Buying a boarding house

[wobblysquare]

Pest

Wonder if you talk to your telco whether they can block calls from the number in tassie?they should be able to identify it for you.

Police could help

or disconnect phone from wall socket when you go to bed.

 

[geoffw]

I've been interested in your story. Nearly a month after the last update it would be good to know how you're going.

I'm guessing this is not the sort of property which you'd put on airbag like your Sydney properties.

Two months after the post about the nuisance caller- have you been able to do something?

 

[Elliotte]

The caller stopped after a few weeks. And not too much issues with previous guests at all. One or two pop up with a problem with previous management and I just direct them on to the old owner. A small trickle of ferals still try for a room but much less than even one month ago.


Two months in - well last few weeks I haven't done much work at all as my boy turned four and we hosted extended family and friends from Sydney and Brisbane - so I had to shut down new bookings to fit them in! We got too popular too quick with guests! We are on AirBnB and do get a small steam of bookings via that. Huge hit on bookings.com too.

So last week had a massive party complete with jumping castle and we wallpapered the entire dining room with party superhero scene setters and made a huge superhero party for the kid. Guests all joined in. Was a celebration for me to of all the work we have done and to show off to everyone.

Back to business today but since I'd nearly killed myself in the last few months there isn't a huge amount to do except the day to day admin now. It's taken me all day to catch up on the past few weeks but will be back to a couple of hours at most a day I think soon. All the floorboards are done, painting finished last lot of rubbish removed and all rooms furnished and up for grabs. Hard wired fire system goes in this weekend to bring us up to the required standards. New doors are next. Then it is on to some more structural repairs over time I think. But no rush on any of them. I'm out of money anyway.

A nice side effect of all this is I'm much less fat now! Scales don' seem to work well on my floors with all the uneven flooring but at least a clothes size down - maybe 6 kilos or something. Hard physical work a lot of this has been! Or not so much hard but continuous!

We've got 90% occupancy now consistently, plus a few trained backpackers who do the cleaning for free rent. I have moved on any guests I felt too odd or high maintenance or with issues who didn't fit in. We had one guy with sleep apnoea who yelled in his sleep and would fall asleep at odd times and snore and yell and talk sometimes with music playing or candles (!!!). He had to go! I'd say 75% of the rooms are people wanting minimum one week, mostly one month or more which is good. We have a couple gorgeous ones left empty for nightly rent at a higher rate if I can be bothered.

We have had some issues with probably local kids or criminals trying to siphon petrol from guest cars and they also stole my lovely outdoor furniture worth a few grand!! I got so angry about that. Hadn't budgeted for fence renovations yet but need to improve the security out the front I reckon. Some lights, a good fence with gate. I reported the theft everywhere and even got page 3 in the local paper! So at least the couches are so hot they can't be onsold I'd think lol.

I'm settling in well to town and making a few friends and getting social now. Catching up on downloaded TV. I think life is the "new normal" and it isn't really any more more than having the two in Sydney - a bit of a lifestyle job since I do live in the house. I think I'll settle in Tamworth for now.

Future is looking good. In fact the YHA in town is up for sale and people are telling me to take it. Pfft. Don't have a cent to my name. But bet I could run it and then I'd control the entire budget end of town. Maybe if it still for sale in a few years. There is demand in town - I think the bigger demand is furnished houses for group short term rentals too. This week via AirBnB I hosted some investors looking at properties around town and they found a few corkers. $180K 4 bedroom+ with six guests returning $800 a week or whatever.

When I have paid off all the reno I will probably look to buy a place in town for my son and I first because living in has a limit of a year or two I reckon cause I do get a bit cranky at being the mother figure to 30-40 young folk. The sign on my office door currently reads "Unless we are attacked by zombies or you want to pay rent then DO NOT DISTURB".

 

[Macca]

Congratulations I admire your courage and commitment, you are an example of getting off ones rear and having a go. I hope it continues to work well for you

No doubt in 10 years time people will say "Gee, you are lucky to have all that"

 

[Ideo]

Really enjoying this thread.

Been great to read about a bit left of field investment vehicle, and your website is really good at portraying your business as well.

