Why Rooming Houses are Good Investment
To begin with, let’s quickly define what a Rooming House is. A Rooming House is a type of investment property where each room can be let out separately. For example, in the Brisbane City Council Area, you can have up to 5 apartment-like semi-self-contained studio rooms all let out separately. There is a requirement for a common area that will include one shared laundry, kitchen, and living area. This type of dwelling is certified as a class 1B dwelling and has been specifically designed for separate tenancies. In Brisbane City Council Area a Rooming House has a maximum of 5 lettable areas, with a maximum of 5 unrelated parties, and a total floor area no larger than 300m2.
For more information head here Brisbane City Council Rooming House Rules
Each of the individual rooms is set up to be semi-self-contained. This means they each have their own ensuite, kitchenette, study area, etc. Each of the rooms is completely independent and lockable. Generally, each of the rooms is leased out on a separate rental agreement.
We have found that most tenants don’t use the shared kitchen unless they want to bake. Usually, there are two 7 to 10kg washing machines available in the shared laundry.
For a more detailed definition and to look at key advantages of Rooming House Investments we have provided information here.
So, Are Rooming houses a great real estate investment?
Rooming Houses Investments are a great investment opportunity. In fact, they are arguably one of the best income-producing property investments available. The key advantage of rooming houses is the incredible yields that they can produce. The income and yield from a Rooming House are usually considerably higher than what a single let property in the same area could achieve.
Whilst we choose the blocks of land for a Rooming House very carefully, they are often built on a normal residential block of land. This means that the land costs are no more expensive than that of a standard house.
There are some other advantages which make them great investments:
- There is a huge demand for the rooms, and they are often completely rented within a few days.
- There is a great range of young professional tenants applying for these rooms.
- Due to the fixtures and fittings, there is huge tax depreciation benefits available.
- By having 5 separate leases. If one person moves out there is still up to four rents coming in until a suitable replacement is found.
- Generally, only one set of rates payable.
- In most instances, no Development Application is required.
- A similar apartment development would incur massive fees.
What is the difference between a boarding house and a Rooming House?
It is important to first point out that the definitions of rooming houses and boarding houses can vary across different Councils. For simplicity, we will refer here to the Brisbane City Council (BCC) guidelines.
Essentially rooming houses and boarding houses are one and the same. A boarding house is a type of Rooming House. Monastery, hostel, and off-site student accommodation are also examples of what is defined as ‘Rooming Accommodation’ under the BCC code.
However, the type of Rooming House investment that we are referring to is much different from the boarding houses of the past. Whilst there are some social housing that takes the form of boarding houses, we are referring to a type of privately run very high finished product aimed at young professionals.
If you’d like to see what we mean by high finished. Have a look at the following video walkthrough of a completed Rooming House.
When people think of a boarding house, they often think of the large boarding houses full of low socio-economic troublemakers. In years gone by, this may have been the case.
Across Brisbane there are some larger boarding houses available that have 6 or more individual person’s leasing rooms, as opposed to a Rooming House that has 5 or less. For these larger boarding houses there are additional requirements for approvals. For example, they must be located in “higher residential density locations or be or within easy walking distance of high-frequency public transport, a higher education campus or teaching hospital.”
How does a boarding house work?
As previously mentioned, a boarding house is a type of Rooming House.
Under the Brisbane City Council definitions of Rooming Houses. Rooming accommodation means the use of premises for the residential accommodation, if each resident:
- has a right to occupy one or more rooms on the premises; and
- does not have a right to occupy the whole of the premises; and
- does not occupy a self-contained unit, as defined under the Residential Tenancies and Rooming Accommodation Act 2008, Schedule 2, or has only limited facilities available for private use; and
- shares other rooms, facilities, furniture equipment outside of the resident’s room with one or more of the other residents, whether or not the rooms, facilities, furniture or equipment are on the same or different premises.
Some Boarding Houses will have additional stringent requirements that they have met to enable them to serve food through a licenced kitchen.
Are Rooming Houses Profitable?
Rooming Houses are generally very profitable. It’s not just in the way that you may be thinking. As discussed earlier, they are able to produce an incredible yield. The ability to rent out each of the rooms separately enables the high yields. A second and less often thought of reason that they are profitable is the Capital Growth aspects.
First and foremost we target areas that we not only see a high demand for good tenants, but also areas that are well positioned for future Capital Growth. So an investor can be getting both Capital Growth and an incredible yield.
Another exciting opportunity that we have seen is the potential for uplift when completing a Rooming House build. For example, in many instances we have seen where clients have built a Rooming House and had it fully tenanted, and then been able to achieve offers to purchase the property for more than the cost of the project. This has enabled them to basically get instant equity, or ‘uplift’.
There is a great market of investors looking for completed Rooming House properties and there are specialist agents always seeking completed properties for their clients.
Is a boarding house a good investment?
The short answer to this is Yes. Boarding houses and or Rooming Houses can make great investments. However, there is a process that needs to be undertaken when purchasing. This is often more complex than that of a standard house. You will need to be speaking with experts. Preferably consultants that have had good experience with this type of investment.
There are other factors which you will also need to consider. Boarding house prices are often higher than standard houses. This may seem an obvious one. Due to the additional inclusions, sizes, and intricacies of the boarding house designs all adding cost. This needs to be considered in your Rooming House financing.
Boarding House Loans and loans for this type of investment are often more complicated. You will need a broker who is very experienced in this type of product. We can refer you to some expert finance brokers who are experts in this field.
If you’d like more information on Rooming House investments or would like to chat with an expert, please feel free to contact us here.