Boarding Houses - Sydney

Discussion in 'Property Investment - Other' started by Bandita, 3rd Sep, 2008.

  1. Bandita

    Bandita Member

    Joined:
    12th May, 2005
    Messages:
    1,337
    Media:
    95
    Location:
    Australia
    Hi all,

    Not sure where this thread should go, but anyways......

    Looking for your devine experience once again :D

    I'm interested in hearing from anyone who has a boarding house in inner Sydney. We were never looking for a boarding house, but something has come up that I don't want to just let slip by without doing all the research I can.

    Some of the issues I'd love to hear people's thoughts on:

    1. Finance!! What are the options? My understanding is this must be treated as a Commercial Property (it's zoned residential and is a large house - all the rooms are being used as bedrooms). What's the highest LVR people have been able to get for Boarding Houses? We would need to use the income for serviceability purposes (it's approx 10% gross rental) - so trying to say we're buying as a PPOR is not an option.

    2. Does anyone have any experience with SEPP 10? (State Environmental Planning Policy No. 10 - Retention of Low Cost Accommodation) - which basically puts alot of restrictions on being able to demolish/alter/strata/or change the use of the property without Council approval. The Suburb falls into this policy, and I believe the house. The contract says "Council's records indicate this property may be a Boarding House. Consequently, the property may be subject to SEPP 10 which aims to facilitate the retention of low cost rental accommodation." I think this policy is a large factor in the current price of the property. We would be keeping the property as a boarding house for quite awhile - but in terms of the future, it's a nice period terrace from the outside so being able to convert it to a house or use the large land in the future would greatly increase the CG - however how hard is it to get approval with this policy?

    3. Council requirements (eg. fire safety, etc). Where can I find the actual laws regarding boarding houses inner Sydney?

    4. Peoples general experiences with boarding houses. Most of the tenants in this house (currently) are housing dept. rather than students.

    And anything else people would like to add would be greatly appreciated!! :D

    Thanks!!

    Cheers
    Jen
     
  2. troyhunt

    troyhunt Member

    Joined:
    28th Apr, 2007
    Messages:
    414
    Location:
    Sydney / Gold Coast
    I've pursued something similar in the past and could not get finance above 70% LVR. Like you say, it tends to be treated as a commercial interest.
     
  3. craigb

    craigb craigb

    Joined:
    2nd Sep, 2008
    Messages:
    2,676
    Location:
    canberra act
    sorry cant help but sounds great!!
    good luck
     
  4. Rolf Latham

    Rolf Latham Member

    Joined:
    2nd Mar, 2001
    Messages:
    18,791
    Location:
    Confused = Sydney, Brisbane and Gold Coast
    Hiya

    St George have done these types of places for us on Resi terms at 75 to 80 % , but its a while ago, depending on the actual buildig, current use and rest of your circumstances you may find other lenders will do similar.

    Sepp 10, is deosigned to stop you from taking say a block of 6 units on one title, and strataing them and increasing their value immensely thus moving that accommodation from low to higher end cost

    ta
    rolf
     
  5. Buzz

    Buzz Member

    Joined:
    29th Sep, 2002
    Messages:
    415
    Location:
    Australia wide
    Sepp10

    We have looked at quite a few of these - and nearly came unstuck with the Sepp10 rulings. I just did research on this last week to add to course content for the weekend renovation course. As in my opinion it is one of 4 main hurdles that you could run into when considering renovating for profit

    Sepp10 was setup in NSW and covers Sydney Newcastle and Wollongon - the Dept of housing will give detail on the councils that it effects. Essentially it is a way of keeping low cost housing for low/no income earners within council areas. Each council comes up with their Sepp10 weekly rent that is the maximum for any boarding houses, hostels or 'low rise residential buildings'. They also set out how many properties within a council area that must be allocated to Sepp10.

    For personal experience we were looking at a lovely old house in Dulwich Hill 2003 that had been converted into 4 one and 2 bedders. The rent wa dirt cheap and tenants were not on leases. We planned to get vacant possession and reno and re-rent and get a 8% return - great plan until we came across Sepp10 clause in contract - which the REA said was no biggy. The residents were not that clean and every ceiling was yellow with cigarette tar.

    Anyhow after many chats with the council they said you can reno but we will have to put it to council and then you may be able to rent 2 of the units at market rent then after a review in a few years we may release another one and then maybe after 5 years the last one. So our high end reno to get high end tenants would be twarted as would the rental return. We walked.

