Communal living - Small is the new big

During my daily commute podcast listening session I stumbled across a podcast from smart property investment show with Ian Ugarte promoting communal living solution and how to have a +10% yeild investment strategy and his company smallisthenewbig. Buy doing a simple google search he used to head a company called highincomerealestate not so long ago.

While I see a lot of issues with this type of investment, are there any member in the PC forum that have tried this concept?

There are free live seminars held by Ian all over Australia. I might go to the session in Melbourne to learn more. Has anyone been to one of his seminars before?

 

Hey @WellKnow I have been to one of his seminars...
Its all about "education", it is nothing new that he is talking about. Basically it is micro apartments or new age boarding house, which contains its own bathroom and kitchenette. The examples he used were all for New age Boarding houses. however he does talk about retrofitting house and doing rooming arrangement. (rent by room). Which I think there are few people on here that are already doing it.

He did research the system very well, so i think there is some benefit there to speed things up, but to the tune of how much he is charging.... well that is up to personal preference.

He talked about everything that my town-planner talked about as a suggestion for a new site and I didn't have to pay him $5k+ for "education" , before any work is done. I did as Ian if he will take on the work if I pay him for it. He said I would need to sign up for the education program and then he can put me in touch with "experts" in the area. All the experts work for his various companies.

While I agree with his idea of affordable housing and there is definitive money to be made there, although it will fall into commercial category. Which means borrowing will be terrible. This does not work in all areas either and he says so too. Needs to be close to CBD and close to transport.

 

I've been to one of his seminars last year, and yep pretty much what @Excalibur1 summarized above.

From memory this strategy will only fit certain type of house and they either need to be newly build to their specific configuration or will need to be knocked down and rebuild/re-arrange with certain configuration to suit the idea of renting by room with it's own space, including bathroom/kitchen etc. A bit like a small studio except space-wise much more compact.

Also to add to get it managed the PM fee is quite high due to the amount of work PM will need to do to get all rooms tenanted. I would also imagine turnover rate could be quite high too...depending on what type of tenant it attracts.

Cheers,
David

 

he is quite active on social media and promoting his "strategy", and "addressing housing affordability". but as @David Shih & @Excalibur1 said above, his products would suit certain specific demographic, not for a wide range. when you invest, you might want properties that have wider appeal to a larger group of ppl ( for rent & sell), not purposely built for a small group of demographic.

 

thanks @Excalibur1 @David Shih @Eric Wu for the feedback.. as always I signed for the free session in June, this will be my 10+ session on property investment. It will be worthwhile and listening to his strategy.

I totally agree these sort of housing will be attractive to a very small pool of investors, and might be mighty hard to offload when its time to sell. Saying that I have seen these sort of housing (5 bedroom house with individual en-suite and 2xlivingrooms and 2xkitchens) next to universities making a lot of cashflow and selling easily. But according to Ian he does not let his properties out students.

 

I know someone who built one of these on the northern beaches and is doing very well out of it. It was quite a challenge to beat the NIMBYs to get the approval but it is a great cashflow business for them.
If you choose an area where rental housing is very expensive, you'll get a higher quality of tenant and less turnover as they'd need to move out of the area to rent somewhere else as cheap. I'd say the eastern suburbs/inner west would work well too. You'd have junior lawyers/financiers who work crazy hours and only use their house as a crash pad keen to get into one of these places.

 

These ideas are fantastic, but very very difficult - if not impossible - for most mere mortals to take advantage of.

if you are building - trying to get finance to do a house with multiple kitchenettes,wet areas etc- its going to be treated as commercial. That means big deposits are required. Loan terms are shorter. Valuations may also be problematic. If you have cash and want a killer return - go for it...but hard to get the finance to build these-at least, on good terms.

if you are buying one that's already built - a bank will usually consider it to be a boarding house, and in many cases they will not lend. Boarding houses are not acceptable security to many lenders. if they will lend, it will be at a reduced LVR.

if you are selling - anyone considering buying from you also needs to deal with the finance issues above.

if it was easy to build, finance or sell boarding houses, they'd be everywhere I suspect. They are not - not even in NSW where the AHSEPP strongly encourages it .

Without banks playing ball, these are not going to be suitable for most investors.

It's a shame... they would be fantastic additions to a portfolio if it was easier to get resi finance for them.

 

hehe I'm trying to get one on Northern Beaches

you are correct that the numbers stack up, but that is why everyone's trying to do it there. Also as @euro73 mentioned, you need a lot of cash for these purchases. You are looking at 9-12% yield, before finance costs. This is in right locations. Definitively nice to have in portfolio. I think its less risk than other commercial properties as you will always have someone paying rent.

@WellKnow be careful that whatever hack job has been done that it is up to standard and council approved. We are investors, we are in business of mitigating risk as much as possible, while making as much money as possible.

