Individually letting out rooms, Pros and Cons (not Airbnb)

Discussion in 'Airbnb & Short Term Letting' started by Nathaniel, 15th Oct, 2018.

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  1. Nathaniel

    Nathaniel New Member

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    What are the benefits - and pains - of landlords renting out a property individually by room (not as Airbnb)?
     
  2. Car tart

    Car tart Well-Known Member

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    It is illegal to rent out more than X rooms in a house because it then becomes a boarding house and must have all anti fire protection that is required.
    X varies from council to council.

    The worst thing is you can get life imprisonment on manslaughter charges. Next worse is bankruptcy from a tenant in a deemed boarding house being hurt.
     
  3. New Town

    New Town Well-Known Member

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    And if you are talking about your PPR it is a great way to get extra cash but there are painful tax consequences, the room is essentially a little investment property within your house
     
  4. is_don_is_good

    is_don_is_good Well-Known Member

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    Plenty of people do it. I've got friends that lease houses and sublease further with the agent and owners knowledge. You can make good money if you do it right.

    Not everyone has the ability to sign a one year lease so the 1 to 6 month leases with 1 months bond that include internet are perfect for students, backpackers and people new to the city. You just need to do it in the right places.

    Jump on gumtree and look at listings around St Kilda, universities and the cbd. You'll see plenty of people that do it.

    Pros: Can make more money

    Cons: More ******** and people coming and going
     
    Last edited by a moderator: 31st Oct, 2018
  5. TMNT

    TMNT Well-Known Member

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    other than the above, Ive always wondered, vacancy must be a killer too
     
  6. Beano

    Beano Well-Known Member

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    It is a lot easier and less volatile leasing the whole property to one party than room by room.
    When you are leasing properties with say 150+ rooms it is best left to the experts.
    As they say stick to your knitting
     
  7. NHG

    NHG Well-Known Member

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    It's a grey area with Council.
    It can be highly profitable, when done right.

    Development can be highly profitable, when done right.
    So can selling pencils... when done right.

    It's a lot of work, and capital intensive when done legally.

    As stated above fire protection is required. This can be about $5k for a normal property + furniture + insurance + ongoing expenses.

    Say $15-20k setup cost.

    Most properties are not suitable.

    eg.
    4 bedroom home.
    Normal rent $600/wk.
    Room-by-room rent $1000/wk (4*$250/wk).
    Sounds great.

    But...
    $200/wk bills incl cleaner + gardener.
    Leaves $200/wk profit.
    What if 1 room is empty?
    Turn-over can be quite high.
    And on-top of this you need to recover your initial $20k.

    I've met people who cut costs by taking out cleaner/gardener, or renting 2* people per room.
    House becomes a cesspool, you'll be surprised what comes up, and too many tenants goes way into the illegal.

    Others see it as set and forget. Till they check their bank account, seeing it's in the red, after getting a phone call from the cops, or a disgruntled neighbour (seen this more than I've seen success stories).

    I do have sub-leases as above. I make 6-figure income from this. It takes a lot of work, and is a serious business.

    I've met many other people who have made 6 figure incomes from this and have quite their job. They did it illegally and either Council closed them down, or all their tenants vacated. You really need to approach it like a business. And when you do that, you could have started any business and done just as well.

    Fire and brimstone aside, it's a whole lot of fun if you have a passion for creating communities. I have regular bbq's and outings with my tenants. Stay in touch after they've moved out.

    Just like investing, many people don't get past a handful of properties.
    It requires systems, contractors, and full-time staff to take it further.
     
    Last edited: 31st Oct, 2018
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  8. Green

    Green Active Member

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    Thanks for the insight NHG, how far do you have to go with the fire protection? As I understand its mainly about having evacuation plans and adequate signage but would be very interested to know if more extensive measures were required (and if so how do you achieve this in the subletting scenario where you can't Reno the house as pleased).

    Also would you please be able to talk to the whole licensing process? At first glance looks like a lot of hoops to jump through to be able to legally run these 'rooming houses' in terms of getting various licences, inspections and sign offs, how have you found it?

    All advice would be greatly appreciated!
    Cheers,
     
  9. KateSydney

    KateSydney Well-Known Member

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    Council shuts down ‘death trap’ boarding houses over fire safety
    You might find that it would be difficult for members to help you with this unless you give a bit more information. I just googled and there seems to be information on fire safety for boarding houses on State Government websites, Local Council websites. As well as fire department sites. What location are you thinking of renting rooms? Which State? Which Council area? And how many rooms? All this will effect the safety rules. As Car tart mentioned in the second post, different councils have different rules. Lots of us on here enjoy research, so we can fill gaps if you're not comfortable doing it, but we probably need a bit more info?
     
  10. NHG

    NHG Well-Known Member

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    Your questions are quite specific and would need a long chat.

    For a basic home, you are correct with signage. Also fire alarms, and changing door locks to meet fire safety approvals.

    This is for the insurance in case the home burns down, not for Council approval.

    If I can't do something to the house I need to do. I get a different house.

