Property Hub - Investment Insights & Inspiration - Get Invested: Part 2 - Mark Baker on +330% super cash flow property!

Episode Date: August 23, 2024

With almost everyone feeling the financial squeeze, including many property investors, 'super cash flow properties' are changing the game, says Mark Baker.  On top of rapidly rising costs, Australia has a major shortage of affordable rental housing making life tough for tenants. What if you could avoid the financial strain and stress of single tenant negatively geared home and instead secure or create and convert a property that gives you multiple income streams with up to 330% more cash and positive super cash flow, potentially enabling you to fund your lifestyle so that you no longer have to work? Would you be interested?  We’re talking about an alternative form of rental housing that’s making a strong resurgence under our current conditions, which is 'Rooming Houses' (what used to be known more commonly as Boarding Houses). After sharing his personal success in this investment property niche last week, Mark Butler joins us again to unpack the ins and outs of this growing opportunity. As we told you, Mark is a full time property investor, a rooming house specialist and owner of Rooming House Expert and Super Cash Flow Developments in conjunction with his son, where they specialise in the development, conversion and operation of rooming houses. Enjoy the insights! More from Mark http://www.supercashflow.com.au  http://www.roominghouse.expert Subscribe to Property Hub for free now on your favourite podcast player. Take the next step - connect, engage and get more insights with the Property Hub community at linktr.ee/propertyhubau Book a personal solutions session with Bushy to go deeper on your specific property needs or challenges Continue the discussion with likeminded investors and experts on The Property Hub Collective Facebook group Get a copy of Bushy's book, Get Invested, for FREE, and find out what it takes for you to invest in living more, working less Get all Property Hub info here linktr.ee/propertyhubau About Get Invested, a Property Hub show Get Invested is the leading weekly podcast for Australians who want to learn how to unlock their full ‘self, health and wealth’ potential. Hosted by Bushy Martin, an award winning property investor, founder, author and media commentator who is recognised as one of Australia’s most trusted experts in property, investment and lifestyle, Get Invested reveals the secrets of the high performers who invest for success in every aspect of their lives and the world around them. Get Invested is part of the Property Hub podcast channel, your home for property investment insights, inspiration and stories from Australia’s top property experts, investors, leaders and analysts. Subscribe now on Apple Podcasts, Spotify and YouTube to get every Get Invested episode each week for free, and also get full access to RealtyTalk, Australia’s top online property show for red hot property investing news and insights direct from property industry leaders and influencers. Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, show producer Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast networkDM Media.  For business enquiries, email [e-mail] omnystudio.com/listener for privacy information.

You're saying a rooming house, and people think, oh, it's just a house you're renting by the room. And I think part of the problem with the name is that word house, because it's nothing like a standard house. And look, you mentioned boarding house in the intro, and in some states legislation, it's still called that. Lodging house in WA, a term that's on the rise now, probably being used more as a marketing term, but is also used in legislation in New South Wales as co-living. What we're talking about, though, is something where you can then and legally rent the property room by room. It's not just, yeah, I will go throw some locks on doors

and sign people up. There is a fair bit of regulation around it. Welcome to Get Invested on the Property Hub podcast channel, a leading weekly show for Australians who want to learn how to unlock their full self, health, and wealth potential. I'm your host, Bushy Martin, and each week I go deep with the best investors,

experts, leaders, and founders to find out what it takes to break free from the grind, to discover freedom and to live by design. Subscribe now and join me. Get invested in the life that you really want. Let's get started. Hi, friend and fighters. Are you feeling the pinch at the moment? If so, you're not alone and it's just about everyone is finding things increasingly hard financially and this is particularly so for hardworking Aussie property investors. Rising living costs, interest rates, taxes and overall property costs are increasing it doubled to triple the rate of rising rents, alongside ever more restricted legislation,

rental forms and endless compliance, are squeezing out and making it increasingly difficult and time-consuming for landlord investors to afford to hold their properties. Similarly, on the other side of the property ledger, the drastic shortage of affordable rental housing alongside skyrocketing rents continues to make it progressively harder for tenants and renters to find rental housing and to make ends meet. So what's the solution? what if you could avoid the financial strain and stress of a single tenant negatively geared home that ends up costing you thousands of dollars each and every year and instead could secure or create and convert a property that gives you multiple strains of income to give you up to

330 cent more cash and positive super cash flow that can then fund your lifestyle while also helping challenge renters to secure affordable accommodation would you be interested in this rare win-win? Well we're talking about an alternative form of rental housing that's making a very strong resurgence under our current housing conditions which is none other than rooming houses or what used to be known as more commonly as boarding houses with the number of people living in rooming houses in Victoria doubling in the five years from 2016 to 2021 according to census figures and the number of registered rooming houses also on the rise. So after sharing his personal success in this investment property niche last week

Mark Baker joins us again to unpack the ins and outs of this emerging opportunity. As you heard in the last episode, Mark's a full-time property investor, a rooming house specialist, and co-owner of Rooming House Expert and Super Cashflow Developments in conjunction with his son, where they specialize in the design, development, conversion, and operation of rooming houses. So welcome back, and let's get invested again, Mark. Thanks for having me back on. I'm really looking forward to the deep dive on this one.

