Finance on share house accommodation in QLD

[emptyvessel]

Folks,
does anyone have advice, based on experience, whether lenders apply commercial loan rates or resi loan rates to share house accommodation?

Specifically, in QLD, I am referring to property where "6 or more unrelated individuals reside in a single dwelling". Or what is referred to by the state government and fire authority as "budget accommodation".

Additional questions;
1. Does it differ between lenders?
2. What LVR is required? e.g. 80% resi or 70/65% commercial I often see quoted.
3. What happens if I buy the house as residential occupied, then convert into budget accommodation?
4. How is rental income assessed in terms of serviceability at the beginning of the loan? e.g. Will they only calculate as if the house was a standard rental at market rates for the suburb? OR Will they take into account historical records from the previous vendor regarding rental receipt history?
5. Does the lender care about compliance with things like fire authority regulations? In particular, MP 2.1. (I do, obviously I want to be fully compliant from both a tenant safety and liability perspective).

I am considering a couple of investments of this type in some areas of high demand. Around 6-8 unrelated working folks and students.

Thanks,
EV

 

[Rolf Latham]

Hi EV

Many things are possible.

In general something like this is comm by most lender standards and you MAY get to 70/75 % lvr depending on the lender AND the rest of your personal picture.

If you need the serviceability of the "boarding house" rent.,then most lenders wont go past a 70 % lend if u are a NTB client.

It does also depend if the property is a "standard" home or could be rtnd to such with ease. Certainly in NSW you would have issues under SEPP 5, I dunno bout Brissie Council

ta
rolf

 

[Aaron_C]

I've had the same problem with the property I own. It all depends on whether the value classifies it as 'student accommodation' or not. That word is taboo in banking - so as long as the property looks like a house, feels like a house and is not purposely built to accommodate students/rooming then you might get away with it as a residential property in which case 80% is possible.

As for rental income - they take 80% of it as per usual BUT the credit department may rise eyebrows a bit because usually rooming houses have very high rental. Best to be upfront about it otherwise you can get in trouble.

As for building code compliance, that is not the lender's problem but you are responsible to the local Council to ensure that you comply with the requirements of the building. Usually, however, almost all residential houses are Class 1a or Class 1b so there is less stringent requirements on fire compliance. Class 3 buildings (where this requirement is much stricter with sprinklers etc) are only for buildings in which 12 or more people are resident (and you only have 6 people).

 

[emptyvessel]

Very interesting.

So this house is essentially a normal residential. Other than removing locks from doors, it is a normal, furnished, house in a normal suburb that could be rented in a normal way.

So what happens if I buy this place as vacant possession, standard residential, with standard market rental rate. Loan completes at 80% as per normal and then I decide to rent it later to 6-8 unrelated individuals?

Does the bank then change me to commercial rates and ask for an LVR uplift?

 

[Rolf Latham]

Very interesting.

So this house is essentially a normal residential. Other than removing locks from doors, it is a normal, furnished, house in a normal suburb that could be rented in a normal way.

So what happens if I buy this place as vacant possession, standard residential, with standard market rental rate. Loan completes at 80% as per normal and then I decide to rent it later to 6-8 unrelated individuals?

Does the bank then change me to commercial rates and ask for an LVR uplift?

unlikley, but youd want to actually read the mortgage contract

ta
rolf

 

[Mick C]

A large portion of these sort of deals i see do go to commercial lending; LVR capped at 70%; rates are higher...will take up to 80% -100% of the rental depending on lender.

However on some rare occasions, if the client type fits, LVR is under 80%, good location, rental is not a corporate style lease, the property is zoned as resi and approved for muti -sub leases then it can go to selective resi lenders. - From the info you have given, it sounds like the location or zoning may not suit.


Regards
Michael

 

[emptyvessel]

A large portion of these sort of deals i see do go to commercial lending; LVR capped at 70%; rates are higher...will take up to 80% -100% of the rental depending on lender.

