RG 267 – What US Investors Need to Know About Australian Real Estate w/ Scott O’Neill
Retiring at 28 years old may seem impossible, but Scott O’Neill proves that it’s not as far-fetched as you think. Join us on this week’s episode as we delve into the ins and outs of Australian real estate, as explained by one of the most successful real estate investors in the land down under.
Scott O’Neill is a Sydney-based real estate investor, author, founder of Rethink Investing, and host of a podcast of the same name. He has successfully “retired” at only 28 years old after creating a $20 million portfolio in just five years, and his wealth only keeps on growing. Today, Scott focuses on helping other investors find the best opportunities in commercial real estate through Rethink Investing, which now stands as one of the most successful commercial buyer’s agencies in Australia.
We may not be talking about investing in the US today, but trust us, you’re going to want to hear what Scott has to say about Australian real estate—and all of the nitty-gritty involved. In this episode, we talk about the differences between investing in the US and Australia (and there’s a lot!), the best value-add strategies in Australian real estate, the terms that can help investors get the most ideal cash flow, and the measures that every investor needs to protect themselves against worst-case scenarios, among many others.
If you want to expand your portfolio to the Australian market—or are simply curious about what it’s like to be an investor in such a faraway land—don’t miss out on this episode.
Growth will slow down at some point, which is why you need to focus on yield.
The key to finding the best loan terms and achieving optimum yield is working with a great mortgage broker.
One of the biggest differences between US and Australian markets is that secondary and tertiary markets don’t exist in the latter on the same level as the former.
- Manually collecting and understanding data is imperative for every type of business owner.
Be Bold, Be Brave and Go Give Life a Crack!
Listen to Podcast
Scott O’Neill (00:00):
There was one we set up and we bought in Australia’s capital, which is Canberra. And now we purchased it for 6.4 million and sold it, uh, 22 months later, because a couple of the in bed, there was a divorce and a couple of those types of external factors involved. Um, but we sold a Cray 0.3, five miles. So it went up nearly 30% in under two years. And it was getting an 8% return cashflow during that time as well. So that the return on equity was very strong and we thought, what was the IRR on that one? If you even don’t have it in front of me, but Gary, the one and it was, it was to the point where, you know, we, we all more than doubled our money, um, within that very short period of time, that’s class, the cashflow on top, which was sort of that rolling. Wow. Wow. Wow. Wow.
Reed Goossens (00:59):
Welcome to investing in the U S a podcast for real estate investors, business owners, and aspiring entrepreneurs looking to break into the U S market join Reed. As he interviews go getters risk takers and the best in the business about their journey towards financial freedom and the sheer joy of creating something from nothing
Reed Goossens (01:19):
Good. I get a ladies and gentlemen and welcome to another cracking edition of investing in the US podcast from Los Angeles. I’m your host Reed. Goossens good as always every with us on the show. Now I’m glad that you’ve all tuned into learn from my incredible guests and each and every one of them are the cream of the crop here in the United States. When it comes to real estate, investing, business, investing and entrepreneurship, each show, I try and tease out their incredible stories of how they have successfully created the businesses here in the U S how they’ve created financial freedom, massive amounts of cashflow, and ultimately create extraordinary lives for themselves and their families life by design. As I like to say, hopefully these guests will inspire all of my cracking listeners, which are you guys to get off the couch and go and take massive amounts of action.
Reed Goossens (02:06):
If these guys can do it. So can you now, as you know, I’m all about sharing the knowledge with my loyal listeners, which is you guys, and there’s absolutely no BS on this show, just straight into the nuts and bolts. Now, if you do like this show, the easiest way to give back is to give us a review on iTunes. And you can follow me on Facebook and Twitter by searching at Reed Goossens. You can find the show wherever you podcast on iTunes, SoundCloud, Stitcher, and Google play, but you can also find these episodes up on my YouTube channel. So head over to Reed goossens.com, click on the video link, and it will take you to the video recordings of these podcasts, or you can see my ugly mug or the beautiful faces of my guests each and every week. All right, enough of me let’s get cracking and into today’s show. [inaudible]
Reed Goossens (02:52):
Reed Goossens (02:52):
The pleasure of speaking with Scott O’Neill Scott is a Sydney based real estate investor, and he retired at the age of just 28 after building a $20 million portfolio in just 10 years now, Scott and his wife MENA have now founded the commercial real estate company called rethink investing a professional property investment firm that helps other Australians buy an invest in commercial real estate. And they’re actually the number one buyer’s agent in the country. They’ve helped over 1800 clients purchase over a billion dollars in Australian commercial real estate. Now to top it all off, they’re now launching their first ever book, and they want to share with the outside world, their secrets about how they achieve financial freedom. And they walk through a proven seven step method to start successfully investing in Australia, commercial real estate. I’m really excited and pumped to have Scott on the show today to share his incredible knowledge about the Ozzie market, but enough anyway, let’s get him out of here.
Reed Goossens (03:49):
Get ice got hay. No made. Very good. Thanks for having me on your show at my pleasure. Um, just before we get into it, I do want to preface for the show for our listeners. They might be saying, why are people I’m talking on Aussie, go in this shows about investing in the U S well, the thing is with the American dollar being so much greater than the Aussie dollar Scott and his company, trying to attract us investors to the Australian market. And I will just say, we’ll get into it in a little bit. I will just say there’s a lot of similarities between the Ozzy investing market in the commercial space and the US marketing. If you can maximize that foreign currency exchange, you can come in. I think it’s what 1.3 times now the US dollar to two Aussie dollar at the moment.
