As a residential property investor, it’s important to diversify your investments; if one area falters that you go all in on, you could be ruined. Scott O’Neill of Rethink Investing, however, suggests another path investors can take to cut down on their risk, and to lock down solid capital growth and improve cash flow.
Residential property has its pros and cons that property investors are no doubt privy to, but Mr O’Neill suggests to consider other assets to invest into, such as commercial, which he sees as performing much better compared to the more traditionally popular areas, like Sydney.
“We're finding that commercial [in Brisbane] has got the best yield in the country,” Mr O’Neill said to Smart Property Investment.
“The fact is ... it seems like it's a bit of a free ride at the moment but we're getting 7, 8 per cent yield through good leases, which if you compare that to Sydney you're getting like 4 [per cent]; … that's twice as bad down in Sydney.”
In Mr O’Neill’s view, commercial investing offers investors the best cash flow, and with the economy in the state it currently is, missing out on that cash flow is a mistake no one can afford to make.
For residential investors considering commercial, Mr O’Neill said that it is important to realise that commercial property investing is less risky than it appears to be.
“Every mom and dad investor is in that space, fighting, competing, scratching for the price, and commercial's viewed as, and you know I think quite wrongly, more risky,” Mr O’Neill said.
Tenants are typically longer term, and once they start up in a location, Mr O’Neill said they are more likely to stick around, as they would need to build back up their foot traffic all over again.
That does not mean, however, that investors should just give up on residential investing; rather, they should invest in both residential and commercial, he said. This gives investors “the best of both worlds: you've got the capital growth and much better cash flow than the average person”.
“If you want a passive income, let's say $50, $100 grand a year, it's very hard to do it without commercial, because the residential yields just don't cut it,” Mr O’Neill said.
“Your residential's there for capital growth, but I like the idea of using the growth, like that's an equity you've built up, to then put it into a commercial, because obviously you're increasing the debt on the residential property, and the commercial needs to cover all the costs, and then some, [to] produce an income.”
Scott O’Neill is the founder and director of Rethink Investing, a property investing company specialising in finding rare positively geared/high growth properties all around Australia. With a current portfolio of 28 properties worth over $17,300,000, Scott is one of the most successful young property investors in Australia. Rethink Investing is a BRW Fast 100 company and one of Australia’s most trusted residential and commercial property buyer’s agencies. You can contact Scott online here or you can call him on 1300 965 551.