket. So, that's a big kind of risk, so you've got to look at square metre rates.

Phil Tarrant: So benchmarking it against other stuff?

Scott O’Neill: Yes.

Phil Tarrant: And if you smell a rat, there probably is one.

Scott O’Neill: And there's so many out there. Like we were looking in Hobart, it was a café and it had like a 9% net return on it. It looked brilliant. And then we just realised after looking at it for a few hours that the rent was about 50% over market rate. So, that was sucking you in with a really good net yield. But, the reality is that guy had a year left on his lease, so he's going to go, he'll vanish and someone's going to be left with a property they're going to have to rent for considerably less.

Phil Tarrant: Yeah.

Scott O’Neill: And someone bought it, poor buggers. That's a common one.

Phil Tarrant: So a fair bit of sophistication in doing your due diligence on the purchase?

Scott O’Neill: Yeah. Definitely.

Phil Tarrant: Good point.

            Anything else that you've really got to watch out for?

Scott O’Neill: It's nice to have personal guarantors on leases. So, if the guy goes broke, I actually had this happen to me, I had a convenience store and the tenant just basically, I think she went crazy or something, basically shut the business up and it looked pretty ugly. But, I had a personal guarantor, so we went through the courts. She had a house as well, so that's going to be mortgaged off.

Phil Tarrant: So you still get paid?

Scott O’Neill: Yeah. It's underway still, but it's been about a five month process. But all the costs will be paid, all the solicitor fees, the down time in rent will be covered. Everything.

Phil Tarrant: So when are you allowed to re-rent the premises if that happens? You can't do it immediately right if it's going through the courts?

Scott O’Neill: No, that's the tricky bit, we had to get everything but the cops involved just to determine that they're not coming back. You had to issue them letters, saying you've got 14 days notice. And they don't respond and then it's a horrible long drawn out process, but the good thing is you've got a potentially a tenant who's going to pay all the costs regardless. As long as there's a fair reason, like the market hasn't turned, you can really get rid of a fair bit of risk that way.

Phil Tarrant: It's also with commercial is it's probably one of the benefits actually having a good manager. You know when you get too close to the person because if they go, "Oh business is slow, I can't afford my rent this week, can I pay it next week?" That's a slippery slope right and it does happen? Particularly on businesses, which aren't like a dental business or some sort of medical business, which are just high repeat service type stuff, so how do you make sure you don't fall into that trap of being someone's patsy and being their bank? Which, is whap happens a lot with this sort of thing.

Scott O’Neill: A good question, it's really the industry you buy in. You're right, if you go and buy into a like a fish and chip shop-

Phil Tarrant: By the way, I'd like to point out there's none enough fish and chip shops in Australia anymore. It's a dying industry and I hate it because I love fish and chips. Particularly the suburban stuff, I'm not talking the fancy stuff where I live.

Scott O’Neill: Yeah, there the best. Grilled fish?

Phil Tarrant: Yeah, yeah, anyway. Sorry.

Scott O’Neill: It's really the industry like, if you deal with national tenants for instance, they've got processes that just direct debit money out. You don't need to spend a lot of money to get a national tenant. Like we bought one in Wagga Wagga, it was a warehouse, they're in many different locations and it's a direct debit set up.

Phil Tarrant: Too easy.

Scott O’Neill: You don't even need to know the owner. You don't need a rental manager even, you just invoice them 12 months of rent and they'll just pay it.

Phil Tarrant: What do you reckon about like fast food. Like a Subway or a Pizza Hut?

Scott O’Neill: Big growth industry.

Phil Tarrant: Yeah?

Scott O’Neill: Yeah.

Phil Tarrant: They're good

Scott O’Neill: They're popping up everywhere and people love them as well, 'cos you've got like 15 year leases on it. You can go and buy a Red Rooster, which isn't the best fast food one, but you can spend about one point five million on it and end up with a free standing, pretty good looking property in a regional area. That would only return maybe 6 or 7% net. Because of that strong lease, people will accept a lower yield, but it's a pretty cool space because you know they're not going to go broke. They're again national tenants, they've been there for 20, 30 years.

Phil Tarrant: So, it all goes back to knowing why you're buying a particular asset? Who the demographic is that's going to be renting it from you? And the business they're in to make sure that there is a high demand and frequency for continuity of cash flow, which means that you're not going to end up with someone that can't pay their bills?

Scott O’Neill: Exactly.

Phil Tarrant: I think you've rightly pointed out Scott, there's a lot of different dynamics when it comes to commercial and residential. But, let's get you back in and keep chatting about this because I know a lot of people will always ask us on the Smart Property Investment Show, and they send it to the editor at Smart-Property-Investment.com.au, more about commercial and we'll put a greater focus on it. I think we've just touched it today but all these different nuances about how, why and where you buy and then the management of it is a completely different kettle of fish. And holding of these things as well, you need a really good accountant that actually knows their game when it comes to dealing with commercial property.

            Mate, we're going to have to wind up, but quickly to your portfolio. Last time you were here, 10th of August, go and check it out. Tune in, 28 properties when Scott was an engineer. Now he's a buyer's agent across both residential and commercial. Still got 28 properties or what's going on?

Scott O’Neill: So, I've still got 28, but they're a different 28. So I sold two of my highest value, lowest yielding properties.

Phil Tarrant: Yep.

Scott O’Neill: And then did a sub-division as well. Used that to then purchase the dream family homes. So, the total value is now about 17.3 mill, so that's an expensive home, but it's just a good message to say, look you can buy a residential asset, sit on it for nearly 10 years and you're going to have a lot of equity there.

