Purchase existing boarding house or build one on my own

Hi everyone,

Thanks for your help on my previous post.
The DA for the belmore house is ceased. Reason is that the land won't qualify for the bonus of fsr incentive. Which I will only be able to build 170sqm of gfa. Not wise to go ahead.

I now gathered $650000 cash for this boarding house project, hope to make it successful. I have two option now:


1. A existing boarding house very close to town center and train station but asking price is over 1.4m. 10rooms with only 3 toilets and 2 of them have bath. Returning $100000 a year approx on rent last year. 496 sqm land zoned R4, I suspec there might be possibility to extend it to double storey. If so, I will have 16-18rooms.
a... This needs to be a commercial loan, and would require at least 30% deposit, which means I would only have around 150000 left for me to do the extension.
b... Whether it can be extended, remain uncertain. I will have this discussed with my planner soon.
c... There are 2 granny flat at back of the house that is not approved by council, owner did it without informing the council, once i apply for extension, they will find out, will they force me to demolish it?


2. Second option is to buy a land that is 800sqm plus in size and zoned R3 or R4
But such land will cost around $1.2-1.3m to buy, good thing is it can be residential loan, and I can borrow up to 0.8 of it. Which will leave me around $350000 to rebuild or extend the original house on it.
a, the problem is, council approval is not gurranteed, funny thing is I rang up council, they said, you can apply but council do not favor such application, even there is state government policy supporting it.
b, if I am to rebuild, I intend to hire someone who is a licensed builder and locate sources on my own like plumber, electrition plaster and etc, to do individual works, so I will save on the construction process. Would this be practical?



Any comments are welcome and thank you in advance!
 
Hi, whats your objective with the boarding house? Presumably to run it as a profitable business? Have you done your feasiblity on it and is it looking like a worthwhile business to run? Only reason i ask is because $100,000/annum might seem great but that might not actually be anywhere near what you end up with. Do your due diligence carefully as i'm sure you already know :)

In terms of what Council tell you and what is actually true, i wouldn't trust anything that they tell you. We found that paying top dollar for a planning consultant for advice and to rally for us when required is worth every cent. Planning consultants know their stuff quite often better than the council planners themselves. Find a good private planner and enquire further about whether building a boarding house really is acceptable in that particular zone because the last thing you want to do is buy something and later fight tooth and nail to build what you intended.

Building a brand new place and subcontracting alot of the work out might be more of a hassle than its worth. Boarding houses have 'extra' requirements than a typical residential dwelling so bare that in mind. If you are building, i would engage with a really good building designer to design it in such a way that the dwelling can be cost effectively converted back into a standard home in future if need be. Say the boarding house business doesn't work out, to try and sell your boarding house, its not going to be for your average buyer but if it was able to be converted back into a normal house then i reckon this is worth doing if it isn't too much more costly to allow this flexiblity/option.

looking forward to hearing more about your progress.
 
1. A existing boarding house very close to town center and train station but asking price is over 1.4m. 10rooms with only 3 toilets and 2 of them have bath. Returning $100000 a year approx on rent last year.

So that's 7% gross yield. Why would you take on a risk like that for such a low yield?
For me to consider something like that as an investment, it definitely would not be a single digit return.

Why not go commercial instead, where you have much less hassle with tenants, less outgoings and potentially higher yields?
Alternatively buy residential. For example, I purchased three properties in Elizabeth with an overall yield of 8.3%.
 
A agree...are you buying for Yield ( 7% gross for a boarding house is low....+ you need to manage 14-16 short term tenants!!! :eek:) or CG? ( Can't see how you can demand a high price for this project...due to the lack of demand)
 
Hi, whats your objective with the boarding house? Presumably to run it as a profitable business? Have you done your feasiblity on it and is it looking like a worthwhile business to run? Only reason i ask is because $100,000/annum might seem great but that might not actually be anywhere near what you end up with. Do your due diligence carefully as i'm sure you already know :)

In terms of what Council tell you and what is actually true, i wouldn't trust anything that they tell you. We found that paying top dollar for a planning consultant for advice and to rally for us when required is worth every cent. Planning consultants know their stuff quite often better than the council planners themselves. Find a good private planner and enquire further about whether building a boarding house really is acceptable in that particular zone because the last thing you want to do is buy something and later fight tooth and nail to build what you intended.

Building a brand new place and subcontracting alot of the work out might be more of a hassle than its worth. Boarding houses have 'extra' requirements than a typical residential dwelling so bare that in mind. If you are building, i would engage with a really good building designer to design it in such a way that the dwelling can be cost effectively converted back into a standard home in future if need be. Say the boarding house business doesn't work out, to try and sell your boarding house, its not going to be for your average buyer but if it was able to be converted back into a normal house then i reckon this is worth doing if it isn't too much more costly to allow this flexiblity/option.

looking forward to hearing more about your progress.


Hi thanks for your reply, :)

I intend to buy one for l investment purpose.

Yeah when I got in contact with the agent I already think the price is too dear, return is too low, but I'm looking at whether there is possibility to extend the building to a double storey, also, I had asked the bank for a valuation Torrey and bargain the sale price down.
Now I'm waiting for the bank to get back to me on Monday.
For extension, my planner said there is not enough space to creat more parking and council would almost for sure go against the DA of extension because we can not show them we can provide more parking to the residents in the boarding house.


As to the construction, I have discussed with the planner, he said a cost effective plan is possible.
Right now I favor buy land and build my own more.
 
So that's 7% gross yield. Why would you take on a risk like that for such a low yield?
For me to consider something like that as an investment, it definitely would not be a single digit return.

Why not go commercial instead, where you have much less hassle with tenants, less outgoings and potentially higher yields?
Alternatively buy residential. For example, I purchased three properties in Elizabeth with an overall yield of 8.3%.

Thanks for sharing your thoughts with me
:)
 
For those type of yields you would be nuts to invest in a boarding house. And there is no real investment or capital growth cause people don't want to touch them with a barge pole. And don't underestimate the amount of compliance. I would say you would have no chance of upgrading an existing house to double storey without having to comply with the demands on a new boarding house and I think that would be tough and then the existing house would probably need gutting and redoing and in that case you'd have been better starting from scratch.

I have three boarding houses, 2 leased, 1 owned and yields are stupidly high at about 20%+ or more but that is only if I manage them mostly myself and don't outsource. And I pay myself a modest wage every week for just being the owner of the business - say $1000 a week passive income. Then if I want to earn more I need to do some of the cleaning and admin and grunt work myself. And its a stressful thing at times.
 
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