The rooming house landscape across both metropolitan and regional Victoria is a competitive one for both investors and tenants, and in this article we wanted to delve deeper and investigate why this is.
What do Rooming Houses offer today?
Since the early 2000s, a model of profitable private rooming houses has emerged to challenge the often more expensive residential rental market and offer an alternative for investors tired of purchasing negatively geared property.
How many Rooming Houses do we have in Victoria?
In 2020 the state recorded more than 1400 rooming house locations registered with Consumer Affairs which might sound like a lot, but is it really?
According to the 2016 Census this figure makes up only 0.05% of all homes, so it is safe to say owning one would certainly put you in a very exclusive group of investors.
Why invest in Rooming Houses vs other residential dwellings?
The biggest stand-out benefit to investing in a rooming house development is the high rental yield and securing a cash-flow positive property practically from day one.
The high rental return and associated operational requirements are the main reasons why this investment works very differently to a standard residential apartment or a house.
Owners like that if one tenant moves out, they still have four or more residents paying rent to ensure their investment costs continue to be covered.
Also, while a rooming house will cost a little bit more than a standard house in its respective suburb, they are substantially cheaper than purchasing eight or nine apartments to achieve an equivalent rental return.
What is the demand for tenancy?
According to the latest census data, 2.3 million Australians are living in a single-person household – that is 1 in every 4 people.
The problem is only 5% of dwellings in this country have 1 bedroom only – so many are forced to share accommodation with others or stay at home with mum and dad to save money.
Rooming houses satisfy this segment of the market by providing a secure and private single person dwelling – often with a private bathroom and important shared facilities for a more affordable rate.
Achieving independence is a significant milestone for the younger generation today, especially as over 50% of 18 to 29 year olds are still living at home.
A rooming house will typically be cheaper to rent then a standard one-bedroom house/apartment but still provides the freedom they desire.
Now let’s look at the numbers in Victoria
In 2016 there were 521,828 people living in single person households.
However, there were only 107,356 one-bedroom dwellings recorded in the census.
These figures already give you an indication of the supply demand challenge.
Here are some rental figures we have pulled from some of the most popular suburbs across Melbourne.
The average rental return for a one-bedroom residence as of 20 September 2020 – this is while Victoria is in stage 4 lockdown so we can expect a slight increase to these numbers.
Fitzroy – $430pw
Melbourne CBD – $400pw
Richmond – $400pw
South Yarra – $390pw
Rooming House – $200pw to $300pw
Location and whether the rooming house property is self-contained or provides shared facilities impacts the rental amount and these rental agreements often include all utilities.
A rooming house investment will typically return between $2000pw and $2500pw in rent depending on the location and number of bedrooms. In a recent survey we conducted the average number of bedrooms in a rooming house was 8.
(Source: ABS Statistics)
Conclusion and how to get started
There is no doubt demand for single occupancy living is high and will continue to be strong long into the future. Having to pay more to live in a larger property with 2-3 bedrooms and sharing is certainly not a long-term ambition for many.
It only takes a couple of quick searches on popular websites like Gumtree and Flatmates to determine the rental market is competitive, costly and lacking single occupancy opportunities.
If you want to discuss your property investment strategy in more detail and determine if a rooming house development should be on your radar, please do not hesitate to get in touch with The Hopkins Group
Our industry leading rooming house management service is led by a team of expert property professionals, who take great pride in maintaining high service standards and achieving outstanding results for clients.
If you have any questions whatsoever regarding rooming houses you can contact our office on 1300 726 082 or email info@thehopkinsgroup.com.au.