Phil Tarrant: So, these properties that you sold, were they the worst performing from a yield perspective but had quite a lot of equity in them?

Scott O’Neill: Yeah, so it was a Sydney place and almost like a Gold Coast development site, so they were two of my favourite properties, but the cashflow was just not good enough. And I think as time goes on I do prefer the cashflow more and more. Because, you can retire off it. Once you've got, even at a 100 grand a year, that just takes the edge of working.

Phil Tarrant: Yeah, it certainly does.

            So, you've got, I think back then you're 28 properties was valued at about seven point something?

Scott O’Neill: Ah 11.5.

Phil Tarrant: So, you've bought yourself a pretty nice family home?

Scott O’Neill: Yeah.

            It's a decent suburb.

Phil Tarrant: So how did deposition this lot.

Scott O’Neill: Oh, it was hard getting finance, because it's a prestige property.

Phil Tarrant: Prestige.

Scott O’Neill: I've learned about this in the recent months. So, you've got to put around 30%, it's like a commercial loan, basically. And they've got certain limits of debt. So, that's one the other reasons I sold my properties. I'm going through ANZ and they don't like over a certain amount of debt because then you go to another department and they kill ya. So I had to do a bit of swapping and changing,

Phil Tarrant: And this is a really interesting point, because people talk about how many properties you've got. You go well, I've still got 28, but it's gone from 11 point something to seven or eight point something. Obviously the debt associated with it, so it's not how many properties you've got, it's the size of the asset and the yield it delivers?

Scott O’Neill: Definitely.

Phil Tarrant: And obviously you've mixed in here a family home as well. Was that tough as an investor spending all that hard earned money that could be working for you somewhere else in a family home?

Scott O’Neill: Yeah, look.

Phil Tarrant: Family home, it's a family home?

Scott O’Neill: It sounds a bit random, but there was a bit of investment flavour to it as well. It was a divorce sale.

Phil Tarrant: Capitalise on someone else's misfortune like a good buyer's agent always does?

Scott O’Neill: We got it sort of around the five mill mark. But there's a renovated version of ours next door, just listed for eight point five.

Phil Tarrant: Alright.

Scott O’Neill: So, I think I got it about a million below what we should have. And there was a few reasons, it had a little bit of work to do. The people in that area, where we bought generally want finished houses. They don't want to do it themselves. So, all the stars aligned in a way that I think we got a good deal.

Phil Tarrant: That's cool. So, looked at from within a prism of a buyer's agent, as in how do I manufacture equity in it and how do I benchmark that? And you said, one thing, that people in that area want finished properties, so you know therefore there's not upwards pressure on this. So, it's not a very attractive property in that regards, needed a bit of work doing, but you know that you could spend a bit of money on it and you know what the finished product's worth?

Scott O’Neill: Yes, definitely.

Phil Tarrant: So, there's a couple of different things there.

            That's cool.

Scott O’Neill: It was still hard going away from the investment side, because it kills your cashflow and all that stuff, but it was fun as well because I've been involved in over 1,000 purchases with clients and that. And it's the first time we got emotional about a deal, like it was fun.

Phil Tarrant: Did you get excited?

Scott O’Neill: Yeah.

            It was more nerve wracking with the negotiations. Like normally you don't care, to be honest.

Phil Tarrant: Did you get sucked in do you think? Like you know, when you're always buying property, you don't be emotional. Did you actually get sucked in?

Scott O’Neill: Yeah, because we bought a little bit earlier than what we wanted. We're going to Europe for three months too, with that.

Phil Tarrant: Business must be doing well?

Scott O’Neill: Yeah. We're settling when we're overseas as well. It's complete wrong timing, but yeah we got roped into it.

Phil Tarrant: Good.

            You're happy though?

Scott O’Neill: Yeah.

Phil Tarrant: That's important, it's not always about money.

            Good Scott.

            Well, let's get you back in mate.

            Keep chatting about commercial, obviously drawing you for some insights around the resi side as well. But, it's good to hear things are going well. Really good to hear.

            If you want to contact Scott, you can get in touch with the team here and I'll pass it on.

            [email protected]

            If you have any questions for Scott as well, and what we might do, we might get him back in for a Q and A. So, send your questions in.

            Let's do something around commercial. I'll do a special Q and A just on commercial. So, send any commercial questions through, I'll get Scott back in. We'll have a bit of a chat about all those different things and as he pointed out and I think it's really well observed, the very different dynamics, commercial assets versus residential assets. And if you are buying well and buying intelligently, tactfully and also with a good strategy, you can retire on good cashflow coming out of properties. So, don't always get carried away with capital growth if you can put some bucks in your back pocket as well, you're doing well.

            So, we'll do that. Remember to check out smart-property-investment.com.au. We've got some really interesting stuff coming up there over the next couple of weeks. So, make sure you don't miss out on it. Be the first to subscribe, smart-property-investment.com.au/subscribe.

            We'll be back again next time, I missed, follow us on social media as well,


            We'll be back again next time, until then bye bye.

Announcer:     The information featured in this podcast is general in nature and is does not take into consideration your financial situation or individual needs and should not be relied upon.

            Before making any investment, insurance, tax property or financial planning decision, you should consult a licenced professional who can advise whether your decision is appropriate for you.

            Guests appearing on this podcast may have a commercial relationship with the companies mentioned.


From engineer to buyer’s agent
Scott O'Neill, Rethink Investing
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