 

[wobblysquare]

Awesome

This is an inspiring story.
I am sure you are very "lucky" indeed. To 'throw away' your initial income. To then rebuild it - only better. Amazing - you must have had some creative financing to accomplish this, as the clause "vacant possession" also equates in this case to purchased with no income stream !! Hope it all values up well now....would let you go again, if you were game !

Cheers Wobbly

 

[Elliotte]

Just an update. Sitting in my office in a decked out full guesthouse uniform! Turned the place into a tourist guesthouse for the Tamworth Country Music Festival. I'm about to collapse from exhaustion but thankfully it's all over by Monday. 10 days of madness but with hindsight only really 4 days of crazy prices possible and the other 6 days not as busy as I thought anywhere in town.

Gave some long termers the option to stay on if they booked just after I began here - they are still paying cheap normal rates. The rest I sold to short termers...started out thinking, oh we'll ask $80 a night then realised the demand and price gouging going on around the town so ended up topping out at $300 a room/night for the peak nights for a family. It is INSANE - other places around town are $600 a night and we've got people in every nook and cranny tonight, even pushed up against my son's cubby house ($150 a night). Nothing illegal - just every bedroom in the house full and even the old outside buildings.

Even with the crazy I'm a bit disappointed. Old owner reckoned he got $6K in his pocket from the Festival. I'd thought I could make it do $20K+ but this year hamstrung by my agreement to honour his previous returning bookings at the previous rates which took out 1/3 of the rooms. Plus the longer term guests I let stay. I'm the only place in town to do that and I don't think it was worth it - the backpackers kinda acted up on the grey nomads so I see why everyone forces them out for a week!

I spent some money on promo which is great and fun. We have lanyards, mugs, shirts, pens, stubby coolers and had some of my staff go down the street today in country hats, boots, dinosaur tails and giveaways. Got around $2500-$3000 in provisional bookings for 2015 from that little stunt.

Anyway I think I'll go close to 18-19K maybe. Paid a few local girls a little each day to help with check-ins and outs. Put the kid in daycare full time for two weeks. If I didn't have the start up costs the Festival should cover the mortgage for the year if I do it well. This year the aim was to pay off most of the $25K Fire Upgrade which I've done. Kiddo hasn't made it easy. With 50 guests tonight he flushed a toy down one toilet and my chances of a sober plumber today in town are pretty slim to none!

Gotta say I'm not cut out for customer service. My whole business concept was to make it all automated with self check-in, no reception, call centre for issues etc so I have strayed a bit to grab the cash and do what is needed. But will refine it all for next year. I'm off on a cruise soon for a few weeks to sleep once I restock with longer term guests who self-maintain. We're ranking 8.3 out of 10 on booking.com which is hilarious since we are "one star" and sharing 50 year old bathrooms. Beating some of the real hotels around town.

 

[westminster]

The festival sounds like a fantastic way to secure income for the year - I'm sure next year you will do it better. What a ride!

Are you allowed to do camping for the backpackers to move them out to free up the room for the festival?

 

[dex]

Great thread, you've got balls Elliotte and I like the sound of your dad.

 

[Elliotte]

I think camping could cause an issue blocking fire exit paths. Also we don't really have much open space. It's really a quarter acre block chock full of rooms - if every room is up and functioning it's 32 private rooms crammed onto the block. Some space taken up by laundries, old fashioned clothes lines, old stables etc. I did think about removing some of the old outbuildings but don't think there is much point as council may never allow us to put anything back we're so overbuilt as it is. At least all those buildings helped me make an extra few thousand during the festival and the rest of the year are set up as a place for my Dad, TV rooms, Kids playroom etc.

Yes, I think as long as the Festival continues we won't have an issue using it as the main source to cover lots of costs for the year. There are a few other events on a smaller scale too and from this year some folk have asked about group bookings for their friends for other related things - like the line dancing championships. Provisional booking for up to 20 people for that in May.

Really the place could run two ways - a consistent level of occupancy and work from a bunch of medium term backpackers working in town with a small number of rooms set up as extra nice for booking.com overnighters. That way is less stress, easier to manage. Or it could run as feast-famine like others in town who have very low occupancy and twiddle their thumbs for a months then jump and book solid for the big things in town - some religious conventions, service club conventions, Agquip.

