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Untapped property goldmine right under Aussies' noses

While loads of investors get residential properties, Scott O'Neill found success in another area.

Scott O'Neill
·Contributor
·5-min read
Scott with his family
Scott has managed to grow his property portfolio to allow him to live off passive income. (Source: Supplied)

It was a sweltering 31 degrees in late August 2016 when I found myself lying on a beach in Kos, Greece. My wife, Mina, and I had embarked on a six-month European escape, relishing the freedom afforded by our investment portfolio.

It was the first time in my adult life that I wasn’t worried about work—because I didn’t have to return to a traditional job ever again. At 28, I was financially free, having built a multi-million property portfolio of residential and commercial properties across Australia.

Reaching this milestone wasn’t easy or accidental. The road to success was paved with thousands of hours of learning, saving, and obsessing over every financial decision I made. But that hard work paid off, and today I aim to help others achieve the same.

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My journey began in 2010 when I purchased my first residential property in Sutherland, Sydney. With a deposit of $60,000, we secured a freestanding house with a granny flat, which allowed for dual incomes—generating enough rental income to cover all costs and provide an extra $200 a week in passive income.

That small cash flow boost felt like a $10,000 annual pay raise and set us on the path to bigger things.

Over the years, we invested in more residential properties, but I found myself increasingly drawn to the commercial property market.

Residential properties were great, but their cash flow potential was limited, and managing them became time-consuming. In contrast, commercial properties offered the possibility of higher yields, longer leases, and tenants with solid trading histories.

As of 2024, our personal property portfolio is now valued in the nine-figure range, consisting of 65 commercial tenants. This achievement has provided us with the financial freedom we always envisioned, and commercial property played a crucial role in accelerating our goals.

If you're a first-time property buyer, you're probably wondering where to begin. Residential property often feels like the safer, more familiar route, but in today’s market, commercial property can offer significant advantages—if you approach it correctly.

Here are a few reasons why commercial property should be on your radar:

  • Higher Yields: Commercial properties generally provide net yields ranging from 5% to 8%, while residential properties often find it challenging to achieve yields of 2% to 3%. (Please note that we are referring to net yields, which correspond to gross yields of approximately 3.5% to 4.5%.) This higher return is a significant contributor to enhancing your cash flow and accelerating the growth of your portfolio.

  • Longer Leases: Commercial leases tend to last longer than residential ones, often five years or more, providing greater stability. For example, one of our first commercial properties—a mini supermarket and fish-and-chip shop in Perth—had long-term tenants, which gave us peace of mind and a solid income.

  • Tenant Responsibilities: In commercial properties, tenants often cover outgoings like insurance and maintenance. This reduces the property owner’s financial burden and increases net income.

  • Diversified Income Streams: Many commercial properties offer the opportunity to collect multiple rents, which spreads the risk. In our Perth property, we had two businesses on separate titles, each paying rent. This reduced our exposure to vacancies.

While the commercial property market is lucrative, it can be daunting for first-time buyers. Here are my top tips for navigating it successfully:

  • Do Your Research: Commercial property markets can differ significantly from residential ones, so it’s crucial to understand the fundamentals. Focus on asset classes that are resilient in tough economic times—such as industrial properties or essential service retail outlets.

  • Focus on Cash Flow: One mistake many investors make is focusing solely on capital growth. I’ve always believed in buying properties that provide positive cash flow from day one. A property that pays for itself not only reduces your financial risk but also allows you to reinvest sooner.

  • Consider Lease Security: Look for properties with long leases and established tenants. The longevity of your tenant’s business is key to ensuring consistent cash flow. When I purchased our Perth commercial property, both businesses had been trading for 20 years—a major factor in our decision.

  • Leverage Finance: Commercial lending can be different from residential. Banks will scrutinise your experience and the property’s income potential more closely. Work with a broker who specialises in commercial finance to find the right loan structure.

  • Don’t Fear the Unknown: Many first-time buyers are put off by commercial property because it seems more complex than residential. But complexity isn’t a bad thing—it can also mean fewer competitors in the market. Back yourself, do your homework, and seek advice from experienced investors. If I had listened to the naysayers, I would never have bought my first commercial property.

Property investing isn’t without its challenges. From dealing with tenant issues to handling unexpected vacancies, the road can be bumpy. At one point, I was managing nine residential properties across two states without a rental manager—something I wouldn’t recommend to anyone.

However, those early challenges helped me realise the importance of commercial properties. They offer higher rewards and less day-to-day management once you understand the market.

For first-time buyers, the leap into commercial property can be intimidating, but it can also be transformative. My experience taught me that focusing on cash flow and investing in high-yielding assets are the keys to success. Whether you’re building your first property portfolio or transitioning from residential to commercial, remember: commercial property is one of the last frontiers where solid cash flow can still be found in today's market.

Start small, stay disciplined, and, most importantly, back yourself—because the numbers don't lie.

Scott O’Neill, Group CEO of Rethink Group and co-author of newly updated and relaunched bestseller Rethink Property Investing.

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