However on some rare occasions, if the client type fits, LVR is under 80%, good location, rental is not a corporate style lease, the property is zoned as resi and approved for muti -sub leases then it can go to selective resi lenders. - From the info you have given, it sounds like the location or zoning may not suit.


Regards
Michael

Ta. Yeah, I am doubtful on the zoning. Put a call in with the council to speak with a townplanner on it.

The current vendor is definately operating it as boarding/non-resi. Whether they have all the approvals required or not is something I am trying to uncover without actually having to ask the vendor. Could be a useful negotiation piece come contract time. Information is power, as they say.

 

[Mick C]

Ta. Yeah, I am doubtful on the zoning. Put a call in with the council to speak with a townplanner on it.

The current vendor is definately operating it as boarding/non-resi. Whether they have all the approvals required or not is something I am trying to uncover without actually having to ask the vendor. Could be a useful negotiation piece come contract time. Information is power, as they say.

it be on the sale contract - section s149.

Res 2 a or b etc...depending on council. either way it's in black and white.

Regards
Michael

 

[emptyvessel]

Definately 2a.

But they are definately using it as share accomm. No doubt whatsoever.

If the council didn't know, they sure do know now after my discussion.

Doubt they would bother doing anything about it with current vendor.

 

[Mick C]

2a in most case wont allow boarding house/ sub-leasing of more then 1...

Good luck to the vendor.

P.s don't buy it ( personal view)

Regards
Michael

 

[emptyvessel]

Not buying is my default position

There are some characteristics about the location in relation to public transport that may make it an acceptable use from what I read. Will wait until the town planner advises on this before I completely dismiss the opportunity.

The yield and potential use as a development site in future are significant. So still worth my effort at this point.

 

[Anh]

Not buying is my default position

There are some characteristics about the location in relation to public transport that may make it an acceptable use from what I read. Will wait until the town planner advises on this before I completely dismiss the opportunity.

The yield and potential use as a development site in future are significant. So still worth my effort at this point.

Hi emptyvessel,

Not sure if this helps but in the last week i have done a lot of research about share accommodation.

Few issues to deal with:

1. Bank: you will need to have single lease for all tenants else bank will not revalue it as residential so LVR will be like others have already mentioned.

2. State Gov/Council: For > 4 unrelated tenants:

- if not students, it will become boarding house that regulated under State Gov and you will need to apply ( for boarding house my vague memory from speaking to a Town Planner was that it needs to meet the zoning and land size for parking etc..)
- if students then it will be exempt from the State Gov regulation, you will need to have Fire Safety compliance MP2.1 which costs about $6-$8k to install and get certificate.

However for Brisbane City Council, the house code stated that maximum of 5 unrelated people allowed.

I have been told currently there is a court case pending and if success you can have up to 6 students.

3. Insurance: you will need specialised insurance for this sort of accommodation.

Thanks

Anne

 

[Aaron_C]

I hope you have learned your lesson. Never tell the council anything unless you are asked.

 

[Mick C]

I hope you have learned your lesson. Never tell the council anything unless you are asked.

Dont know about that; because when it comes time to sell....ding ding ding game over...

When there is a legal claim against you as a owner; fire, injury, storm etc and insurance is involved ...ding ding ding also game over....

Before i was a mortgage broker, i worked for a insurance company in their risk department, and back then close to 10% of claim rejection were due to to the owner not meeting council safely and building requirements.

Regards
Michael

 

[Aaron_C]

Dont know about that; because when it comes time to sell....ding ding ding game over...

When there is a legal claim against you as a owner; fire, injury, storm etc and insurance is involved ...ding ding ding also game over....

Only if there's a building order on the property. The main problem is if you have built an illegal extension or your building is classified as a Class 3. Other than that there is not much the Council can do (I have dealt with them extensively on this)...apart from asking you to put in some smoke alarms and fire hydrants.