Rent to rent - house in multiple occupancy strategy.

Discussion in 'Innovative Property Investment Techniques' started by Josh Menkens, 31st Jan, 2019.

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  1. Josh Menkens

    Josh Menkens New Member

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    Hi all,
    Ive just recently moved to Sydney from the UK. Im planning to start a new business venture based on a strategy that is used widely back home.

    The Strategy is as follows.

    Lease a property on a 1 year agreement (for starters). Ensure that the property owner understands and allows you to sub let the property to multiple tenants (HMO).

    Place the required deposit and pay for the first few months rent upfront.

    Take responsibility for the payment of all utilities and any maintenance that may be required within the agreed period of the contract.

    Use multiple platforms to find occupants.



    Is this a legal business venture here in Australia? If so what licensing will i need to obtain and what kind of company will I need to set up?

    Any help into this venture would be much appreciated.

    I look forward to hearing your comments and suggestions

    Josh Menkens
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Yes, look up "boarding house regulations" in your state or territory.

    If in NSW, then:
    Boarding houses
    NSW Legislation
     
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  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    @NHG on this forum is very knowledgeable about HMOs, you should have a chat with him.
     
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  4. wylie

    wylie Moderator Staff Member

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    There have been several threads about this. I searched "subletting" and found this one...

    Is RTR a real strategy and is it legal here?

    There is a much longer thread with many differing opinions. I can't find it, but will see if someone else can find it. If I find it I'll add it to this thread.

    The consensus (from memory) seems to be overwhelmingly - why would an owner allow subletting? The owner loses control over the property and the risk is the original tenant doesn't vet the tenants as well as the owner (or property manager) would, and you could find your house trashed and the original tenant long gone.

    I wouldn't allow it in our properties.
     
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    sublease is tricky and isnt generally allowable for income purposes when borrowing

    can be got around though with 2 years tax rtns etc

    ta
    rolf
     
  6. The Y-man

    The Y-man Moderator Staff Member

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    As I have written elsewhere, IMHO it is very thin margins (if any) when done legally in Melb. You get undercut by the people who give the industry a bad name by subletting illegally out to 30+ people in a single house (they take "shifts" in the same bed - one person working night shift, sleep during the day, same bed get used at night by day shift worker etc - 2 x bunks in each room, plus more bunks in lounge)

    The Y-man
     
  7. Lacrim

    Lacrim Well-Known Member

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  8. NHG

    NHG Well-Known Member

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    @Josh Menkens PM'd.
     
  9. NHG

    NHG Well-Known Member

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    After a few years of investing, just like in any industry, there's the good, and the bad.

    A minority who scrape by, and a handful who dominate.

    Most go bust, some make low 5-figures, a great majority are delusional about what they actually make because they don't count vacancies.

    There's no glory in boasting a $1M turnover in rentals, only to make $50k.

    And the good, a SMALL handful I've met make lower end 6 figure incomes, one even makes 7.

    It has less to do with the industry / method, and more to do with the person. The few that I've seen do well were hungry, and quite clearly highly intelligent/skilled individuals.

    I wouldn't recommend HMOs to a great majority of people. It's crap. It's hard. I have no weekends free. What I mean is, it's a business. It takes YEARS to build it up to something better than driving uber.

    Every dollar made gets pumped back into purchasing more assets to grow.

    For those that could pull it off, I advise them to focus on developments. They are bound to succeed in whatever they pursued.
     
    Last edited: 31st Jan, 2019
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  10. jefn89

    jefn89 Well-Known Member

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    Love it mate! Raw with warts and all..
    Great share and thank you sir!
     
  11. House share

    House share Member

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    Hi own properties in Victoria and I'm looking to rent them out room by room.

    Does anyone know the safety requirements required to do this legally eg. council approval?

    Does standard landlord insurance cover this style of renting?

    What is cost to register and comply with council?

    Any reply would much appreciated.
     
  12. House share

    House share Member

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    Hi, thanks for your great advice!

    Just wondering if you could help me with something...
    I have a couple of properties that I am renting out room by room to seasonal workers (short term) and making good returns, just wanting some feedback on what you think? Should I register them or should I just keep doing what I am doing?
     
  13. NHG

    NHG Well-Known Member

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    Hi

    That's a personal choice based on your risk profile.

    Not quite legal I imagine.
    And unlikely to be insured if something was to go wrong.

    Realistically, chances of getting caught out, or house burning down is slim.

    I can not recommend you do the dodgy.
    So it comes back to you weighing up the pros and cons against your risk profile.
     
  14. House share

    House share Member

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    Yeah I'm going to register them.

