What you need to know about commercial v residential property investment – The Prosperity Project

Investing in a commercial business is worth considering as an alternative to buying a residential property. Photo / NZME

A property expert says high property prices and political pressure on residential property investors should prompt more people to consider other ways to invest.

Scott O’Neill is the founder and chief executive of property investment firm ReThink Investing and a commercial property investor who – in just 15 years – has built a $110 million portfolio.

He told Nadine Higgins on The Prosperity Project podcast that while residential property investment isn’t dead, it’s getting harder, with high prices and low yields (annual rent as a percentage of the purchase price).

“I’m of the opinion that the 30, 40 years of growth might not be as good over the next 20 or 30 years.”

Data released by the Ministry of Business, Innovation and Employment in November suggests there are 116,719 private residential landlords in New Zealand, with the vast majority – 76.49% – owning one investment property.

O’Neill believes that with fewer people owning their own homes, residential property investment is much more susceptible to political intervention.

“There’s going to be more negative long-term taxes or rule changes or restrictions placed on home ownership, if it benefits the tenant. So, it’s kind of going to be a bit of a battleground, I think, and commercial property will be excluded from that conversation because ... the majority of the public do not care about what happens with commercial property.”

He says the higher yields in commercial property were key in enabling him to grow his portfolio.

“We’ve got long leases, high income from tenants, and it’s kind of like running a business, you know, the higher the business income, the further you can go.”

However, there are a number of key differences between commercial and residential investment property – including deposit rates, lending, interest rates, and lease agreements.

O’Neill cautions commercial property isn’t for everyone.

“If you haven’t invested before, you’re probably not ready for commercial, because commercial property has this ability to hyperinflate the good times, and obviously it goes the other way if things go bad.”

Listen to the full episode of The Prosperity Project for more

The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts. New episodes are released every Monday.