    As for talking you through the process.
    I am all about sharing experiences, however there are courses available that teach specifics.

    This is not a strategy for most people. It's sold as a walk in the park. It is not. Like anything of value, it takes time, grit, and a high eq.
     
    Last edited: 21st Jan, 2019
  11. The Y-man

    The Y-man Moderator Staff Member

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    One interesting thing we found after buying houses in inner melb, is that all of them effectively have multiple tenants in them being shared by housemates. We always thought that getting tenants that pay $600+ pw for a 3BR was going to be riskier than $400 pw week in a unit, but reality is that the houses are:
    • leased as normal with all occupants signed on as tenants
    • the occupants all share the rent and bills - landlord doesn't need to worry about managing them beyond normal IP renting
    • the occupants find new housemates when someone moves on (I think the standard practice seems to be it is the exiting person's responsibility to find a replacement) and they notify the PM (for records and bond? We're never sure because we never see this other than being notified "this one has left, and this one has moved in). The housemates seem to be pretty effective in their screening applicants and management of the house so we are actually quite pleased how it has all panned out.....
    The Y-man
     
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  12. geoffw

    geoffw Moderator Staff Member

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    Group letting is a really big thing in Melbourne, and probably a lot of other places as well. I've seen our daughter live in a number of places in different locations, from Balaclava through Brunswick and Coburg.

    From a tenant's point of view, there's not one place I would have chosen to live in without extensive renovation. That seems to be the norm. Perhaps there's an element of house banking. Investors buying a place, and leaving it in poor condition until it's time to do something about it. She was in one place where all the tenants got evicted because the owner supposedly wanted to move back in (three months notice was given).

    A similar arrangement can take place in a unit which has a convertible space. A lounge can be used as a bedroom. A curtain can be put up around an alcove. I've been in an Airbnb which was a 1br unit - the renters had their bed in the lounge, which made things a bit awkward at times.

    However, the scenario of the landlord separately letting out rooms is a different one. There's more work on an ongoing basis, probably a higher turnover and certainly, as has been pointed out, more regulations to be aware of. But it's potentially much more lucrative.

    In a group house, if one tenant skips out without paying, the other tenants have to ante up. In a boarding house, the landlord probably just loses out
     
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  13. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Council can cancel occupancy certs for properties illegally occupied. And the court costs can really add up. ANY mods must be demolished etc. Uninsured and inability to enforce any issues with occupants. and so on.

    Each state has a residential tenancy act. If its not governed by that its a problem as it may then mean they are boarder or lodger WITHOUT a complying agreement. Group homes that comply will be OK. So does the occupant have a lease ? If not that may be a concern. Leasing areas of a property that are not habitable as a bedroom wont comply.

    Councils will heavily enforce boarding house non-compliance under state law. Most states ONLY permit a registered boarding house and prosecute all others.

    Its not just a minor issue its an illegal activity. It monitored by councils and state govt.
    Its akin to asking can if I use my apartment to grow weed or operate a factory.
     
  14. is_don_is_good

    is_don_is_good Well-Known Member

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    Friends with multiple rooming houses in Balaclava and surrounding areas make very good money. There's no shortage of people wanting to take a bed in a decent house near cool areas and jobs.

    It all depends on who is staying in them. Some or pretty nationality specific dependant on the landlord and the location of the property, others are just in great areas.

    Balaclava, St Kilda East, Fitzroy, lots of 3 or 4 bedroom rooming houses with 2 beds a room and charging a flat rate of 200-250pw all inclusive, 1 to 6 month minimum stay.
     
  15. Beano

    Beano Well-Known Member

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    Its pretty hard to do as a landlord as we generally not experianced in that area
    Best left to the professional tenant manage the rooms (and bars, restaurants etc that are in hotel )
    Best to just lease to one professional tenant to manage
     
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  16. NHG

    NHG Well-Known Member

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    Spot on.

    This is an active business.
    I meet a lot of people who come into it thinking they can set up a couple, then travel the world for months on end.

    Get Rich Quick 1.jpg

    It's the get rich quick cliche.
    If it sounds too good to be true. It probably is.

    Get Rich Quick 2.jpg
     
  17. balwoges

    balwoges Well-Known Member

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    Only found out about the 'share' house next door when we moved in - the tenants are constantly changing and at the moment we have a new tenant who has his drugs delivered to him, the dealer parks outside our house and we regularly see him handing over to the tenant. We are undecided as to whether to report to police.
    Also a single tenant with a young school aged son who is constantly shouting profanities at him and not treating him well.
    We have made a complaint to Lake Macquarie Council, but as the owner of the property lives there it is considered a share house and not a boarding house and therefore he can do as he likes... :(
     
  18. LarsY

    LarsY New Member

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    Hi NHG,

    Are there any courses that you can point to? Thanks
     
  19. NHG

    NHG Well-Known Member

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    There are a handful now, however the only one I can recommend is Ian Ugartes HiRes programme. I joined early on in my journey, and the network has been phenomenal.

    He is quite thorough.
     
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