I'm trying to do both at once which is a bit stupid as I'll burn out but for now the extra money is great - I'll just bring casual staff on as needed, do a big bump in for an event and clear out some of the medium term, then a bump out, house clean and back to longer bookings. There is enough backpacker trade to do all of that and not be too worried if some folk get a bit annoyed for being moved on for group bookings. I'll develop a yearly calendar so I can tell everyone in advance so it's not a surprise.

 

[vaughan]

I'm much less fat now... even got page 3 in the local paper!

Congratulations! (Hope my editing does not put anything you said out of context.)

I've been following your story for a while and I'm glad it's coming together for you.

 

[Elliotte]

Congratulations! (Hope my editing does not put anything you said out of context.)

I've been following your story for a while and I'm glad it's coming together for you.

Ha. Ha. Yup, I'm a page 3 gal with knockers out. I was once, but that's another story entirely.

 

[Dazz]

Thanks for the very informative postings Elliotte - I take my hat off to you - great stuff.

When I was reading your initial post, I had thoughts of a seedy run down hovel that was a basket case. The photos posted however show quite a nice place nestled in suburbia with a nice array of neighbours. Didn't look that bad to start with....although the internal stuff was probably pretty ugly. Hope you got photos right at the start.

Your (what looks like very successful) project is at the absolute opposite end of the spectrum to what I like to play in. Not only is it residential, not only is it residential on steroids, it's residential on steroids and you are living in and amongst it.

Just goes to show you, if you are canny and diligent with a never say die attitude, you can make good money in this property game whatever you take on. Where there is muck and high risk, there is money. You've tackled a project that 99% of investor folk wouldn't touch with a barge pole and you've come up trumps and received income yields they could never dream of. Well done !!

Would be interested to know what you estimate the individual values are of ;

• the bare vacant block of 1,200 sqm of dirt the building is sitting on
• what the property would be worth now freehold
• what the property would be worth as a going concern

Would also be interested to know the exact clauses in the insurance policy regarding fires and coverage thereof. My experience tells me that decision making solicitors working to keep claims to an absolute minimum for the insurance companies are absolutely white hot in being able to get out of paying insurance claims especially when it comes to boarding houses not meeting any and all miniscule little fire regulation breach.

I like your attitude. It would be a pleasure to meet you one day.

All the best.

 

[westminster]

I think camping could cause an issue blocking fire exit paths. Also we don't really have much open space. It's really a quarter acre block chock full of rooms - if every room is up and functioning it's 32 private rooms crammed onto the block. Some space taken up by laundries, old fashioned clothes lines, old stables etc. I did think about removing some of the old outbuildings but don't think there is much point as council may never allow us to put anything back we're so overbuilt as it is. At least all those buildings helped me make an extra few thousand during the festival and the rest of the year are set up as a place for my Dad, TV rooms, Kids playroom etc.

Yes, I think as long as the Festival continues we won't have an issue using it as the main source to cover lots of costs for the year. There are a few other events on a smaller scale too and from this year some folk have asked about group bookings for their friends for other related things - like the line dancing championships. Provisional booking for up to 20 people for that in May.

Really the place could run two ways - a consistent level of occupancy and work from a bunch of medium term backpackers working in town with a small number of rooms set up as extra nice for booking.com overnighters. That way is less stress, easier to manage. Or it could run as feast-famine like others in town who have very low occupancy and twiddle their thumbs for a months then jump and book solid for the big things in town - some religious conventions, service club conventions, Agquip.

I'm trying to do both at once which is a bit stupid as I'll burn out but for now the extra money is great - I'll just bring casual staff on as needed, do a big bump in for an event and clear out some of the medium term, then a bump out, house clean and back to longer bookings. There is enough backpacker trade to do all of that and not be too worried if some folk get a bit annoyed for being moved on for group bookings. I'll develop a yearly calendar so I can tell everyone in advance so it's not a surprise.

Hmm yes 1200sqm is not much - I agree I wouldnt get rid of any of the outbuildings either as you are unlikely to be able to replace them. Do you have any dorm rooms? I'm just thinking that perhaps some of your long termers would be happy to dorm up - or even festival people happy to dorm up with bunks.

It looks like so many options for you to work on the strategy - options are great though confusing Sounds like you are onto a good thing with many of them though.

 

[Elliotte]

Hey Dazz

I can answer some of the questions...