    We found a similar one in Crows Nest and most recently Arncliffe where all the elderly gentlemen were on pensions. In my mind a solicitor should see these clauses and be able to steer you away - however that is not always the case.


    Incidentially Sepp5 has similar issues but for housing for the elderly.

    I would be very wary.

    Hope this helps
    Jane
     
  6. Bandita

    Bandita Member

    Joined:
    12th May, 2005
    Messages:
    1,337
    Media:
    95
    Location:
    Australia
    Thanks Jane,

    That's incredibly helpful and exactly what I suspected.

    I suppose I see this as a possilbe opportunity rather than a fault at the moment. I think SEPP10 is exactly why this property is so cheap - and therefore the "fault" is already well built into the price. The rental yield is currently 10% - so there's no urgency in trying to do works to get the rental yield up immediately - the deal is certainly viable in it's current state (except for the difficuly in securing finance factor :( ). What I was more thinking is that there is an opportunity in the far off future to possibly get this property reclassified as the house that it is, and at that point I'd suspect it's value would greatly increase.

    Saying that, I would still like to get a much better understanding of the SEPP10 and how it applies to this property. Do you have the contact details of any solicitors you would recommend who are familiar with this policy?

    Thanks so much for the help!

    Cheers,
    Jen
     
  7. Bandita

    Bandita Member

    Joined:
    12th May, 2005
    Messages:
    1,337
    Media:
    95
    Location:
    Australia
    Thanks Rolf,

    What are the circumstances to be able to get the loan on Resi terms? The actual building is a large terrace - if you look at the floor plan, it looks like a large house - they are however using everyroom as a bedroom currently. So, current use is a boarding house. It's zoning is "Residential". It's multiple occupancy.

    Cheers,
    Jen
     
  8. Buzz

    Buzz Member

    Joined:
    29th Sep, 2002
    Messages:
    415
    Location:
    Australia wide
    Jen, sorry for delay.

    Your best port of call is talking to the council they can give you all the specific details for that area, they will also be able to tell you how difficult it may be in the future to change the classification.

    As for finance, I had placed a few of these with Macquarie before they closed up shop last November. The reality is if you have less than a 20% deposit it is almost a certainity that the lender will require a valuation, in which case they will identify that the property is multi dwelling. HOWEVER some lenders will not order a valuation if you contribute 20% or more as a deposit, some even accept the contract of sale as proof of value. This is only relevant to some lenders based on their assessment policies, which are changing like the wind at the moment.

    The reason the valuers highlight the issues of the multi dwelling (and if they have the contract any Sepp10 restrictions) is so the lender is aware of any issues that will effect them if they need to resell the property if you default on the loan. Obviously if it was a normal 3 bedroom house then a first home buyer, investor, mum and dad or baby boomer down sizing may want to take it off their hands, however as a multidwelling residence only an investor would want to buy it, so it reduces the market they can resell too ie increases their risk. That is one of the premises behind lenders requiring valuations.

    Just another thought, there have been a few new requirements regarding seconds means of exit and fire fighting systems in case of fire for boarding houses. The property may or may not have these changes done. Go into the deal - even at 10% yield - with your eyes open one of the reasons they may be selling is becasue they have to spend $20k putting in external stairs for a second storey. This may not be relevant to this deal but keep it in mind - and ask the council.

    Hope this helps
    Jane
     
  9. Simon

    Simon Living the Dream

    Joined:
    4th Mar, 2001
    Messages:
    4,857
    Media:
    37
    Location:
    Newcastle NSW
    Get an insurance quote now before you spend time on anything else.

    I explored this once some time again and was shocked at what the insurers wanted and it was a deal breaker.

    Also remember that you will not be dealing with easy tenants. Many of these places have an onsite "manager" for a reason.

    Don't mean to be negative but this sort of caper wont entail you getting some 12 months leases signed and then coming back in a year for an inspection.
     
  10. Buzz

    Buzz Member

    Joined:
    29th Sep, 2002
    Messages:
    415
    Location:
    Australia wide
    Excellent point Simon! I had enormous difficulty in finding a REA who would consider managing a multi dwelling residence when I was doing the research before purchase.

    From memory I rang 15 and 1 said yes - at a price

    Jane
     
    Last edited: 8th Sep, 2008