Did you know there are over 1,300 registered rooming houses in Victoria? If you haven't heard about rooming houses then you need to pay attention because the savvy investors are absolutely cashing in on this investment trend.
In the past, small scale rooming accommodation (less than 10 rooms) got most of it's reputation from a history of providing affordable accommodation to single men and people who couldn't afford any accommodation such as the 100,000 homeless people in Australia. However, over the past 20 years a new style of rooming accommodation has evolved to appeal to tenants looking for a more affordable rental market. This has resulted in profitable rooming houses rapidly emerging across Australia and it's turning residential property investment on its head with gross yields 2 x that of standard houses.
So what is a rooming house?
Instead of renting a house to one tenant on a 6-12 month lease for $600 per week. You can rent your house out room by room on long term (6-12 month) leases to multiple tenants but each tenant pays between $180 - $300 per room. It's all managed through an experienced rental manager and when done right, can be very easy to control.
Rooming Accommodation - A short history
Historically, rooming houses were a common accommodation choice in the early twentieth century, housing between 5-10 per cent of Melbourne's population with residents being mostly single men. Today, many of these original rooming houses have now been converted back into dwelling houses occupied by families.
The 1980s saw the development of community managed not-for-profit rooming houses. This type of accommodation was greatly in need and was seen as a partial solution to getting people off the street where they could get access to services and support.
Beyond 2000, the new model of profitable private rooming houses has evolved in response to a competitive rental market and rising house prices. Overseas migration has steadily increased since early 2000, which has driven the median dwelling price and subsequent rents up making buying and renting in Australia substantially more unaffordable than ever.
For example the median rent for a 1 bed unit in Sydney is now over $600 per week. Whereas a tenant can find a room in a rooming house for only $300 per week.
Purpose built rooming houses
The majority of rooming accommodation is made up of converted houses whereby living areas are converted into additional bedrooms and upgrades are made to comply with the relevant building code. The end result is that bedrooms outnumber bathrooms which means tenants have to share toilet and shower facilities - not ideal.
In the past one to two years building a new purpose built rooming house has emerged as a growing trend. This allows you to build each bedroom with its own ensuite and sometimes with its own living area and cafe bar (a small kitchen without a built-in oven or cooktop). These rental options are ideal for students, young professionals and single parents without children.
Building new also has the advantage of allowing maximum depreciation to greatly reduce your taxable income on the large positive cashflow these properties typically produce.
One of the golden rules with residential property investment is to buy the property that has the most rental demand but is the least supplied. Almost 25% of all households in Australia are now single lone households yet most suburbs have well than 20% of their dwellings as one bedroom dwellings.
1 in 4 people live by themselves and that is one of the fastest growing trends, not only in Australia, but across the globe. The constantly connected online world that we live in, is driving us to be more secluded physically, because we are all connected socially online. More people are studying longer, less people getting married at a young age and people are just generally becoming more independent.
The fact that our lifestyles are changing, tells us that affordable one bedroom dwellings are the way of the future. The fact that 1 bedroom apartments are not getting cheaper, tell us that people need a more affordable alternative to provide accommodation to 25% of our population. We are just seeing the tip of the iceberg when it comes to rooming housing and once everyone starts to catch on, this will be the number one investment property for the future. So is it here to stay? Most definitely.
If you want to know more about rooming and how it all works, then read more here - Rooming.
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