Renting Rooms Vs renting whole property

Would your investment property make more money by renting out per room instead of the whole property? Would you do it?

I am a property owner myself and am looking to buy for investment, the more and more i work the numbers it seems to be better for me to rent out per room instead of the whole property... Which led me to wondering if other landlords would consider the same?

My background is Residential & Commercial Property Management, I'm also considering setting up a new kind of property management service that will allow for the management of properties on a room by room basis.

Would love to hear everyone's thoughts, feedback and criticism

Thank you

 

How much extra time and effort would be involved from a PM point of view?
Would you charge more for this kind of arrangement? I would assume so
Is it legal or are there restrictions for doing this?

 

I know a few people that done it years ago and it was quite difficult as not only do you need to manage the normal tenancy problems but you've also got to play Mum and Dad to the tenants as their interactions aren't always the best between themselves.

I suppose if you handpicked more appropriate tenants you might have half a chance but chasing down 4 or more rents for one property, for multiple dwellings will be horrendous after a while. I know the GC is big on room letting, lots of people doing it for cash to get by.

 

Thanks guys, all feedback is great!

Structure and organisation is paramount, I'm not afraid of hard work and chasing arrears, I've done it for the last 10 year's what's another 20 lol

Fees would be based on the percentage of income, same as normal property manager 7-9%... as the rental income is higher Naturally the Management fee is higher as well,

If you know anyone in this forum that can provide their feedback I would genuinely like to hear it as well, the more the better

 

I rent a property to my tenant (they rent out 10,000 rooms in other buildings), they rent out by the room . Their 160+ rooms make ten times what I make pa (based on the financial report they filed).
That includes the restaurant and bar too
However since covid-19 it may well be different.

 

Would your property have more than 100 rooms ?
Would you have a bar and restaurant in too?
Would it be part of a large franchise like Accor , Marriott or Hilton ?

 

100% agree with this.

Apart from potential legal issues with having multiple tenancies in the same house, its still just a massive PITA and not worth a few extra bucks per week imo.

 

I'm a property manager in Sydney and I lease a 5 bedroom property to a woman. She's re-leased it room by room as a business (with full knowledge of the owner). She has the potential to make approx $650 gross profit, but out of that comes the cleaning expenses (2 x per week), the electricity, gas and internet expenses etc. Her net profit, I calculate, is approx $350 per week when she's fully occupied.

Whilst it sounds attractive, I think about the constant turnover of tenants, the potential instability of income due to the turnover, the increased wear on the property, and the general pain in the bum it would be to make each room "rent ready" for the next incoming. No to mention the issues that arise because, well, we're all people and we all don't get along.

No thanks.....give me a plain, old boring 12 month lease please.

The management fees would need to around the same that I charge for AirBnB management to make any sort of profit on it as a property management business.

 

Do you want to marry her?

 

I used to know someone who did it and suggested I do the same. It worked for her and she lived in the house herself so was there all the time to control the residents. I would not do it myself.

 

Thank you for your response Joanna, do you own a property yourself? I have worked the sums out based on an investment for myself, financially this it is actually quite attractive for myself as a landlord, I was curious to know if others had the capacity to increase their incomes, if it was managed would they pursue it as an option. Of course this is all dependent on the investment itself, location, demand, etc etc.

 

I did it on a personal investment property near the city, initially it was great, the numbers looked fantastic on paper (after quick reno etc etc), but I stopped after about 2 years as it was a huge PITA. I was happy to take a rent reduction to give it to a single person on a standard tenancy (they then lived there and rented out the other rooms).

When I was younger the extra effort was justified by the extra rent, but I wouldn't go back to it now.

 

I have looked at this as a positive cash flow strategy, but there are a lot of potential pitfalls. Call them rooming houses, boarding houses or similar terminology, different states will regulate them in slightly different ways once you exceed a certain headcount threshold. Development approvals can be slow and quite limiting, fire protection/prevention needs additional consideration (hence cost), you are providing most furnishings and most certainly the tenants will require significantly more "management" than your average residential tenancy.

I have a friend who has purpose built a couple of houses to cater towards a particular market (women who have separated looking for short term accommodation (<12 months) or those who need to move out urgently for whatever reason). Whilst the cash flow is significantly higher than renting out a comparable 5 BR, 5 bathroom property, the maintenance costs have been through the roof and he's had a number leave with no notice which meant he then had to change locks and been left with a rent shortfall. Remember, the kind of tenant you will be attracting are less likely to have much financial backing so most of the time chasing rent is a waste of time. And he is competing with a number of, let's say "less honest' providers who are happy to cut corners when it comes to maintenance and building standards.

There are some good insights in the following paper: https://www.ahuri.edu.au/__data/ass...parency-and-fairness-NSW-Discussion-Paper.pdf

and I would highlight the following paragraph from the paper which has been one of the considerations why I'm hesitant to progress into this style of property...

"The rooming/boarding house sector is of particular concern to policy-makers at all levels of government for several reasons. First, it houses some of society’s most excluded and vulnerable individuals, often on a legally insecure or ‘non-tenured’ basis. Second, conditions of occupancy can heighten resident safety risks—especially in relation to fire. And third, it is often high turnover accommodation, and sometimes associated with neighbourhood disturbance and complaints to local councils."​

AHURI have published a few additional research papers into options for the future regulation of the sector. COVID-19 will certainly delay any regulatory changes for 12+ months now, but I would expect additional regulation in future, particularly as home ownership is expected to continue to decline for future generations over the next 30+ years.

 

It'll have a lot to do with where you're operating too. Areas that attract a higher quality of individual tenant (e.g. capital cities, major hubs for individuals, near to education) will bring better people and higher rents. On the other hand, trying to run rooming accomodation in an area like Logan (regional, lower rents, lower demographic) is madness. I've only ever had take on a few of them and in every case we've been able to mount a numbers backed business case for converting back to a single tenancy.