More investors are becoming aware of the great investment opportunities offered in property, but there is an area that remains largely overlooked that can deliver impressive returns. Defined as a boarding house, guest house, hostel, or the like by the Australian Building Codes Board, Class 1B category buildings require far less paperwork and planning compared to traditional dwellings, so investors are able to circumnavigate the reams of red tape that is often associated with property development.
Frank Days is a property specialist, he’s from Modo Project Builders. He’s an expert in the field, and he talks about that in the latest Your Investment Property magazine. We chatted to Frank about all things 1B.
What are the benefits?
Frank said: “I do believe it’s one of the untapped areas of investment, and not just from a providing affordable housing perspective but also for the investors themselves returning fantastic yields. There’s a growing demographic of Australians out there looking for this type of accommodation, which means that our uptake… We can have these built within six months from breaking ground, and once they’re completed, hand over the keys. We can typically have these fully tenantable in four to five weeks.
“They offer incredible yields, positive-cashflow properties, deriving multiple streams of income from the one asset, which means reducing your risk of vacancies, and the overall timeframe is really condensed compared to most of your projects that would return this type of yield.”
How have these types of buildings changed?
A lot of people will have memories that boarding houses were very problematic in terms of maintenance and the type of tenant that they attracted, but that was largely because they were just old homes that were converted into boarding houses.
Frank said: “That’s not an uncommon perception. We’ve taken that old concept of a boarding house and brought it into the 21st century. As you’d mentioned, the old-school way of doing these was taking an old property, slicing and dicing it. We’ve actually had these built for purpose. We’re a small boutique building and design team that specializes in the shared housing space, and I do prefer to call it shared housing or shared accommodation as opposed to boarding houses because it does give it that back of the mind feeling when you do hear that word ‘boarding house.’
“At this point in time, they are being encouraged by state and federal governments through land tax incentives, but I personally believe that we’ll see more incentives come along as the pressure for affordable housing comes upon us.”
What are the pros?
Frank said: “Each room is self-contained with its own living area, bedroom area, and its own en suite, and we include a wet bar, which is effectively a small kitchenette setup as well. I could list a large number of the pros – we’ve already talked about a couple – minimizing your risk with multiple streams of income, the yield that’s available, the fact that it’s a zoned res 1, so your red tape through council is reduced dramatically, so the timeframes are reduced, there’s no middle man, you’re dealing directly with the builder, so there are no commissions involved with your real estate agencies as such.
“The only thing I could say is they’ve all been successful. They all maintain over 95% occupancy rates. They all provide exceptional returns. Each one is specifically built for the owner, so they reflect their requirements. But they do continue to evolve, so if we were to say what was the most successful recently, you’d always say the last one, because they are evolving.”
What are the cons?
Frank added: “The only con I can think of off the top of my head is at this point in time, we’ve been doing this for six years and we don’t have any resales yet, so it’s a little bit of an unknown quantity what these will look like as a resale product. The closest we’ve had is one of our early adopters was able to complete his project for $900,000. He did take it to market and got an offer as much as $1.3 million. And he knocked it back because he felt like he was better off keeping the product for himself and cashing in.”
What makes an ideal site?
Frank explained: “Most of our clients do come to us with a site in mind. They may already own it or they’re looking at a particular site. If that’s not the case, we do have a network of agents who will come to us with off-market properties, suitable properties they think we could use for our projects, and we then put that out to our database. The perfect site is 600 square meters – so 15 meters across the front edge and 40 deep – and flat. That is ideal. We can fit the most car parks. The site costs are reduced dramatically by making sure that it is flat. We can work with any size block. We will look at alternatives, but that will be the ideal block. We don’t need any special permissions through council. There are no zoning requirements. It’s just a res 1, same as building a family home.”
How long do they take to build?
Frank said: “Once the planning is completed, the build time is six months, so completely determined by the planning stage, which could take a month or two depending on the individual’s requirements. But yes, a soil test, survey, and we’re into it.”
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