Reed Goossens (04:28):
So you bring a million bucks in you really, you, you you’re, you’re shopping with a $1.3 million, so we’ll get into that. But I just wanted to preface that before we dive into the show, but let’s get into it. Um, Scott, I ask all my guests that come on the show is rewind the clock. And tell me how you made your first ever dollar as a kid. Uh, it was McDonald’s actually, I was, uh, at the back filling up, uh, kid basically from stockroom to the barbecue area. So that was, it was about a sort of 14 when that was happening. And, uh, yeah, got promoted to the, uh, on the actual press where you cook the big Mac burgers and all that. So that was, it was a horrible job, but it sort of made every other job a little bit easier to be honest.
Scott O’Neill (05:08):
So it was a good experience. Yes. I tell my story. I remember being 13 and a half in Queensland and walking around the local Coolum beach, uh, with literally pieces of torn up newspaper with my parents’ phone number on it, and just trying to get any job. And I remember getting Sorento cafe, and that was the first job, but, um, it might tell us about where you grew up and, you know, your forte into the real estate market, because, and did you have a job and a, you know, a, a career before getting involved in real? Yeah, so I was a civil engineer, so we would mostly working on railways. Uh, and then I got into sort of the building material games, like aggregate mines, sand mines, all that kind of stuff. So very engineering focused, very, uh, numbers orientated, but what my job entailed was lots of travel, lots of, uh, after hours work, especially on the roadways.
Scott O’Neill (05:59):
You could imagine that whenever you do work on a railway, it’s gotta be non-peak times. So Christmas was a busy time. Easter was, uh, even new year’s day and things like that. We’re always kind of having to, uh, you know, have these shutdowns. And, uh, I just thought, you know, this is great for a few years, you know, it was paying pretty good relatively. And I just, uh, I just thought I didn’t want to do this for the next 40 years of my life. So it’s made me look at other options and, uh, just real estate was, was the obvious one, like in Australia. Uh, there’s been a really good, uh, growth pattern over the years. So if you get in early hold for a long period of time, you tend to do very well. So that was the, uh, the initial entry into it.
Scott O’Neill (06:41):
So I just bought local in Sydney. I grew up in Sydney and, um, yeah, bought a little house and a granny flat. So it was like a second income on the property. And that second income actually gave the property a better yield than any other property in that suburb. So, uh, it was a positively geared property, which is quite hard to find in Australia because most properties, uh, I guess it’s more of a growth plane than yields. And we just found that that granny flat was the way of getting the best of both worlds growth and yield. And that one property went, I paid about 480,000 for it in 2010, uh, it’s worth about 1.1 mil. So, you know, it doubled in, uh, in the 10 years after. So that was a good result. I was able to use a lot of that equity to then purchase many other properties.
Scott O’Neill (07:28):
So we got into unit blocks. You know, I was always chasing yield because yield was a way of kind of bringing retirement earlier. If it was simply to, uh, you know, I wanted 150,000 passive income at the time. And every time I was buying these types of properties, it was another 25 grand per annum, Tony here, 15 there, and it slowly added up and we’re able to replace our income. And, um, yeah, we purchased, it was about before we quit our jobs. It was about 28 properties we got out and, um, we really moved into commercial as well because of the yields were just, you know, far greater as well. So we can go into that, of course. Sure. For sure. And I just want to, you know, some of the terminology used there positively geared for those American listeners just means cash flow. And, and think of the, the big, uh, comparison I can do between the U S and the Ozzie market is that Australia is like LA San Francisco, New York high appreciation markets, low yield.
Reed Goossens (08:28):
So in Scott talks about Sydney doubling its value in 10 years time, you’re probably doing the same thing here in Los Angeles. I live in Los Angeles. Um, you don’t really find a lot of positively geared properties in NLA to, and to do what Scott’s doing. You’d have to do what, what we do here, which is, you know, I, I have a four and a half thousand square foot lot here in LA. Um, if I was to rent it out, it wouldn’t cover probably would not even cover my mortgage. But if I put a granny flat in the back or an 80, you like what Scott did, you can then that, that become positively geared so that cash flow. And then you can put that cashflow towards you at your retirement. So interesting to hear that in my whole thing, coming from, from Australia to America, Scott, is that I was looked back at Australia.
Reed Goossens (09:06):
It can’t be any yield, right? There’s just there’s cause there’s no. The big difference between Ozzy in America is that the secondary markets and tertiary markets don’t exist on the level that you have here in the states because of the population, right. We only got 24, 25, 20 6 million people on a land mass, roughly the same size as America and in Americans and Americans got 300 million people and they’ve got all these secondary tertiary markets. So you can’t go and find when I first moved here, I remember seeing all this great yield in the secondary tertiary markets outside of the yellows and the San Francisco’s. Is there something similar in Australia, those secondary tertiary markets to get that yield in the residential, um, to, to, to, to add to your, you know, your 28 point 28 unit portfolio that you obviously built up and retired on? Uh, there was maybe five years ago, so it growth just kept going.
Scott O’Neill (09:53):
Uh, and this is why we moved to commercial because we were in these regional markets. And I guess one of the big differences with Australia as well. Yes, we’ve got a lot of landmass, but we’ve got very high construction costs. We’ve got a lot of red tape. Uh there’s there’s, uh, I guess we’re only building in certain areas, like probably 90% of the country. You wouldn’t even think about living in, cause it’s a, it’s a desert or it’s just far too isolated. So although there’s a lot of landmass, there is, uh, we’re really on the, on the east coast and there’s, you know, the city of Perth in the west, uh, and there’s not much going on up north as well. So there’s a, there’s a huge amount of Australia. That’s just, uh, not, uh, I wouldn’t say not livable, but you wouldn’t be investing there.
