Feedback on Invida or The HMO Property Co for co-living / rooming houses

I am looking at cash-flow postive property investments and focusing on co-living / HMO / multiple occupant / rooming house type of investments in WA: likely a new 6x6 build.

I was considering using one of the following companies: both act as buyers agents through to construction and rental managers:

• Invida - this is Ian Ugarte's company - previously Ian was known for Small is the new Big education courses.
• The HMO Property Co - WA-based company. Neil Gibb is the owner. There's a few positive reviews on Google.

Does anybody here have experience with either of these companies or any other they can recommend? Or can anyone recommend a good book or learning material on renting by the room property investments?

I have owned a few rental properties, I have never used a buyer's agent or property manager, instead, I researched things myself and this DIY approach has been relatively successful so far. With multiple-occupancy by the room rentals investment, however, I think it would take me a very long time to do sufficient research to avoid mistakes in this space, so I think it may be beneficial to pay a company like one of the above to get moving quicker and learn more along the way.

 

If you've had significant experience with DIYing property management and had a few rentals in the past, I don't see why doing some sort of co-living thing would be significantly harder or different from the learning curves you've overcome before.

I'm surprised that you are going for this sort of strategy though - aren't you worried about signing yourself up for 6 times the hassle and 6 times the potential friction versus a traditional rental? And its in exchange for more yield yes, but is it really worth the downsides?

 

Yes, you may be right: probably not that much harder than single family rentals, so I am considering just doing it myself. Mainly I need to research what these class 1b requirements are vs. class 1a and the individual council regulations for these properties.
I realise that a co-living property will be more work and hassle, but I do need more yield or banks won't lend me more money to buy more property, so I'm quite willing to go down this route for higher rental returns.

 

@Westminster - I’ve seen recently a proposal for a 6bed, 6 bathroom property development and a neighbour was saying he was going to not approve it. Can they actually stop it from going ahead?

 

Hi Dan, I too have been looking at Invida. I would love to hear from someone else who has engaged them. Is your investment with them positive cashflow? Have you been happy with the service and build quality? I had a look at a PIA they did but notice it does not account for land tax, leasing and releasing fees. I wonder how the ROI compares with putting a granny flat on an existing dwelling. The renovation outlay is more than granny flat addition would cost.
Invida say they convert homes to micro-apartments which is different to a share house, from my conversations with them it seems tenants have their own room, with a secure entry and their own ensuite and kitchenette. This would reduce issues between tenants in comparison with a share house I imagine.
I also already own investment properties including 1x Boarding/rooming house. The rooming house has a lot better cashflow than my other residential investment properties. I am hoping someone who has engaged Invida or The HMO Property Co responds.

 

They'd need to check if it's a permitted use or a discretionary use in their council zoning table. If it's discretionary then they can object if they want on that basis as they may take neighbour objections into account. They may also take neighbour objection in regards to any non conforming aspects of the DA. Council has final say on all matters and can listen to objections but still overrule if they think it's justifiable.

 

@SuperDan have you considered going smaller, let's say a 4 x 4 so that it doesn't have to be class 1b?

 

Watching this thread with something similar that I would like to achieve.. however in a 4x2 setup
while getting it managed professionally by a rooming company.

 

Is there a certain size at which class 1b is required instead of class 1a? In fact, is Class 1b even required? I can't find any definitive regulations or legislation in regards to this. The closest is NCC Volume 2 Part A6 which defines Class 1a and Class 1b buildings.

The Class 1a vs 1b build cost difference should not be overly significant: my understanding is that it just requires a smoke alarm system that is networked together so if one detects smoke, all start screaming, plus some other minor inexpensive items which are not a big problem.

What I definitely do want to avoid is Class 3: this requires expensive sprinkler systems and would be much more expensive.

I have heard from various sources that renting a normal residential house to up to 6 unrelated parties is allowed in Western Australia, however, I have not been able to find any actual legislation related to this limit. Does anyone know which Act might deal with this? I have Googled away for hours...

 

So I think I have found where this reported max 6 unrelated persons comes from:

The WA Health Act 1911 places requirements on lodging houses in Part V Division 2. The Act defines lodging houses as: "any building or structure, permanent or otherwise, and any part thereof, in which provision is made for lodging or boarding more than 6 persons, exclusive of the family of the keeper thereof, for hire or reward"

So keep to 6 persons or less to prevent being classified as a lodging house by the Act.