    I will rest assured knowing that I'm covered by my insurance.

    And I would also like to expand this idea I see a lot of potential for good returns.

    I want to keep buying more houses using this strategy.
     
  15. NHG

    NHG Well-Known Member

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    In Victoria you need to convert your property and attain Council approval.
    There is a cost involved for bot the conversion and approval.

    Sounds like you would be best suited to do a course on this, or be mentored by someone who does it successfully there already.

    Awesome.
    Be mindful, there is a world of difference between running a couple of share-properties, and a couple of dozen.

    It will be less about the property, and more about the systems, and plenty of networking. Difference between a mum and pop chicken shop, and KFC.

    I only know a half dozen people who successfully run more than a handful of sub-lease properties. Some with over 100 properties.

    I use the word successfully, because there's many who can't tell the difference between a million dollar turnover, and a million dollar profit.

    I've unfortunately become a cynic. Too many people getting in thinking it is easy money, glazing over their level of vacancies. More often than not, most drop out after struggling with tenants, or getting a knock on the door from the police/ agent.

    Gets very gangs-of-New-York once you're large enough to be noticed by genuine competitors. Something else to consider that hadn't registered for me before.

    That stated, if you love wheeling and dealing, have a passion for business, and working with and meeting interesting people from all over the world, it's a great business to be in.
     
    Last edited: 8th Apr, 2019
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  16. NHG

    NHG Well-Known Member

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    How's the seasonal work market?
    What sort of profits?
    Regional I imagine - running them by proxy?
    Having any unique issues managing them?
     
  17. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Boarding house laws may bite you and the owner. They can be prosecuted. They will be instructed by the state govt through council to evict anyone there and terminate any lease n the grounds the residence is illegally occupied contracy to its certificate of occupancy (which will be cancelled). Any internal property changes can involve prosecution.

    Councils generally require the party to the lease to be an occupant and other rooms are on a sharehouse basis.

    The issues that lead to prosecution include neighbours who report the activity. Factors like parking, noise, waste etc all impact.

    The relevant state boarding house laws will require a REGISTERED boarding house. Much harder to do in practice as council consent is an element. Unregistered boarding houses are not greatly different to an illegal drug lab in eyes of councils. A registered BH will need to enter into a agreement with occupants to comply.

    And forget insurance. Short stay policies dont cover it, owners policy either.

    There are no issues to appeal to a owner.

    The use of platforms will enhance risks in NSW. The NSW Govt is rolling out new shared data compliance with platforms from July which will test for unreg BH and short stays in breach of the new laws.
     
  18. House share

    House share Member

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    Thanks for sharing your experience I really appreciate it.

    Im currently looking for a mentor who has experience in this game, can you point me in the right direction where to find someone.

    Also I have booked in a meeting with my local council planning department. to change the use of the property I'm pretty sure it will only be a planing application which I will have to apply for not a building permit application.

    There for the public will not have to be notified about the change of use. I have had trouble in the past with this and the matter ended up in Vcat which cost 120k to gain the permit, bear in mind this was a lot more controversial matter, I changed three residential houses to a community care unit for people experiencing addiction. in other words I started a rehab facility.

    Thanks so much for your info you have been very helpful.
     
    Last edited by a moderator: 10th Apr, 2019
  19. House share

    House share Member

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    Its quick turnover of residents which creates a bit more work.
    My properties are not far from my home and close together which makes it easier to manage.

    Return on average of $500p/w each property after utility's and mortgage repayments.

    So all close proxy.

    I have found keeping houses same ethnicity helps and screening problem tenants from the start is important. I'm careful not to create party houses. So I monitor the activity and make clear the rules of staying at the property from the start with written agreements.
     
  20. NHG

    NHG Well-Known Member

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    Amazing. I have sent you a PM with further details.

    That's great. Really impressed. How's it going?
    I tried creating a home for ex-addicts, also partners of abusive relationships.
    I ended up having the house trashed, and was up all night because one 8 month pregnant abused partner realized she still loved her partner and gave him her address.

    All the furniture they used was thrown out as it was all broken, and had to clean out about 100 cigarette butts from the bedroom floor. So I admire anyone that can make it work.

    Mind me asking what your breakdown is? I would assume a rural property is already positive geared to start. What's the increase profit post bills, and rent as a normal home?

    I personally aim for a minimum of $500/wk profit.
    Eg.
    Normal Rent $720/wk
    Bills $180/wk
    Insurances + Repairs $50/wk
    Sub-lease Rent $1,590/wk
    Profit $640/wk

    That's an average performer. I have much better, and slightly worse.
     
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