Scott O’Neill (10:35):
So where we are in certain pockets and it’s mostly the east coast of Australia, you know, that she’s Sydney, Melbourne, Brisbane, they’re big cities, you know, Melbourne, Sydney, Brisbane, there, they’re all sort of three to 5.5 million in people. And, um, they’re growing quick because is it just huge amounts of people that are trying to get into this country? And they’re going to be skilled migrants as well. This is the kind of post COVID boom. Well, it’s already booming at the moment, but there’s another round of booming to happen once those borders open. Cause we’re very, uh, we’re all locked up at the moment. You know, we can’t get out of the country, we can’t get in, you know, it’s um, but there’s pent up demand. Uh, there’s, you know, two, 300,000 people skilled migrants that are desperate to get here per annum, and there’s a line and they’re going to move to all these capital cities.
Scott O’Neill (11:22):
So that will contribute to more growth as well. But to answer your question, the yields really dried up in residential because of this, it’s almost like a 30, 40 year pattern of growth. It’s longterm and brands just haven’t kept up. But on the flip side, this is where commercial so great. The yields we’re looking seven, eight, 9% net yields with growth as well. So the owner all around them, um, so very good yield, very good growth. And, uh, and yeah, they’re, they’re solid properties and that’s why I’ve, I don’t think I’ll look back at residential again. Uh, it had its place for me. It really, you know, there was good equity gains and stuff like that, but at some point you need the yield and that’s, you know, like how you invest, you you’d need yield to keep going. You need to service the banks with the yield.
Scott O’Neill (12:10):
You need yield to live off. You know, there’s no point only getting capital growth because the only way to access that is either getting more loans or selling. And in Australia, you don’t really sell because the exit costs are so high and you’ve got a standard duty capital gains tax. So you want to hold these assets. So that’s one of the big differences to the sort of buy and flip methods that work in the U S and let’s, let’s try and make a comparison between the us and Australia, because part of your whole story and the book is in and around attracting the U S capital, uh, given the foreign exchange. I remember when I first moved to the United States in 2012, the Aussie dollar was in actually in parity with the us. And a lot of Ozzy money was coming to the U S and from Europe as well, particularly buying in those cheapest, secondary tertiary markets.
Reed Goossens (12:58):
Like, you know, I, I don’t want, I don’t wanna throw any cities under the bus, but like Kansas city, right. Or Detroit, or these sort of, you know, very, very, um, affordable city. So, uh, now as the shoes on the other foot, the American dollar is very strong against the us dollar, the Aussie dollar. What ha, when you say commercial properties, what are you specifically talking about? Because commercial commits such a different, many things there’s storage, there’s retail, there’s hotels as multifamily. Like what, what are the strip centers? What, what, what are you speaking of when you talk about your commercial properties in Australia, the main things we specialize in, uh, like you said, storage, uh, industrial properties. So manufacturing, it might be, uh, you know, the whole online boom e-commerce boom feeds into industrial properties, especially in Australia. There’s, uh, you know, we’re a long way from everywhere.
Scott O’Neill (13:48):
So there’s a, there’s a great need for storage and logistics capabilities. So we like buying properties near airports, Marine ports, uh, medical centers, obviously medical is a recession proof industry. So we like buying, you know, general practitioner areas. Uh, you might buy the dentists, you know, dentists can have extremely expensive fit-outs per square meters. So when you buy a good dentist, they’re not going to move next door because it’ll cost them too much. And they’re generally not P and L profit and loss worried because they’re doing quite well with the, uh, you know, they charge a lot and rent sort of more insignificant forums. So we searched these properties that are going to be quite strong, no matter how the economy is going. And like I said before, there’s a lot of red tape in Australia. So if you buy into an area that’s kind of built out or there’s a high cost to it, like we like buying below replacement costs as well.
Scott O’Neill (14:39):
That’s just, there’s not going to be a, you know, the threat of new supply, wipe your growth out. We’re going to be buying, you know, 20% under replacement costs. So that’s a, another kind of a safety mechanism. Um, but like, like you said, we’ve seen a real strong increases of US investors and also from Hong Kong as well, randomly, that’s obviously more political driven, but us because of the dollar. And I think it’s because of how Australia has gone. We’ve the whole COVID exercise, like our economies being quite protected. And, um, you know, the government’s pretty much shown they’re going to just like we were giving a large amounts of grants, uh, similar to what the us is getting, but I think per capita, it was even higher and it pretty much just vulnerable into the property market. And we’re saying the quickest growth rates in the last 33 years at the moment.
Scott O’Neill (15:29):
So, um, the trick is don’t get too caught up with the growth because the growth will slow at some point, and that’s where you need that good yield. Uh, and you, you know, that’s the returns of quite well, they’re very impressive at the moment because of those two factors. So, so let’s maybe walk us through, uh, a classic, um, I I’ve got 10 million bucks. I’m, I’m a us investor I’m coming to you, Scott. And I said, where do I want to put my money to go and buy? And then let’s look at it from the lens of going in cap rate. What’s the sort of maybe value add strategy because in, in America here, we, I, in my, multi-family always looked to try and push rents or, you know, take it from, you know, uh, I 900 bucks a, a average on rents up to 1200.
