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Boarding houses could provide strong rental yields

10 February 2020 Cameron Micallef
Boarding houses could provide strong rental yields

Investors should not turn the blind eye to boarding homes, as it could provide strong rental yields, despite its long association with being an inferior product, industry experts have advised.

According to Savills, investors can command twice the rent if they choose boarding properties with typical long-term rents, being 8-9 per cent compared with typical housing rents of 3-4 per cent.

The association with boarding houses being derelict is long gone, with the quality studio apartments being built, said Ollie Ridley, sales executive, metropolitan and regional sales at Savills Australia. 

“They are seen as fully self-contained studios, and owners are now taking advantage of developers and investors paying premiums for sites as they are difficult to get through Councils,” Mr Ridley said. 

Nick Tuxworth, associate director, metropolitan and regional sales at Savills Australia, believes these properties are perfect for tenants who are looking to get back on their feet. 

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“These new-gen boarding houses offer self-contained furnished studios from 12sqm-25sqm with all utilities included in the rent or occupancy fee to people like young professionals, middle-aged people, divorcees and retired people who are squeezed out of the housing market because of the affordability gap between home ownership and their incomes,” Mr Tuxworth said.

“Residential Tenancy Agreements can also be signed and is the preferred choice for property investors adding to a better layer of protection, larger bonds and, in the case of tenancy breaches, more clarity around what action can be taken,” Mr Tuxworth continued.

However, the property managers advised that tenant agreements are usually much shorter than a traditional leasing arrangement. 

“Standard agreements are usually six to 12 months in length, rather than short term (three to six months), and are generally renewed by the occupants if both landlord and tenant are happy with the tenure. Occupancy rates are very high, usually well over 90 per cent.”

Mr Tuxworth has had clients see returns of up to 30 per cent on their equity, and banks are starting to lend more as the government is putting pressure on developers for these assets to be built for affordability purposes.

“From a tenancy point of view, boarding houses are definitely the most affordable option in Sydney, and the people leasing them are happy to live in a 25-square-metre room where they can save $200 and not rent a two-bedroom unit,” Mr Tuxworth concluded.

Boarding houses could provide strong rental yields
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