The mathematics of residential property investment have fundamentally broken down. While property prices soar to unprecedented multiples of average income, rental yields continue their relentless decline, creating a perfect storm that’s trapping investors in negative cash flow scenarios worldwide.

Scott O’Neill, Founder and CEO of Rethink Group, experienced this firsthand early in his investment journey. Speaking with Chris Dutton on CEO: Behind the Scenes, he describes how his father’s negative gearing strategy left the family rich in assets, but with little access to cash.

This experience shaped O’Neill’s philosophy of maintaining lifestyle while building wealth – a principle that eventually led him to abandon residential investing altogether.

The numbers tell a sobering story.

“You’re looking at probably a four percent gross yield and out of that, you’re going to pay your insurance rates, property management, maintenance and all of that,” he explains.

“There’s about two percent of outgoings. Your net return is not four percent. It’s really four percent minus the outgoings, which is two percent net.”

A cash flow gap

With mortgage rates hovering around six percent, investors face a devastating cash flow gap that many can’t sustain long-term.

O’Neill’s solution came through commercial real estate, where he discovered a fundamentally different investment structure.

“The tenants pay the outgoings. That makes life a lot easier when you don’t have to pay your own rates or strata or insurance,” he points out.

This single factor transforms the investment equation, often delivering six-to-eight per cent returns compared to the meager two percent from residential property.

The scale of this shift becomes clear when examining O’Neill’s track record. After achieving financial freedom by age 28, he built Rethink Group into a business that has facilitated more than US$4 billion in transactions across more than 5,000 clients.

His current portfolio includes 65 different commercial properties, with tenants ranging from major automotive brands to fast-food franchises. The diversification benefits of commercial property also provide superior risk management.

“If you lose one, you’ve got the other nine there still paying your mortgage,” O’Neill explains when discussing multi-tenant properties.

This contrasts sharply with residential investments, where a single vacancy can devastate cash flow for months.

However, O’Neill’s approach extends beyond property selection, investing in established industries that may lack glamor but offer stable returns and growth potential.

“You don’t need to invent something. You’ve just got to do something better,” he emphasizes, advocating for improvement over innovation in business strategy.

This philosophy has enabled O’Neill to build eight different businesses under the Rethink Group umbrella, including legal services, financing and renewable energy ventures.

His renewable energy division achieved 4,000 percent growth by capitalizing on rising power costs and unused commercial roof space, demonstrating how traditional property assets can generate multiple income streams.

The timing of this investment strategy shift appears crucial. O’Neill predicts challenging times ahead for overleveraged residential investors, particularly around 2027. His advice remains consistent: to always plan with a recession in mind and choose assets that can weather economic downturns.

For investors trapped in the residential property paradigm, his message is clear.

“Always take calculated risks,” he advises.

As O’Neill says, the question isn’t whether to take risks, but whether to continue with a strategy that’s mathematically unsustainable or pivot to one that delivers both cash flow and growth.

Listen to the latest episode of our CEO: Behind the Scenes podcast with Scott O’Neill on Amazon, Apple or Spotify.