Reed Goossens (16:13):
So increasing 20 or 25% through renovations, through making, you know, putting lipstick on a pig, let’s not be, let’s be honest, but, but, but, but doing it over, you know, 200 units, because you got the scale then, and then with the cat, with compressing cap rate, I can then get the, um, that, that yield that you talk about. So maybe let’s do it from that point of view. And where would you direct me in terms of putting my capital? Um, so a recent it’s always budget dependent. So we work from clients who have anywhere from, uh, you know, a $300,000 purchasing limit into the tens of millions. So it really doesn’t, uh, I guess where you want to land in that spectrum has a big impact. So we’ll go on the middle. A recent example was we purchased this, uh, industrial facility. So it was like a logistics center.
Scott O’Neill (16:57):
It had a Amcor as a tenant. You may know them, they’re a global company and also had four others as well. So they’re offset, you know, logistics space type industrial properties, and they’re all on long leases, you know, five years, uh, the value add here. Well, number one, we bought it at an 8.2, 1% net yield, which was better than the area. So the average cap rate for that area was about seven. So, you know, if you divide by a, you know, I’ll just get the old calculator out. If you divide 8.2, one divided by the seven, we got that 17% below market value. So that’s buying better than the local cap rate. So that’s, that’s the first thing you want to try, do blow by below market value, because then you’re having a win on the entry and they’re kind of covers all your purchasing costs and whatnot.
Scott O’Neill (17:46):
Uh, the yield being 8.2%, um, is, is very strong. So obviously the, uh, the cash flow was, you know, it was very impressive in there. There was, uh, ability to increase the length of laces. So the two main, easiest ways to increase value for properties in commercial is number one, increasing the lease. So you just go, you just go find an under rented property and buy it at the right rate. And then all you got to do is work with a tenant over a year or two or three to get them up to the market, right? And if you can bump the rent out 20%, you know, remember commercial property, a lot of the value is associated to the rent value. So if you can increase the rents by 20%, you’re a total equity position on the property will increase by 20%. And the good thing is value is we’ll recognize that.
Scott O’Neill (18:32):
So even if you’re not selling, you can literally refinance, pull that 20% difference out and maybe recycle it into another property. So when you start doing that, it, uh, you can always get that kind of infinite return on your, you know, your ever expanding deposit because you you’re cycling it into bigger and bigger positions. And that’s sort of what my wife and I did, you know, we started we’ve, uh, pretty much it was about 50 grand at the time, you know, that took us working in McDonald’s and little jobs here or there for five years, we put that into that Southern property, that Sydney property, I mentioned with the granny flat, and as it grew, we moved that into, uh, move the equity into other high income producing assets. And it just snowballed. And, uh, the quicker it grows, the quicker you can move. And, um, the, the returns will just grow because the rents will grow on you as well each year.
Reed Goossens (19:22):
So the longer you hold, the better the equation get, I love it. And so the, the big thing, you know, just, just recapping that. So is it 8.1 net yield? You’re really saying is that I put one cap, right? You’re going in and we’re talking triple net lease, right. Are we with it where the tenant pays for everything under the sun? Um, including taxes, I assume. So they’ll even pay for rental management. So you imagine like you, you like in Australia, it might be about 5% of the gross rent. What is sort of, you know, that’d be dealing with like a major real estate company to manage your monthly statements, talk to the tenant, just basically you’d be the accountant friendly statement each month, but dealing with the tenants direct, the tenants will actually pay you that in many cases themselves. So, because it’s all written into the lease.
Scott O’Neill (20:10):
So it is like you said, a triple net, sometimes it’s not, but then you just got to adjust the price to factor in those extra costs. So we always work off a net figure. It doesn’t matter if it’s triple net or not. We’re going to calculate it back to that true net position before offering. And, um, I guess not many people know this stuff compared to residential. It’s, it’s just a lot less mainstream. So when you actually understand this space, you’re, you’re up against this competition. That’s why I like it. You can get better deals, dollar for dollar, because you’re up against 200 other people going for the one property. You might be up against five. And, um, and this is becoming mainstream, which will inevitably mean there’s more people doing it, but that will also increase demand. So, you know, that’s think that will drive down in cap rates and that’s yeah, exactly.
Scott O’Neill (20:57):
Right. And that, that’s the opportunity for the next five years. Cap rates will hundred percent have to drop down because yields in residential is so poor. There’s just so many people with a lot of money, you know, in Australia and a lot from overseas trying to get here. And it just doesn’t justify it any more in the residential space. So where do you go? You know, maybe the share market, like there’s not many options to get a good yield, especially in this country, that commercials just lying there on a plate for us at the moment. And, uh, yeah, there’s a time window on that. It will compress, but, um, yeah. Good numbers for now. That’s uh, no, that’s, that’s incredible. And so talk about, do you do many of your investors or the buyers because you work as a buyer’s agent, so you represent other investors going out, looking for deals, um, are they looking to, uh, get out exit at any point or that it’s more of a long-term play?
Scott O’Neill (21:48):
Um, until, you know, they’re done a good question. I find, cause we set up Cindy kits often I find the Cindy gets more, have a five to seven year time limit. Um, so like there was one when we set up and we bought in Australia’s capital, which is Canberra and we purchased it for 6.4 mil and sold it, uh, 22 months later because a couple of the in bed, there was a divorce and a couple of those types of external factors involved. Um, but we sold a Cray 0.3, five mils. So it went up nearly 30% in under two years and it was getting an 8% return cashflow during that time as well. So that the return on equity was, was very strong. Yeah. And we thought, what was the IRR on that one? Yeah, I don’t have it in front of me, but carry the one.
