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  1. #1
    Join Date
    Sep 2007
    Location
    Christchurch
    Posts
    1,254

    Default Expected return on boarding house?

    Hi everyone, I haven't been here for years because our rental's been chugging along smoothly, but now I'm thinking about adding another and I'd appreciate help.

    It's a 6 bedroom house in Christchurch on land I'd like to landbank, currently let by the room to long-term tenants who sound worth keeping. I think that means it's a boarding house...

    If anyone's got any info about the financials of running a small boarding house, I'd be incredibly grateful. Especially compliance costs and info about what kind of return on capital I should aim for.

    Thanks!

  2. #2
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,461

    Default

    Hi One,

    1) Return on capital - everyone is very different and it's really subjective
    - some would be very happy if the rent paid the expenses, as you mention that you are really landbanking it
    - some would like the rent to pay all expenses, plus principal repayments so that the property is debt free over 25 years
    - some are happy if the rental returns a greater return than having the money in the bank. So 3-3.5% on the money you have invested

    It sounds like you have put cash in, so the rental doesn't have much debt (my reading between the lines which might be miles out) - and if it has future development potential, which I presume is your landbank comment, then I'm be happy with 3-4% return on the cash you have put in, if you expect to development within a relatively short term, say 5 years or less.

    2) financials of running a small boarding house. From a tax perspective this is just a rental if residential, and you are renting on a standard long term residential tenancy. So having Xero can give you some great information on profit, the actual profit but also compared to budget. Plus make your end of year financial statements easier.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  3. #3
    Join Date
    Sep 2007
    Location
    Christchurch
    Posts
    1,254

    Default

    Hi Ross

    Thanks for that. Sorry, I wasn't at all clear in my post. I'm got my eyes on a place to add to my (small) portfolio, and I think the place I want to buy would be a boarding house. I'd be buying it mainly to landbank, and got a bit of a shock to realise it'd be a boarding house, because that's new territory for me. Hence the questions about boarding houses, especially the finances. Googling found me a fair bit of info about the people side of managing a boarding house, and the tenancy act side of it, but not a lot about the financials. So any info much appreciated.

  4. #4
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,461

    Default

    Hi One,

    Is it a) just a big house that you are renting as a long term residential property, to one tenant with a Residential Tenancy Agreement?

    Or b) you are renting room by room. But still to long term tenants, with RTA agreement

    or c) are you renting short term accommodation as a boarding house. ie some staying 1 week, some 3 weeks, some 3 months.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  5. #5

    Default

    what is it "approved" for at present?

    RTA= is a room related to the tenacy agreement? then uit is a boarding room = 1 boarding room and more than 5 occupants then this is a boardinghouseg. Rent to flatmates or a head tenant or a shared tenancy and it is not a boarding room and not a boardinghouse.

    if you change to a boardinghouse with more than 5 boarders there are serious fire requirements under the building act.

  6. #6
    Join Date
    Sep 2007
    Location
    Christchurch
    Posts
    1,254

    Default

    Hi guys, thanks heaps.

    Ross, I expect it to be (b) you are renting room by room. But still to long term tenants, with RTA agreement.

    Among the current tenants, there's no "head tenant" who sublets to the rest. Maybe one of them's prepared to become a head tenant.

    John, it's not approved for anything at the moment. As far as I can tell, the owners got round all the rules by living on site and saying that the tenants were their flatmates. If I buy it, I won't be living on site, so would have to convert it to something else legal.

    Groan about the fire requirements. Do they definitely kick in at 6 rent-by-the-room tenants? The place doesn't even have smoke alarms! I'd fix that, of course, but if there are serious fire regulations requirements, blow that for a joke. Do you know if there's a nice clear list of boarding house requirements online anywhere? I've searched but haven't found one. Or do I need to call the Council?

    Thanks again. This is starting to look like more of an undertaking than I realised.
    Last edited by One; 08-10-2018 at 06:21 PM.

  7. #7

    Default

    its likely approved as a detached dwelling single house.

    You need to be careful not to change the use to boardinghouse but up to 5 boarders is allowed and still a detached dwelling and fire requirement remain the same as for a house

  8. #8
    Join Date
    Sep 2007
    Location
    Christchurch
    Posts
    1,254

    Default

    Thanks, I think you're right and I'll calculate the return based on 5 tenants.


 

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