Two tenants in double story house?

[jmillar]

A friend of a friend is renting in Blacktown and is paying $360/week for the top story of a house, while a separate tenant is paying another $360/wk for downstairs.

Just wondering if this is legal?

I think it would be very easy to do as you just give each tenant one entrance. However, I assume it may pose issues if there is a fire as there is only one exit for each tenant.

Thanks

 

[Patsy]

Joint leasees ?

Not sure about NSW lease agreements, my understanding relates to Vic.

I assume only one lease for entire property? With only one entrance I can't see it being an option for two separate leases. Is the lease is joint names?
In Vic if the lease is in one name only, leasee can 'sublet' with owners approval but has sole responsibility for entire rent, ie, if person subletting defaults, does a runner etc, leasee is totally responsible.

Are both areas totally self contained, ie have own kitchens, bathrooms laundry etc ? Are any common areas shared like garage, shed, yard ?

 

[Sim]

I think it would be very easy to do as you just give each tenant one entrance. However, I assume it may pose issues if there is a fire as there is only one exit for each tenant.

Unit blocks generally only have one exit for each apartment - don't see why that would be a requirement?

Depending on local legislation, fire-walling might be the main issue in multi-tenant properties. More research required there since I know some states don't have this requirement, except in the case of subdivision.

I've seen a couple of houses in my area of Sydney which have been converted into upstairs/downstairs units (access to upstairs via external stairs).

 

[jmillar]

Patsy, I believe there are 2 separate leases. The upstairs tenant enters from the front door which leads up the stairs (gyprock wall on each side so downstairs tenant cant access stairs). Downstairs tenant uses back door.

I suppose only one tenant would be allowed access to the garage for security purposes. Each tenancy would obviously have to have bathroom/s.

Unit blocks generally only have one exit for each apartment - don't see why that would be a requirement?

Depending on local legislation, fire-walling might be the main issue in multi-tenant properties. More research required there since I know some states don't have this requirement, except in the case of subdivision.

I've seen a couple of houses in my area of Sydney which have been converted into upstairs/downstairs units (access to upstairs via external stairs).

Sim, good point with the exits.

I spoke to the planning departments of 3 of my local councils today to get their thoughts. They didn't think exits would be an issue, but the main issue would be that the building would have to meet the BCA standards. Effectively what I am thinking of doing is classified as a multi dwelling.

Fire safety would be the foremost concern - not exactly sure what would be involved to satisfy requirements but I may have to speak to a building consultant here to ascertain approximate costs.

The councils of course told me to check the LEP, DCP etc etc but none of the planners could think of any main potential problems in particular.

I'll have a quick look through the DCPs and LEPs of my local councils tonight to see if I can isolate any further issues which may be pertinent.

Thanks

 

[Sim]

You need to have written policies for your tenants for things like parking, access to common areas (driveways, garages, backyard, etc), shared services (gas, electricity, etc). You just need to say who gets access to what and make sure the tenants understand this when they sign a lease.

Changing to separate electricity meters is relatively easy and shouldn't cost too much (depending on the nature of the existing wiring in the building) and will save a lot of headaches, but gas is potentially a lot more costly and difficult to achieve - so if the building has gas, you might need to just deal with shared gas meters (you pay the bill and then the tenants pay you based on some pre-arranged split, 50/50 or something).

You also won't be able to charge tenants for water usage unless you are somehow able to get separate water meters too.

Also make sure you have the exact nature of the setup documented in your building insurance schedule - you don't want your insurer claiming you didn't inform them it was multi-tenanted if you ever need to make a major claim.

 

[jmillar]

Thanks Sim.

I was speaking to an investor today who has around 12 properties and he suggested it wouldn't be doable because the tenants wouldn't want to pay half of water and electricity usage and I would have to pay for it all. I don't see this being the case - as long as they agree to it when they sign the lease there shouldn't be an issue.

Having by-laws is a good idea.

I realise insurance may be slightly higher on a multi-dwelling. I'm assuming the insurer would want to inspect it so I'd probably want to have some sort of certification to prove it complies with the BCA.

Does anyone know any competent building consultants who may be able to offer some general advice and costing?

Thanks a lot
John

 

[Elliotte]

I've lived next door to one of these places now for about 4 years - upstairs, downstairs and even basement/lower level made into a separate space. 3 leases. I was told it's not legal. Aside from that watching the dramas from my side of the fence I'd think it's a nightmare. The gyprock doesn't really stop sound, everyone is always at each other, there wasn't clear use of who gets what to use in the common areas, parking is a problem for the whole street, noise in general to other neighbours, foot traffic all around the house, plus quality of tenant prepared to live in walled off spaces. I think it's possible to do but lots of things to pay attention to and I'm not sure the owners are getting a huge amount more rent for the dramas and turnover.

 

[Sim]

I think it's possible to do but lots of things to pay attention to and I'm not sure the owners are getting a huge amount more rent for the dramas and turnover.