Reed Goossens (22:35):
Exactly. But it was, it was to the point where, you know, we, we all more than doubled our money, um, within that very short period of time. That’s plaster cashflow on top, which was sort of that rolling. Wow. Wow. Well talk, talk to me a little bit about the financing of it, because that’s the big thing that you get. You’re talking about the 8% cash flow and the big metric. We look here in America and you look across the globe is cap rate going in versus interest rate. You can get on the debt. I assume you’re probably putting between 20 to 30% down on a, on a, on an investment property, similarly do here. And then you sort of financing between 70, 60 to 80% of it at a rate of X. So what are the interest rates right now? What are the terms? So you can get that juicy cashflow.
Scott O’Neill (23:22):
Uh, so as an individual Australian resident, you can get interest rates as low as about 2%. I’ve heard a few examples under that sort of, you know, the 1.8 for a commercial loan generally work, the terms have really got better in recent times. So the biggest change in the last five years is the loan temps. So most of my loan terms personally, a 30 years, and that’s generally, it’s a minimum 25 year loan term at the moment. So that obviously spreads your principle out very well. It helps us servicing. So you can keep buying this stuff if you’re a, if you’ve got the deposit, the property service themselves. So even if you get hit by a bus and there’s, there’s no involvement of view, these properties will service themself and, uh, and comfortably as well. So if you’re buying in a syndicate, that’s where there’s like a non-recourse loan, you generally work off your 50, 60% debt.
Scott O’Neill (24:13):
So it’s lower debt because there’s no individual backing it. And you can do things called Leigh stocks, which is, uh, alone without looking at the financials. So even if you’re unemployed and you’ve got half a million dollars cash, uh, you’ve got to have like an Australian company or at least someone representing that company, but you can lend up to about sort of 60%, maybe even 70. So in certain cases, without even a job, so you just got to have access to the, the deposit. So another trend that’s happening is lending is getting easier. Uh, they’re just trying to promote growth over here. And, uh, banks are going for market share and commercial because residential, you know, again, I wouldn’t say it’s risky yet. Like it’s not it’s, but, um, debt levels are higher as a percentage. And, uh, banks are looking to make money and commercials, you know, a nice intro place.
Reed Goossens (25:04):
They’re all going to well, they’re already been hitting it pretty hard. So we’re seeing lower rates, higher lending ratios and longer terms. Interesting. Well, that is, that’s a great summary. Just to recap, you’re saying, if you threw through a syndicate, you or syndication, syndicate, whatever you want to call it, it’s between 50 and 60%, which is very moderate. And some people who listen to this show will probably think that’s too low over leverage, but there are a lot of big institutions out there that only go here in America as well. When you buy multi-family, they’ll only put a 50, 60% on it. Um, my question back to you is if you had some principals or the managers of the company that would put their name against the loan, does that help bring that, that, that leverage up? Because that’s typically how it’s done here? My syndication’s my business partner and I, we sort of were saying here where the warm bodies, and this is what we’re worth.
Reed Goossens (25:52):
This is our liquidity and this is our net worth. And we’ll, we’ll sign some bad boy carve-outs that we won’t take the money and off to China or Mexico or something like that. So can you get slightly higher leverage if you say, Hey, I’m going to sign on the dotted line. Uh, yes. And it’s case by case. And that’s, that’s the good thing. If you work with a good broker, a mortgage broker to look into the exact property and the individuals, it’s a business case, so you just kind of sell it, um, depending on the loan size, the asset location, uh, it varies greatly. So the trick is just to have a good mortgage broker on your side and we can work around these things. And, um, and yes, yeah, you can get lower, sorry, higher lending ratios. And, uh, it’s just about finding that balance, which is, you know, got the best yield because you don’t want to go too risky on the property.
Scott O’Neill (26:40):
Cause then the banks will punish you there. And the, you go the higher, the yield gets too generally. You probably have that in the U S you know, you can go into the towns with less growth prospects, so they’ve got to make it up for you. Um, and my job is to find what the banks love as well, because whatever they like is a good indication. There’s, there’s also strength. Then future lenders and borrows can get easier to finance for your property down the track. So it’s, uh, you don’t want to restrict your exit buyers as well. And so what has been the biggest, what’s the biggest piece of advice you’d give to an American investor thinking about syndicating or putting their money into a syndication in Australia? I know I extract a lot of money from Australia to the U S and we go through our LLC agreements.
Reed Goossens (27:25):
We have our PPMS, you know, so it’s sort of, as a disclosure saying, we, you, you are getting involved in a, in a risky deal. How will the U S invested do the same coming back the other way, but in the same documentation involved to protect them in a, in a, in a worst case scenario. Yeah. Look, it’s just about having the right set of teams around it. So you have, uh, an accountant that specializes in this space. So you’re protecting yourself. Uh, generally a company is the best setup, uh, to, to protect you because you can, uh, you can retain profits in the company and pay dividends and, you know, you can play play around there’s, there’s just, it’s better from a tax point of view that way. Uh, and you also can redistribute the profits into other properties. So, like I said before, you don’t have to just finish with the one.
Scott O’Neill (28:09):
You might wait for that to go up and then you basically expand it into a future purchase. Uh, but I honestly think it’s the same as a purchase. If you’re local, you got to just really, you know, we’re not in big and taking risks. Um, you know, that’s the engineering side of me. Like, we’re all about looking at the worst case scenario with the asset. What happens if the tenants leave? How quickly would it take to replace that tenant? Um, you just want to be overly cautious, particularly because it’s the other side of the world, but, uh, you guys have different advantages because, uh, you know, like I said, there’s a, there’s a massive advantage of the currency at the moment your dollar goes far. And right now I think our real estate is, is quite undervalued, uh, with specifically the commercial side. So, uh, just having the right setup, you got to have a good mortgage broker that understands your position.
