Rooming House and Co-Living are two property types that you will begin to hear a lot of as they gain popularity as high yielding investment property options. In this blog we will aim to give you some further information on the differences between Rooming House and Co-Living Investments.
What is the difference between a Rooming House and Co-Living?
We are often asked this question, and the differences are significant to know for potential Rooming Houses and Co-Living investors.
The fundamental answer to this question lies in the approval process that the property has gone through. To put it very simply, a Co-living house is generally a 1a dwelling, whereas a Rooming property is a 1b approved dwelling.
As a Rooming House has the additional approvals, it can have more lettable spaces and, in most instances, get a higher return.
Co-Living:
A Co-Living property is a standard residential property that doesn’t have any additional approvals, where the owner rents out up to 3 rooms to individual unrelated parties.
Legally you can have up to 3 borders (sub-tenants) in your property without requiring any additional approvals. So, if you were living in a property, you could legally have three unrelated persons boarding in your property. Alternatively, if you were a landlord and had investment property, you could have three unrelated parties renting on a sub-lease basis.
Whilst a Co-Living property can be set up and designed for letting of the individual rooms (up to 3); such as having each of the three rooms with an ensuite bathroom, you are not allowed to have lockable doors and won’t be required to have the same levels of inclusions that are in a Rooming House.
Rooming House:
Rooming accommodation refers to a property approved as a 1b dwelling and specifically designed to meet the local Council area’s Rooming Accommodation guidelines.
The number of lettable rooms will be determined by the individual Council’s rules regarding Rooming Accommodation but less than 12.
Each of the rooms can be independently lockable and have several amenities and additional items required to meet the 1b approvals.
Here is a video of a Rooming House to refresh your memory of what they look like:
1a verses 1b Classifications
1a and 1b are building classifications under the Build Codes of Australia (BCA) classes of buildings. If you would like further information on these definitions, you can contact the Queensland Building and Construction Commission (QBCC) here.
Let’s begin by looking at the definition from the QBCC regarding the two property types:
Class (1a) is a single dwelling being a detached house, or one of a group of two or more attached dwellings, each being a building separated by a fire-resisting wall, including a row house, terrace house townhouse or villa unit.
Class 1b A boarding house, guest house, hostel, or the like with a total area of all floors not exceeding 300m2. Not more than 12 people reside and are not located above or below another dwelling or another Class of building except for a private garage.
As you can see, a class 1b property is an approved property type precisely for the use as Rooming accommodation, instead of a 1a which is a residential single-occupancy home.
In each specific council area, the rules regarding Rooming Accommodation and Boarding Accommodation will differ. However, what is consistent across the different regions is that:
If you want to have a Rooming House property approved by the specific Council Area, you will need to obtain 1b approval. A building classification of rented premises under rooming accommodation must be upgraded under the National Construction Code to a 1b structure.
Certificate of Occupancy:
When a new property is completed, it must obtain a Certificate of Occupancy (COO) before it can be occupied. The COO is issued by an approved building certifier and is a document that outlines the following:
- The type of Certificate
- The Owner’s Details
- Property Description
- The Classification
- Maximum numbers of people permitted
- Restrictions on the use or occupation of the building
- Any performance solutions.
The COO will have in the class of building section that it is approved 1b.
The COO will also have other approvals which are in line with the Local Council area in which it is approved. For example, a COO for a Rooming House that is approved under the Brisbane City Council will state the following under the restrictions section:
- Brisbane City Plan enables rooming accommodation for a maximum of five occupants.
- Fire and Life safety systems must be maintained by following manufacturers specifications, relevant Acts, Australian Standards and Codes.
- Building works and using premises is to comply with the Local Authority’s Town Planning Scheme, Local Laws & Policies and BCA Classifications.
What are the Advantages and Disadvantages of Rooming Houses and Co-Living?
Co-Living:
Advantages:
- As you do not require the additional approvals and the home is a standard residential property, it may be a lower-priced option than a full Rooming House.
- You don’t have the location/area restrictions that a Rooming House has and can build a co-living anywhere to create a residential home.
- Higher yields than traditional residential homes.
- Easy to convert back to a standard home if you wish to.
- You don’t need to comply with the individual Council’s Rooming House policy or 1b restrictions.
Disadvantages:
- Legally there is a maximum of 3 rooms that can be let out under Co-Living.
- Yields are generally not as high as what is achievable with a Rooming House.
- Property Management has to be done on a sub-lease or Co-tenancy agreement. Under a Co-tenancy arrangement, each tenant is jointly and severally responsible for each other. A Sublease arrangement doesn’t use RTA contracts which makes dispute resolution much harder.
- You cannot have all of the fixtures in a Rooming House, such as independently lockable doors.
- Fire and Safety issues are not catered for the way they are under a Rooming House.
Rooming Accommodation
Advantages:
- Higher Numbers of rentable rooms, creating a higher yield.
- The ability to put independently lockable smart locks on the property; more attractive to both the tenants and the property managers.
- Standard RTA tenancy agreements can be used for each of the tenants.
Disadvantages:
- Generally, there will be a higher capital outlay, as it’s often a more expensive project.
- Fewer areas and blocks that they can be built on.
- Higher levels of compliance.
So which is better, Rooming House or Co-Living?
If you have the budget, then a Rooming House in a good area will often create a higher yield. This is due mainly to the higher number of rooms that you are legally able to let out.
If you have a lower budget, then you should consider a co-living property.
As always, if you have any further questions regarding this, or any other property related questions, don’t hesitate to send through an inquiry.
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