4 Bedrooms House into 4 separate entry 'units'??

Discussion in 'Renovation & Home Improvement' started by Kidgeeq, 9th Oct, 2019.

Join Australia's most dynamic and respected property investment community
  1. Kidgeeq

    Kidgeeq Active Member

    Joined:
    11th Nov, 2017
    Posts:
    34
    Location:
    Melbourne
    Ok guys and gals, I've got an ambitious project in mind.

    Here is the plan:
    Convert current 4 bedroom 2 bathroom house in sought after location into 4 separate self contained 'units'.

    Unit 1: 1 Bed, ensuite, Kitchen, Lounge, Seperate entry
    • Currently: Master bedroom with ensuite + Lounge room adjacent
    • Reno: Lounge will have kitchen added and access to back 3 bedrooms blocked
    • Entry through current front door
    • Outcome: Self contained 1 bedroom,1 bathroom, 1 kitchen, Lounge
    • Potential Rent: $320 per week
    Unit 2: 2 bedroom + 1 bathroom + Kitchen + Lounge + Separate entry
    • Currently: Garage
    • Reno: Complete conversion
    • Potential Rent: $350
    Unit 3: 3 Bedroom + 1 Kitchen + 1 Bathroom + Lounge + Laundry (Potentially convert to shared laundry)
    • Currently: As is
    • Reno: Block entry to front master bedroom and create separate entry via backyard side gate.
    • Potential Rent: $400 per week
    Unit 4: 2 Bedroom + 1 Bathroom + Kitchen + Lounge Granny flat
    • Potential Rent: $320 per week

    Overall:
    Cost for entire project will be around $40,000 (excluding granny flat which will likely add another $60,000 for a 2 bedroom, so overall looking at $100,000 max for entire project)

    Rental return should be $1,390 per week (excluding bills as these will be included)

    Further information:
    • Location is Outter Western suburbs of Melbourne, 2 minutes drive to almost everything
    • Council require pretty basic information for building permit so long as I omit the kitchen or bathroom portion of the garage conversion, hence preventing trigger of planning permit requirement
    • Plumbing quote has come up around $7500 surprisingly lower than expected
    • For kitchen, Cooktop+Oven will be electric
    • For hot water, portable plug in units will be used* (Still exploring the feasibility of this)
    • General carpentry work fairly straightforward according to a few carpentry quotes
    • Awaiting some electrical quotes
    This is all an idea at this stage but for the investment amount and the potential return are attractive.

    Has anybody done anything like this before? What are some things I need to consider?
     
  2. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,207
    Location:
    Adelaide, SA
    The legality of it.

     
    craigc, Perthguy, Carol M and 5 others like this.
  3. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    4,916
    Location:
    Perth, WA
    Aside from the legalities, the hassle of managing 4 tenancies under the same roof all for the sake of a few extra dollars a week.
     
    Pumpkin likes this.
  4. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    24,340
    Location:
    Sydney or NSW or Australia
    Linky

    Landlord and others Sued over Bankstown Apartment Fire

    BCA compliance - fire separation, compliance with regs for multi-unit dwellings, maintenance of common areas.....
     
    Last edited: 9th Oct, 2019
    Perthguy, Archaon, qak and 1 other person like this.
  5. Kidgeeq

    Kidgeeq Active Member

    Joined:
    11th Nov, 2017
    Posts:
    34
    Location:
    Melbourne

    Would be almost an extra $48,000 per annum, I’d say it’s worthy of consideration..atleast in my books
     
    Dian likes this.
  6. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    4,916
    Location:
    Perth, WA
    Except I actually doubt that figure is realistic considering the extra costs involved - things like having to pay for utilities, more wear and tear, vacancies, upgrading costs - I could go on.
     
  7. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    7,926
    Location:
    Australia
    What does omit mean here?
     
  8. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,304
    Location:
    Vic
    Who is your market ? Who Pays for utilities and how is usage determined ? Where do they put their most prized possession/s Usually their crappy car. Some People will pay a premium for secure parking and gas cooking and wont consider a house without this Many are from very social cultures conditioned to crowded communal living and are scared of ghosts, the dark, burglars,rapists and everything else, fret if alone, Sharing meals? cooking is a key part of their lives is convenient and economic, other than that they just lock themselves up in their little room and entertain themselves with their screens. Just get a gas BBQ and outside living/ cooking area . About $100 for a BBQ and $100 for 4 lockable door knobs may be all you may need, try that first.. You may devalue property removing the garage and reduce the rent.
     