Scott O’Neill (28:58):
You know, you’re making, uh, an income somewhere else. So, you know, so does that get recognized by Australian banks? If not, what other options do you have for lending? So working out the lending scenario, if your individual case is important, and then, uh, yeah, just having, having those trusted people on the ground will make it quite easy to deal with. It’s just the time zone difference after that. Yep. That’s exactly how my Aussie investors and international investors deal with me. So they build that trust. They understand the operators who are boots on the ground, who are doing the deals and finding the correct deals day in, day out and shark, seeing a track record is also obviously really, really important. And then talking to other investors about referrals and saying, you know, how, how do you successfully exited, have you successfully exited with these operator?
Reed Goossens (29:42):
Exactly the same sort of stuff. I think on the legal side, there’d be probably a bit more questions that you’d get a lawyer involved in terms of how you sign up and stuff. Um, but tell me, I know we were speaking a little bit before this podcast about the, the lack of, I don’t want to say sophistication, but you’re, you’re essentially in the brokerage space, right? You’re out there shaking the tree to see what fruit falls off. And then there may be isn’t as much software on the commercial side as they have here in the U S I’m thinking about the co-stars the AC metrics, you know, all the big, big players that bring out market data every year. So how, how has it a little bit, not as, not as advanced in that state, in the commercial area, in the commercial space in Australia, it’s a good question because yeah, there’s plenty of coverage on residential in Australia.
Scott O’Neill (30:26):
It’s the barbecue topic. Everyone has a strong opinion on residential real estate, but it’s going up down sideways. It’s, it’s part of our culture. It’s an enormous, um, but commercial, no one knows about it. It’s just out of sight, out of mind, yet you drive up and down the street and you’re seeing big factories, you know, all the big international grants, like, uh, it’s just out of reach and out of interest for many, but that’s changing. But one of the reasons is media coverage is very low. Uh, data coverage is very low. How I get my data it’s manual, I’ve got a team and we actually have to understand the individual markets that we’re investing in. Like how long was that exact property vacant for how many vacant in within 50 kilometers of this area, hope or miles. It’s basically, it’s so hard to get that manually.
Scott O’Neill (31:15):
And that’s probably help. It helps me as a company because where we understand this from coast to coast. So we’ve got good context between cities. We can identify sort of undervalued pockets or more importantly, where the market started to turn. We were on the coal face. We can see there’s more buyer activity just starting, or maybe that the leasing periods just dropped from three months vacancies to two months. And that’s a sign that rent growth is going to happen as the rent growth happens. So will your asset appreciation down the track, unfortunately is not documented. It’s generally, uh, you know, you just know small pockets and, uh, the major real estate companies spit out their own results, but it’s more just company related, you know, the likes of sabals or Knight Franks, you know, they’re, they’re all over the world, you get their reports. But, um, but the Hanley talking about very high level properties, you know, generally the big stuff, you know, the 50 million and above, uh, they don’t talk about what most people actually want to buy, which is, you know, you’ve, you know, ones to fives to $10 million smaller properties because that’s what most people can afford.
Reed Goossens (32:19):
So that’s our pocket space where we specialize in that, uh, that level, because I find the yields are actually better than the $50 million assets as well, because you’re not up against institutions and manage funds because they, uh, they push yields down because there’s more competition at the higher level. Yeah, there definitely is. Um, but there’s also a little bit that they’re a bit of a slower moving beast and I’ve, uh, we’ve started to delve into the bigger, bigger stuff here in, in, uh, personally. And we found that the, where the value can be created when you’re buying from institutions is that they just don’t have the attention to detail on the small stuff. Like probably your lease contracts, like a negotiating, a good contract. So you can add that value or adding value in a way that they didn’t think about. And because it is, they’ve got 40 5,000 assets in their portfolio, they’re not, they’re not worried about that little one that you could squeeze a little bit more juice out of.
Reed Goossens (33:12):
So, um, yeah, it can be, it can be good and bad, right. And it just depends on, on how you go and create your value in the specific nature of oil in a specific area, right? Because every deal is different and you have to look at it at that land through a certain lens. Now I love it. Um, tell me a little bit about how you’re creating the company and the brand, because what I would, it would naturally go to, if you already created these syndicates and you already looking for deals for other investors, why go to the other investors? Why don’t keep it for yourself? Are you just trying to, trying to find the money and the equity? Is that the hard part? Yeah. Look so w we’re purchasing about, um, it’s on average about 25 properties a month, so there’s, there’s no chance we could ever do this ourselves and look at at the same time.
Scott O’Neill (33:58):
Um, my wife and I have got a large portfolio to the point where it’s, it’s a bit of a hassle, so where I can try to sell off some of our smaller assets and probably just concentrate on, um, good quality larger ones, because, uh, that’s what I’ve learned. That’s just my personal preference. It’s what I want to hold until I’m a, you know, a little old man type of thing, you know, I don’t want to be dealing with individual houses, individual tenant problems, cause there’s lots of them, you know, there’s every time there’s bad weather repair stuff and you know, it’s just, it’s never ending. But when you’ve got a good commercial property with a triple net lease maintenances on them, insurances on them, uh, you’re generally dealing with five to seven year leases rather than 12 month leases. So the turnover’s less, uh, I like dealing with a professional tenant because they got their own brand and reputation to uphold.