What I got out of my session with Ian is that I met two great investors with whom I bounce ideas of as they are very insightful.

 

I went to Ian's seminar last weekend on the Gold Coast. He certainly has some great ideas but as a passive property investor I suspect there will be a lot of extra work involved to get that higher yield and it would really suit a more active investor. He is a great speaker though and if you get the chance to see him then you should.

 

@euro73 what is it that banks don’t like about these types of properties? The type of tenant risks you’d assume would be more common?

 

Banks dont like any property that is "non standard". Triplex. Quadplex, Student Accommodation, Boarding Houses etc...

They have limited resale markets, which means that if they have to get thir money back, its hard.

These days they are doing the same to many postcodes with lots of apartments - several banks have reduced LVR's or even total bans on certain suburbs, or apartment developments within certain suburbs.

banks dont like to take take security over anything they feel they cant get out of later on if they need to...

 

In which case why not buy a standard 4 bedder and then convert it into a boarding house. Would the bank need to know?

 

There you go again Euro making stuff up just to get a plug. It not difficult at all. I have 3 of these. and it is alot more common than most people realize. The banks don't give two hoots, makes no difference never been an issue, except that they actually like to see all the money flow in . That's what they care about . Don't know why you would need to go to a seminar. These houses aren't that hard to find just takes time and patients they pop up every few years. Same as any property that is worth buying. Getting one in the right location and KNOWING it is for SALE it is what is HARD. as they are often sold before they hit the market. Building Networks is what you need to develop. Tennants who use these houses don't use the standard biased REA's or like the conditions of their contracts,nor do REA like to manage the type of property they want. Some cultures are used to living in crowded conditions and actually fret in what appears to be a large empty house to them. Many sleep with lights on and are scared of ghosts LOL. The main thing is, is to have 2 cooking areas and 2 living areas. Cooking what they want how they want, is an important part of life for them They have to have gas for cooking I put an area outside for cooking. BBQ , tables chairs fridge and water tap. Most of the time you would think no-one is in the house as they just stay in their room they work hard and sometimes do 2 shifts in a day so need to be minutes from employment or travel takes up too much of their spare time.

 

You are correct- they wouldn't necessarily know, but you'd need to use the lender to buy the property and then use your own cash to convert it. You aren't going to be funded for the lot.

So I'm not saying it cant be done. I'm saying it cant be done without needing a larger amount of cash than just the deposit. That's why I said ts not within reach of most mortals as they generally dont have the cash available to do the conversion... and because its not borrowed they cant get any deductability against the cash they use, either...

Of course, once it's done, you can try to refinance.... but then a valuer gets access, and the cats out of the bag.
Or what happens when you try to sell it? The prospective purchaser will more than likely require a bank valuation. as well .... and then the cats out of the bag.

@Fargo would have you believe it's easy. That the banks "dont give two hoots" That these houses "arent that hard to find" - just takes "patients" ( freudian slip perhaps, with the nutty advice being offered? ) I'm afraid it's just not as straightforward as that . Dual living areas , kitchens and wet areas are easy under one roof - that’s just a dual occ ....but 4,5 rooms with 4,5 kitchens and wet areas - not so simples

 

100% agree the small is the new big..but it depends on the demographics and suburbs. For example:

1. Small 3x2x2 houses on outer suburbs on small blocks of land are now great investments.
2. Small 40-50sqm units within 10 klms of cities like Sydney are popular also due to cost of rents. But it is not as popular in other cities because rents are much cheaper.

As for communal living...it is okay..but more a CF play. Not a CG.....lots of risk there in my opinion.

 

I sat through one of his seminars. Definitely interesting as it’s not your typical strategy.

I have to say whilst sitting through it I just kept thinking of finance as @euro73 has eluded to.

However the banks dont really get involved in anything except normal resi lending. The idea is they are so CF+ that you buy the property and self fund the renovation. His numbers are ROI in 1 year or don’t do it. If you then want to sell it again (why on earth would you if it’s 20% yield) then you just transform back for much cheaper.

He even has clients who sublease with a contract that they will renovate and return the house to its current state. I laughed at this thinking what owner would allow this... but then spoke to a few people who are doing exactly this. Turns out when your having trouble renting a property and someone offers you an above market rent on a long lease then you can be easily enticed.

 

As I said, the cash flow potential is fantastic but just too difficult for most mere mortals to access, simply because of the money required out of your own pocket to get something like this up and running...

Perhaps @Fargo will lend readers the money????

 

Not necessarily. Get a resi-loan, then retro fit. A knowledgable certifier can help you.

 

I haven't heard about this but I've toyed with the idea. I've had experience designing this stuff myself.

Seems interesting, anyone have a summary of it?

 

Something like this?

https://www.realestate.com.au/property-house-wa-belmont-133821710