1) Council valuation just came back at $228K for the block this week. Now everyone around town here reckons council valuations are about half what you'd actually sell a block for. Not sure if that is true or just BS. But we are right on edge of CBD. If it was true then I got the place for just around land value. Not many empty blocks so central to CBD to compare though.
2)I don't know what it would be worth freehold. I've spent a lot of cosmetic reno so far and the neighbourhood here is the "posh" one with houses on similar blocks easily selling anywhere from $500-800K but you can't compare the internals/layout at all. And also any equity gain is kinda not the point as no one touches boarding houses, finance is hard, I'm not going to be in much of a position to loan against this place I don't think as so risky etc etc. Unless I managed to onsell it as resi with a drive by valuation that would come in as a normal house comparable to the other ones around here then I'd probably have made some good gain but not sure of the chances there. I'd probably need to sell to someone paying cash.
3)As a going concern is the best way I think for me to make the dollars. Depending on what method boarding houses are valued at? It is a multiplier of turnover and if so what multiplier? It's got a history of around 150-170K turnover, I think I'll get it to maybe 200K plus I've now got a business you could onsell with documented processes, a better reputation already with guests anyone would be happy to rent to, unlike the old guests. I'd love a commercial valuation at some point once we have the turnover established longer term. Leasing the building ongoing to someone else to run I could probably demand more than $1000 a week given what I pay for similar ones in Sydney.
4)Fire stuff is a nightmare. I've still got upgrades to do but it is insured now with clauses stating they know we don't have all of the upgrades in place. Took a lot of work. Their only catch was minimum of battery smoke detectors and no smoking in rooms. With each fire upgrade I am hoping premium will go down! But there was no point insuring for rebuild costs (estimated 1.5 million I think) because a 32 room boarding house on this property would probably not be approved again! So I just insured for the value of the mortgage. But even if a claim was denied I'm hopeful I'd be able to sell the block for close to the 400K mortgage value and walk away not in debt in a nightmare situation!

I did go into this thinking of the end game too. With a kid starting school I just want to get 10-15 years out of the house, it gives us somewhere to live and an income stream that I control - even with no guests the mortgage is the same as a Sydney apartment so we could rattle around ourselves if we got sick of guests or the fire upgrade requests got so bad we shut the business and I got another job/business. Or more likely I burn out, we move out to a private house and pay staff to run the business. Or sell/lease the business, but keep the land/house. If I was careful leasing the business would be enough to pay the mortgage and support us to travel longer term in Asian countries where I could pay for some live in help for us.

Also I don't have to worry about finding care for my boy during holidays, before and after school etc. As a single parent if I was working 9-5 with 4 weeks leave I'm not sure how we'd survive with no other support around. But now at least I control the work/life balance. Kid well and truly has the pips with me now after two weeks of being ignored or worse - having his cheeks pinched by all the old ducks here for country music. But I bet next week when we have two weeks in the South Pacific he'll forget all about these two weeks of hard work!

 

[Anh]

You are an amazing person! Love your story!

All the best !
Anne

 

[Dazz]

Thanks for the reasoned answers. Stay sane dealing with your Tenants and hope you have nice options to deal with when it comes to deciding what your exit strategy might be.

Your successful property story is the first to be detailed and exhibiting a meaningful cashflow here on the forums for a very long time.

Congratulations, it's a huge breath of fresh air.

 

[wobblysquare]

Fantastic !!

Cant sneeze at 20k for 10 days work...but does sound as though you earn it.

Love the thread and your story

 

[Macca]

Just one point in your summary that may be worth checking IMO.

You say that to rebuild would cost >$1m so you have insured for your mortgage which I understand to be about $500k. If the building is valued by the insurance co at $1m and you under insure for $500k they won't pay you out $500k if it burns down.

As I understand it they will say you have insured for half the value so we will pay you half the insured amount ie $250k.

I have only read about this and I am certainly no expert but I think it may be worth checking on what would happen, perhaps someone from the insurance field can comment ?

 

[Elliotte]

Good point - I do have some crazy specialised insurance and I raised these points. I could choose from "market value" at just over $500K or "rebuilt value" and the policy changed accordingly with premiums etc. But it's up for renewal soon. I got only a six month policy as I expect every six months our fire safety goes up and I'd hope I can use that to negotiate down from the crazy premium.