Scott O’Neill (34:46):
So they, they perform like a, like a business should when you’re dealing with individual tenants. Um, you’ve just got a thousand factors that are going to just work against you. So, um, yeah, we, we concentrate on working with the business. The more we help our clients purchase the better our networks become. So that’s probably our biggest strength. It’s, it’s who we know in the industry. It’s like any industry, we know lots of good agents and people selling direct. We, and they send us properties before they hit the market. So it’s probably like what you do there, you, you get your best deals. Pre-market where no one else gets to see him. And we’re just negotiating versus the owner. Now we still buy properties when they are online, but we’re acting very quick. We’re a little bit more nimble than others that, like you said, the big managed funds, they’re going to take an extra month to get their stuff together.
Scott O’Neill (35:35):
But book before that were already in there and got control of the asset. So very similar models. But, um, yeah, our niche is just getting off market stock and doing all the due diligence for the client. We’ve got a due diligence team, which we’ll go through every single number on the property. If we call the tenants up, get their business plans, we just want to know their intention, look into the competitor analysis, make sure there’s no extra, you know, if you’re buying a fast food restaurant, make sure there’s not another da down the road going up, you know, to build another one. And, uh, it’s, it’s just a very holistic approach. And if the property stacks up and looks good, we proceed to settlement on it. Awesome. And do you ever combine, and I don’t know if this ever occurs? Well, I know a Australian investor was Australian.
Reed Goossens (36:21):
He was a KP on my deals that we were still gonna get him on the show. Um, on my early deals, he, he made, came out to American, made a bunch of money and multifamily and took it back to Australia and he’s actually buying medical office buildings or medical office businesses. So, so doctors essentially practices, but trying to team them up with actually getting the dirt as well. Do you ever see that, where you’re trying to buy the business on top of the dirt rather than just the dirt and be the triple net lease? Um, yes. It’s happening more commonly like it’s, um, you just gotta be, you want to be in the right business. I guess it’s very common with things like car washes in Australia where you buy the business. Cause those car washes are very passive. Um, generally my investors are passive investors.
Scott O’Neill (37:03):
They they’re happy to sort of do a bit of a value add here or there on the property, but they don’t want to manage a business because it’s a whole different ball game. So doctors are very specialists that if you’re a doctor investor, that makes sense, you know, you, you could pretty much get the practice up to a normal level, uh, create some Goodwill in that, sell the business for a higher amount to someone else and they can take it over. So that’s a double play, but, um, it’s a, it’s a fairly low percentage play too. There’s just not many of those opportunities that come up and if you’re in the right industry, then yeah, go for it. But I, firstly wouldn’t try improve a medical practice cause I’m not a doctor. So, um, he’s done it. He’s doing a really, really well and making an absolute killing on it as well.
Reed Goossens (37:48):
So it’s just these weird things that you need to do. Like you talk, you spoke about medical office centers and being around that and then having a facility or, or near a medical office facility. So you can be the storage for that or stop something that is going to be, uh, and in ciliary service to a major job creation in a specific market is really, really important. So awesome stuff, mate, tell me a little bit about the book because you’re about to launch it, but it’s got, while we’ve got you on the show, we want to hear about your book and what you’re coming out with you and your wife, co-wrote it, right? What what’s, uh, what’s what’s in it. Yeah. So when, uh, when I started getting into commercial property, it took me about 18 months before like researching to actually buy a property.
Scott O’Neill (38:29):
And I remember reading as much as I could and it was funny, there was probably more stuff. The U S at the time about commercial property, then Australia, there was nothing about this market at the time. There was no commercial books, even when you Googled commercial investing in Australia, you just would see some very path cut, residential based investors talking about it on the side. And it was just very poor information. So it was very hard to learn about. And I just wondered the basics. You know, what’s the difference between, you know, industrial to a medical, to office, office space, specialty, you know, childcares and service stations. It was very hard to sort of compare things and learn about it. So this book basically covers all that. It’s just a, it’s a basic run through of everything about real estate in the country. Um, but it’s using real life examples, like how my wife made her and I actually got into property, you know, how we transitioned from residential to commercial and how the numbers were just so much better.
Scott O’Neill (39:28):
And we compare sort of, um, you know, there’s lots of spreadsheets and all that kind of stuff in there just showing the different returns on equity. And, um, it’s just a, just a one-on-one summary of the, of the book. And, uh, it’s going quite well. Like there’s, there’s about 2000 copies that sold last week. So beautiful. Go and go pretty quick. So we’re happy with that, but it’s just, yeah, we just want to get commercial more mainstream in Australia. That’s sort of our goal because, uh, uh, it, it feels good to do something new in the country that hasn’t really been covered properly. So that’s, that’s sort of what we’ll be doing. And I think, I think there’s just a, an incredible opportunity. If you can add the technology piece to it, to capturing that data in a, in a more systematic way and then sell it, selling that data back to the industry.
Reed Goossens (40:15):
Uh, you’ll, you’ll, you’ll be attracting a lot of, a lot of big players because it’s like the, I just literally just did a podcast about mining. You know, it wasn’t, it was not about the gold that you dig for. It’s about the person who sold the shovels and the ropes and the buckets that made all the money. And if you can capture that, if you can capture that data and it’s an additional vertical income, it just, it makes sense because people do yearn data to make educated decisions about their investment portfolio. So awesome stuff out. I’m really excited for you. And can’t wait to read the book and get my hands on it so I can learn a little bit more about the Aussie real estate market made at the end of every show. We like to dive into the top five investing tips. It’s a quick five question, lightning round, you ready to get into it?