 

The 1B comes in to cover insurance ..
also there might be something to do with liability coverage for the PM companies. As INVIDA & HMO both have this requirement for managing properties..
Will be reading & researching and more about this in the coming weeks.

 

Hi Bilbo, I am also considering buying a room house.

Basically I am presented and negotiating a rooming house returning 11%-12% gross in regional Victoria. I am not sure what kind of occupancy rate you would allow, is 90% occupancy rate reasonable?

I have done lots of homework including speak to ex-tenant, speaking to local PM, comparing against other commercial assets.

The number do look stack up, with my only concern is capital growth is limited.

 

Hi SuperDan, how are you going with this so far?

I was considering INVIDA but after reading some threads, decide to put a hold on to it.

Thank you!

 

It is debatable whether capital growth is limited? I think the main risk is you are buying an asset that only appeals to investors and not owner occupiers, depending on the political policies and economy there is an element of risk with resale, I do worry what government policies to persecute investors could come into play in the future. Is the location primed for capital growth? How is the local economy? Is it diverse? The land value of the location you are buying in is always going to be relevant. If you are buying in an area where land values are increasing and if your property is well-located, close to a hospital, or public transport or an airport or CBD etc. then it will always be in demand and the value of the land should grow whether or not it's an owner occupier type asset. Would there be any potential that that land could be repurposed in future? I am sure you have got your finance in order, banks don't look favorably on loaning for rooming houses, this is the other downside. I am currently looking at a commercial loan to get finance against mine. Have you worked out what your gross rent yield and net rent yield will be? Do you have PMx to manage the property? What is the reletting fee? I think Rooming houses often get a higher turnover of tenants compared with standard residential tenants. What is the rental vacancy where you are buying? Our rooming house in Footscray has very little vacancy, when a tenant gives notice, we have been able to line up another tenant to move in within a short space of times and the room is usually only vacant for less than a week.

 

Hi Bilbo,

The area is in Ballarat and near Fed Uni.
- Location is not prime for capital growth now (it's been strong market, but started decline 2 years ago).
- Economy is diverse
- Land is only 650m2 and building is 2023 built.
- Close to uni.
- Given 650m2 land, repurposing might not be possible. It is resi zone
- Gross is 11%-12%. Net before PM and vacancy is 9.1%. Net after PM and vacancy (10%) is 7.1%
- Finance is OK. We can get Resi loan at 70% LVR
- I have PM that already have years of experience managing this.
- Letting fee is 1.1% for each letting
- Rental vacancy as a subrub is below 1%. The current property is 7 out of 8. I spoke to the ex-tenant and they gave great positive feedback. Is 10% vacancy allowance reasonable?

 

If you are buying a property that is well-located, eg. close to a hospital, or public transport or an airport or CBD etc. then it will always be in demand and this will minimize vacancy. What is the rental vacancy where you are buying? My rooming house in Melbourne has very little vacancy, when a tenant gives notice, we have been able to line up another tenant to move in within a short space of times and the room is usually only vacant for less than a week. The tenant turnover is higher than a standard residential rental so the reletting fees add up to be higher.
Your email address does not seem to be complete.

 

Is the property student accommodation? If so, does the uni semester effect vacancy? ie. is there more likely to be vacancy over the summer? When you say 7 out of 8, does that mean there are 8 rooms with 7 tenants? Is the empty room advertised? How long has it been vacant for? What length leases are the tenants on?

 

Hi Bilbo, currently only 1 is vacant. Apparently it's been vacant for 2 months, but they got new tenant in shortly. I spoke to the ex-tenant on that room, and he gave positive feedback and reckon the rental price is good value.

Apparently, the current tenants are not uni students. I think 1 of them work at uni, but no uni students. But yes if it's uni, it might impact vacancy over summer... especially it is a furnished property which makes it easier for tenant to pack up and go.

In terms of length of leases, I am awaiting subsequent leases... mostly are 6 months to 1 year.

 

I would think there is potential for rebound growth in Ballarat, however, I do not know enough about the area to understand its longer-term capital growth prospects. It has a decent population size and a diverse economy though. A lot of people will shy away from student accommodation so the fact that the tenants are not students is a bonus in my eyes.
How long has this property been running as a rooming house? Is there data on the vacancy rates that you can get from its rental history? Have you spoken to the property manager currently managing the property? Where do they advertise to get tenants? I wonder if the vacancies could be filled sooner by increasing the platforms the vacant rooms are marketed on? 2 months does seem to me like a long vacancy to fill that room to me. So long as you have factored vacancy in when running your numbers and it still stacks up.