Squeezing out a little more yield

Hi All,

I heard a little while back that savvy investors in the Logan area were buying a large house with room underneath (not necessarily legal height).
They would then build out the bottom with a bathroom/kitchenette and maybe 2 bedrooms depending on space.
Then they would lease the property on one lease (can't legally do 2 unless they had legal height). I hear this worked well for Logan as many migrants in the area have multi-generational families so a family could live upstairs and the grandparents could live underneath. Probably popular with students too.

Obviously they would get more money if they could rent out the top and bottom on seperate leases but I believe this would still push up the rental yield up.

I was wondering if anyone has any experience with this method closer in towards the city, somewhere like Moorooka, Salisbury or Cooper plains?

Cheers,

 

Hi, this is my first post on this website, after a lot of ghosting, because I may finally have something to add!

We bought a place in Logan which is just as you describe, highset, but not legal height. It was already built in underneath with bathroom, kitchen, bedroom, and living room. It's rental return is definitely higher than it would be without the underneath area. We bought it for 286K late in 2014, and it rents for 365/week(6.6% yield). We definitely paid about 10-25 K more than we should have, due to FOMO and lack of negotiation guts.

The only con that I've found, is that we got it valued last year for refinancing purposes, and the bank only valued it as 305k. 4 out of 5 of the 'comparable sales' he listed didn't have dual living areas, they were just standard 3 bedroom homes. I tried to get them to revalue it higher, and showed 5 other homes which had the dual living areas(and made sure they weren't legal height as well, just like ours), which showed that ours should have been more like 335k. They refused to budge.

Not sure if that helps in some way....

 

The valuer most likely did not take the downstairs rooms into account because, not being legal head height, they are probably not council approved and technically you could be ordered to demolish them.

Just make sure your insurance covers you if people are living and sleeping in unapproved rooms.
Marg

 

Still it is a increase ...better than a decrease !

 

Can your broker do valuation shopping with a couple of different lenders? Assuming that you can service with them.

Cheers,
David