Reed Goossens (40:57):
What is your daily habit? You practice to keep on track towards your goals? Um, it’s basically routine. So like to exercise everyday, whether it’s surfing or just a quick gym session, it clears their head. Cause I, uh, I work quite late hours. If you don’t have that break, I find you, you go a bit mad to be honest, it’s like digits and never-ending phone calls and, you know, it will get repetitive at some point. So, uh, yeah, having a routine, whatever that is is, is very important to stay focused a hundred percent minus a it’s nearly four o’clock here. And I blinked in the day’s over kind of, I kind of like a question I’m gonna do is who’s most influential person in your career to date. Ah, good question. It’s probably my father because it’ll sound weird, but he was so negative on every business opportunity and it made me look at, you know, it’s funny you go up and down the street and go, yeah, that business is not going to work, you know, or that, that, um, that really, I guess, skeptical kind of view of looking at things, I think made me a bit a good investor because I was never, I never went with rose colored glasses into an investment.
Scott O’Neill (42:02):
I always expected things to be not perfect and then how to deal with that. Um, so I was always, I was always sort of programmed to think that because of his negativity towards all sorts of things, um, being a good way, I don’t mean it as like, you know, saying everything was terrible. It was just more look at things deeper. Don’t ticket’s always going to be perfect because it way, and then if you could deal with that non non-perfect situation, then it may be a good investment or opportunity or whatever we’re talking about. Awesome. Love it. My question I’m wondering is in your business, what’s the most influential tool. And when I say tool, it could be a phone or a journal, or it could be a piece of software. What is it? Oh, look, it’s probably not something individually. It’s more just our contacts, I guess.
Reed Goossens (42:47):
So. And I call that the phone, but, um, it’s over the years because we’ve been doing this, you know, at fairly high volumes for many years, that’s our great IP, you know, agents and people selling properties know who we are. So they come to us with the deals and that is golf. You know, it means we can bring good deals to our investors. And, uh, even if we didn’t even try, they’re going to be landing in our inbox every day and that’s taken taking you get to, so that’s the number one for sure. That’s great. Well done, Mike, it’s definitely carving out a nation in an industry that is, uh, being not neglected, but maybe not as spoken about as much. So, so well done. Um, in one sentence, what’s been the biggest, I said the word failure, it’s more mistake. What’s next mistake slash failure you have had in your career.
Scott O’Neill (43:33):
And what’d you learn from that? Um, look, it’s going to sound cliche, but probably just not getting into it a bit sooner. I was going down the, the path because I was very cashflow focused and I always knew about commercial, but I got spoken out about it by my mortgage broker, by, you know, my friends and family at the time when I was younger. And I always knew this was where it was at. And it was just, I focused on the risk way more than I needed to rather than play, you know, go and how do we deal with that risk? And, uh, it was, I could have got into it five years earlier and it, um, I don’t regret anything. Uh, but yeah, obviously I love this whole side of the investment world and I just delayed it for no good reason really, because I was following what everyone else wanted to do.
Reed Goossens (44:19):
Yeah. Telling you exactly falling the, all the poor dad mentality of what people thought was too scary, the boogeyman right. Awesome stuff. My last question is where can people reach you to continue the conversation they want to be in your sphere? Where do they go? Um, best way, just Google rethink investing. Uh, you’ll see us all over the internet. And, um, yeah, we’ll, we’ve got phone numbers, but emails, so firstname.lastname@example.org that a year. Um, and yeah, we’ll, we’ll get back to you within 24 hours. Awesome stuff, mate. Well, look, I want to thank you so much for jumping on the show today. I was really excited to talk to you about the, the booming industry of commercial real estate in Australia, just how the lack of coverage has got. And I think you’ve done an incredible job. You and your wife taking a niche and making it more understandable, breaking it down into its parts of people can get involved in it through your own personal anecdotes and experience.
Reed Goossens (45:10):
I think that’s super, super helpful and valuable too, to be sharing that with the outside world. And then also for Americans who are looking to invest into Australia using the good foreign exchange currency and an understanding that there’s people like yourself and companies out there that are doing syndications in Australia, in the commercial space, getting some really good, attractive financing on, on the upfront purchase, coming in with good cap rates, understanding the value can be created and then exiting out of profit. I think I will be able to definitely send you some investors along the way. Um, but did I, did I miss anything out in that recap? No, that was perfect. Right? I liked the sorry. Awesome stuff, mate. Well, look, I want to thank you again for taking some time out of your day, enjoy the rest of your week and we’ll catch up very, very soon.
Reed Goossens (45:54):
Thanks. Very well. They have another cracking episode jam with some incredible advice from Scott. Please definitely head over to rethink rethink investing.com.edu. I hope I’ve got that right. It’s also rethink property investment on Google info at rethink investing. I believe it is.com.edu. And if you have any questions for Scott, please go over there and check him out, Google him, understand what he does because he is doing some incredible stuff in the Australian real estate commercial real estate market, which is, can be very parallel to what we do here in America. So definitely check him out if you’re looking for that yield, because I know here in America, it’s becoming harder and harder. Jason, I want to thank you all again for taking some time out of your day to tune in, to continue to grow your financial IQ. If you do like this show, the easiest way to give back is to give it a five star review on iTunes, and we’re going to do it all again next week. So remember be bold, be brave and go give life a crack.