  9. qak

    qak Well-Known Member

    Joined:
    1st Jun, 2017
    Posts:
    1,484
    Location:
    Sydney
    Your conversion cost sounds too low. And I would be looking carefully at the cost of running plug in HWS as they will most likely be on TOU (and you've said you have included utilities in the rent). Fire regs as above. Does the property become a boarding house with the changes you are proposing - does that add any additional requirements (or can you get any subsidies?).
     
  10. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    24,340
    Location:
    Sydney or NSW or Australia
    Councils and certifiers will not approve the works if there are multiple kitchens shown on the plans.

    Why not just apply for use as a boarding house?
     
  11. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    7,926
    Location:
    Australia
    In other words the conversion would not be council approved. Why is this still being considered?
     
    Travelbug and Lindsay_W like this.
  12. skater

    skater Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,694
    Location:
    Sydney? Gold Coast?
    Unlike some other areas, I am sure you are not allowed to rent out a granny flat to unrelated parties in Melbourne. What you are suggesting is 4 unrelated parties. I think you could get yourself into a lot of hot water if you went down this path.
     
    Archaon and wylie like this.
  13. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    24,340
    Location:
    Sydney or NSW or Australia
    There's money to be made, don't worry about the risk to life, the legalities or amenity or the neighbours

    Nah, the OP is omitting the bathrooms ;)
     
    Lindsay_W, skater and Dan Wood like this.
  14. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    12,470
    Location:
    Brisbane
    I don't understand why anyone would risk everything they currently own to make a bit more money by renting out an illegal and uninsurable property (and this sounds like both).

    Some will say "it is a small risk" but why take the risk at all?
     
    Lindsay_W likes this.
  15. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    18,486
    Location:
    Sydney
    Modification of the use or internal changes will require council approval (with or without kitchen and plumbing etc) which likely wont occur. The firewall issues are insurmountable as wound be noise issues between each occupant. None of the four would likely comply with the Residential Tenancy Act as the "property" is incapable of being defined. Electricity rewiring and meters will be non-compliant. And illegal to change any of it. Plumbing changes will be illegal. Then there is parking and so on. Insurance wont be valid.

    I would be discussing this with a local town planner who probably will take 10mins to explain the concerns. Who knows maybe there is a way ? When council detect the illegal use (reported by the neighbours) the torn up occupancy certificate and legal costs will be costly. Council could order demolition / reinstatement at best.

    Sounds like it may be an illegal (unregistered) rooming house (A boarding house supplies meals)
    Reporting unregistered rooming houses - guidelines for estate agents
    Penalties can be monetary and include jail

    You will breach the mortgage covenants
     
    qak, wylie and Brady like this.
  16. Carol M

    Carol M Well-Known Member

    Joined:
    3rd Jun, 2018
    Posts:
    156
    Location:
    Newcastle NSW
    You can almost definitely count on neighbours complaining to council who will then slug you with huge fines, and maybe jail-time (a cosy house-share you can experience firsthand), and council could make you undo all the illegal work you have done. Bank could call in your loan if they get wind of it too, and insurer won't cover any of it. So better pray tenant does not trip on any dodgy work or smoke in bed.
    The only way to do this and sleep at night is to find out if you can convert it to a Rooming House which will make it legal. But even then lender could call in resi loan if they find out.
     
    Last edited: 10th Oct, 2019
  17. Kidgeeq

    Kidgeeq Active Member

    Joined:
    11th Nov, 2017
    Posts:
    34
    Location:
    Melbourne
    So based on all your responses, the best bet is to apply for permit for use as a rooming house which would then allow for legalities side of things..?

    Would council allow granny flat usage in rooming house??

    As for worries regarding the works that would be carried out,

    Adding a 1 bathroom and 2 kitchen to a structurely sound property when completed by qualified and certified professionals wouldn’t be ‘risky’ in my books.

    But I’ve gotten exactly what I was looking for..I’ll commence process of getting approval for a rooming house

    At the end of the day, this is why we invest in property is it not? I’ve seen people put in $$$ for a $50 per week increase in rent
     
  18. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    7,926
    Location:
    Australia
    The worry is that your first thought was to hide stuff from council.
     
    Last edited: 10th Oct, 2019
  19. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    4,916
    Location:
    Perth, WA
    Yes, but usually we do it proportionate to costs and risks involved. Don't you think if it was such a good strategy, then we'd all be doing it?

    Instead there's a pretty general consensus on here cautioning you about the legal and practical hassles.

    I've said again and again that personally, I would only do "multiple occupancy" where there are full council approvals and the dwellings are completely detached - too many hassles and not worth the extra rent otherwise.
     
    Lindsay_W likes this.
  20. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    3,623
    Location:
    QLD/Australia Wide
    This could possibly complicate things if you ever want to sell or refinance as most resi lenders won't like it and may class it as a boarding house, which is considered commercial.