I think that's probably more a reflection on the area and target tenant market rather than the nature of the property.

 

[jmillar]

I've lived next door to one of these places now for about 4 years - upstairs, downstairs and even basement/lower level made into a separate space. 3 leases. I was told it's not legal. Aside from that watching the dramas from my side of the fence I'd think it's a nightmare. The gyprock doesn't really stop sound, everyone is always at each other, there wasn't clear use of who gets what to use in the common areas, parking is a problem for the whole street, noise in general to other neighbours, foot traffic all around the house, plus quality of tenant prepared to live in walled off spaces. I think it's possible to do but lots of things to pay attention to and I'm not sure the owners are getting a huge amount more rent for the dramas and turnover.

I suppose this stresses the importance of having good by-laws in place and good PMs - I'm sure these issues can be avoided.

The owner of this property is getting around 10% yield (around $300/wk more per week than if he rented it to 1 tenant) with a good size block allowing for future development. I don't think it's a complete write off because of a couple of very small issues.

Thanks for the insight though. It's good to hear from someone who's had experience with something similar

 

[Sim]

I was speaking to an investor today who has around 12 properties and he suggested it wouldn't be doable because the tenants wouldn't want to pay half of water and electricity usage and I would have to pay for it all. I don't see this being the case - as long as they agree to it when they sign the lease there shouldn't be an issue.

Exactly - the tenants will pay for whatever you put in the lease - that's what they agree to.

However, be careful - I'm not sure what the local tenancies legislation is for where you would buy, but in Adelaide you can only charge for water usage if you have separate meters.

I have two of these types of properties and I pay for all water, including usage. No big deal really - you can't charge a tenant for water usage in Sydney unless you have water-saving shower heads and such installed anyway. Usage is a small part of the overall cost of water anyway.

I've read somewhere that if the plumbing into the two dwellings is separated (unlikely for a house conversion - but might be possible with a bit of work), you can buy water meters that you insert after the main water meter to do your own calculations of usage - then you can bill the tenants based on that. I've never done this, so have no idea about cost or what is involved.

One of my properties already had separate electricity meters for upstairs vs downstairs when I bought it and I paid for the other property to separate electricity. Now electricity is 100% the tenant's responsibility - I never see the bills, they deal directly with the electricity company. Much easier that way.

I do have shared gas meters, so I pay the bill and then the tenants pay 60/40 (3 BR upstairs / 2 BR downstairs) of those costs.

Having by-laws is a good idea.

You don't need by-laws, this isn't a strata property - you just need to make sure it is documented who gets access to what so that there are no arguments.

I realise insurance may be slightly higher on a multi-dwelling. I'm assuming the insurer would want to inspect it so I'd probably want to have some sort of certification to prove it complies with the BCA.

I think you are over-thinking this somewhat. I don't think the insurer will want to inspect it, I've just swapped to a new insurer and neither the original or the new insurer was interested - my broker just inserted a description of the dwellings into the schedule so it is documented. Because my properties have always been set up this way, I can't compare insurance costs to what it would be were they not multi-dwelling.

 

[devo76]

I couldn't imagine people being happy with a split bill. You could chew power knowing the other tenant will help cover it.

I have a house with granny flat. It was actually built to dual oc spec so no issues re fire walls.
Has a power meter so that box was ticked.
I decided to add a water meter. Just added it between the main house and flat. Each bill you just subtract the flat meter from the main house meter to get your split. To easy.
Insurance wise they are aware. I have since been told they treat granny flats as separate policies. In my case they didn't and it was cheaper because of this ( all documented and on paper) . Something about it being considered one dwelling.


Cheers

 

[Sim]

I decided to add a water meter. Just added it between the main house and flat. Each bill you just subtract the flat meter from the main house meter to get your split. To easy.

Approx how much did it cost to install?

Is the meter value something you need to keep track of yourself, or it is read by the water company?

If you track it yourself, how do you know when to read it so that it syncs with the main meter?

 

[devo76]

Approx how much did it cost to install?

Is the meter value something you need to keep track of yourself, or it is read by the water company?

If you track it yourself, how do you know when to read it so that it syncs with the main meter?

Cost was under $500 from memory. Council/water will happily install and monitor a meter but that's another water rates charge which you want to avoid.
My agent monitors both meters. The do the maths and proportion the costs.

Too easy.

 

[jmillar]

Thanks for all the useful responses. I have done some further digging and at this stage will be staying away. I certainly think this may be a good way to increase yields, but it doesn't align itself with my current strategy. Perhaps down the track once I have a decent portfolio I may look at this type of conversion in order to increase yields. I'm told serviceability may not improve either, as some banks only accept rental income from one residence per block.

Anyway, for those looking to do this, I would recommend talking to council, a building consultant (to ensure everything is done in accordance with the BCA), insurers and PMs.

Thanks again!