SA Rent Per Bedroom Strategy

Hi Guys,

Just wondering if you have had any experiences using the rent per bedroom strategy or what your thoughts about using this in the Paralowie/Burton area.

I noticed quite a lot of houses had multiple cars in their front yards, and think there may be a demand for this type of accomodation for Uni Students in Mawson Lakes and Labourers around the region.

The advertised rate inclusive of bills for a bedroom seems to be around the $150/week mark.

What do you think of doing this for the following property?

Click here to see...

I'm thinking maybe +$80/week for bedroom at front of house, and then +$110/week for the other three inside the house, and then bills can either be paid as they arrive, or $20-30/week added onto the above?

Based on $239,000 purchase price that would be 9% Yield?

What's your thoughts?

Cheers,


David

 

Sounds like a lot of hassle to me to make what is in the scheme of things a piddling amount of money per annum.

Also factor in a coupleof months a year vacancies over student break periods and your yield is back to a standard resi lease level.

PS that house has been on and off market for ages

 

Its a good way to attract feral tenants

 

Comes down to management. Youll also have to provide internet and utilities, plus furniture, kitchen stuff etc. can work but labour intensive.

Or you can study the cycles and ride it.

 

Not worth the effort. I'd want double that to bother

 

The rent would have to be double to consider it.

Though success is more on your personality rather than your skills and the property's attributes.

 

Boarding house rules may render a issue with council. Huge penalties to consider. Sometimes detected if a fire occurs and structure is found to have been illegally modified too. Typical problem occurs when locks are added to bedroom doors. Fire alarms etc. Insurer may decline cover.

NSW may also offer a land tax concession.

 

Every now and again I find myself asking the same question, things seem to stack up so well, things are positive, it's a very attractive situation but all you need to do is dig a bit deeper and see the potential struggles with it.

First hand I know someone who rented a house in Heidelberg West, $100 a week for a room. There were about 8 rooms there, and in those rooms there'd often be more than one person. There was one kitchen, you can imagine what it looked like.

I think there were two bathrooms.

I've seen many youth hostels looking better.

Sure it doesn't need to look great, but overall you're going to need to consider renovating the entire house in time because it will wear a lot faster, and maybe you'll need to make changes to fit so many rooms in to work together.

Most of us would agree that the bigger money is in the capital growth over the yield, but that may not be your strategy. It wasn't Steve McKnight's for instance.

If you're playing for yield I'd look at other vehicles that have none of the drawbacks with managing so many tenants. I'd prefer property ETFs than doing this in general. Unless you bought a really high growth property and to cashflow you needed yield I'd probably leave this strategy for down the line, try it once maybe. I think I'd actually rather own a hostel than do this.

Personally, I think there are ways to make $20,000 work a lot easier

Investment Products

13.9% average for 5 years

I'd put my $24,000 deposit and pay next to no fees (0.23%) Stamp duty and the rest will normally be 5% paid so there's $12,000 you've saved. You're getting a better yield. I don't know the area but where there is yield normally the capital growth is lower, so the combined income would probably be higher. You can sell any time. You don't need any running costs. There is no leverage in this example but in all other areas I think it's probably better.

With the ETF you're making a bit over $3000 a year, clear. What do the numbers look like in your example?

What's more, you can now borrow more on your next loan, because it'll be your income of "x" + $3000 a year.

 

I know someone who does this in the Sydney market, and makes quite a bit of money from it....but it is high risk & not something I'd be willing to take on.

In their circumstance, they don't buy the properties, they rent them with full disclosure to the LL. They pay above market rates to the LL, furnish the property & pay for all utilities. I'm not sure, but think they also pay for a cleaner to clean the common areas as well.

I'm not sure how many people they put into the properties, but it would be just below the criteria for it to be classed as a boarding house. It only works in areas of high demand to singles who are willing to pay a high price to live close to the City.

I'm not saying it won't work for you......but it's a lot of work for not a lot of return, and it's located in an area where housing in general is cheap. To me, there's a lot more downside than upside in that deal.