We touched on your experience last week and why you ended up getting into it. But I guess just to set the scene for that discussion, what are some of the biggest and most common mistakes that you see property investors making? Are you talking in general? Yeah, in general. in general um look i think one of the things that i probably see is people doing something without enough knowledge of it or too soon in their investment journey like trying a strategy that gets them stuck yeah um i think that's probably the biggest things that i see that you know then people get put off by it you know that it didn't work and it's like well

yeah it wasn't the right time or it wasn't right for you or yeah well you didn't know enough about it yeah i'd feel sad for those that throw the baby out with the bath water and and uh uh then don't take the opportunity to learn from the challenges and get back into it because as both you and i know if you could persevere uh and you continue to challenge test and and uh change things and then property can be a a great way to go on the on the flip side of that equation then before we start the discussion on rooming houses can you share your best tips uh on how to improve property investment outcomes? Well, I think the first thing is around some education. And it's not just believing what people tell you. I haven't qualified that, but I'll say to people,

don't believe a word I say. Go and check it in the legislation, check it in the regulations, check it from other sources to make sure that what I'm saying makes sense for you and it's something that's likely to work for you. Don't just believe something because somebody's saying it. But you do need to get enough of an understanding of the legislation and regulations around it to ask smart enough questions, I suppose, is the first point. The next one is to not do something before you're ready. And that's not just from the education side. It can even be financial means capacity to do it. If you commit all your money to something and you're stuck if it doesn't work out well yeah that can be a bit of a problem too so it's it's knowing what your

exit strategy is if there is one um it's a planning you know what happens after you've done this yeah really good advice and i think all of what you've just shared is even more relevant now because i'm not don't know about you but what i'm seeing in the property sphere in particular is a lot of these overnight sensation, self-proclaimed experts told a great story. The messaging is really good and a lot of what they say is true, but then the solution that they apply against that doesn't stack up. It doesn't even go close.

So I think your point of don't just accept what someone's saying because they sound confident because we live in a world where people are much more confident communicators than what they used to be because everyone with an iPhone and a camera is a journalist these days. And as a result of that, fact-checking and getting second, third or fourth opinions

on exercise to look at what's... And the other key point you made is what's right for you because there is no silver bullet when it comes to property. There's a thousand different ways of getting there. It's about choosing the one that actually fits with you, your risk appetite, your comfort level, your level of knowledge, and your level of skill, and the quality of the people you surround yourself with. So, no, absolute gold. Another thing to be careful of there is to not just go with something because it's the answer you want to hear. Very good point.

And I get that even with people sometimes asking me a question, trying to fish for an answer they want to hear. and like yeah if you don't like the answer that doesn't mean it's the wrong answer it's like that's a very that's a really good point mark it's a really good point because we we tend we have our own biases we're not even aware of and we we therefore attracted to the things that we we already think we just want someone else to say it uh but that doesn't as you say doesn't make a right at all in fact contrary opinions i you know i actually like robust discussions i love it when people disagree with me because i can actually understand and learn more about the other thing and then then i can sit back and say well okay what i did think

isn't quite right anymore and now i've got this knowledge i've got a a much better impression of of what something's about so that really good suggestion mate thanks for sharing that uh let's jump into the uh rooming house arena now and uh let's start off right from basics and and get you to tell us what a rooming house currently is and how it differs from other types of rental properties, just so that people are understanding what we're talking about. Yeah, sure. And look, you mentioned a boarding house in the intro, and in some states legislation it's still called that. Lodging house in WA, a term that's on the rise now, probably been used more as a marketing term, but is also used in legislation in New South Wales as

co-living um so you know what we're talking about though is something where you can then legally rent the property room by room it's not just yeah i will go throw some locks on doors and sign people up um there is a fair bit of regulation around it um a lot of that comes from occupant safety requirements around fire safety because if you're you know got locks on doors how do you get a person out of that room if someone needs to get them out yeah how do they know if there's a fire in the rest of the house before it's too much of an issue that they can't get out egress distances and uh all of that stuff exactly yep so yeah there's a there's a there's a whole lot to it you know some of the stuff yeah we talked about we've talked about before some of

the regulation goes overboard some of it's there for sensible reasons um so and yeah sometimes i get people saying to me and saying this to her um it goes on from what we talked about before Well, sometimes people go to me, oh, but, yeah, that rule's stupid. And it's like, I don't care if it's stupid or not, it's what you've got to do. Yeah. Right? Yeah. Legislation doesn't mean common sense, but legislation and the rules,

and if you don't comply by it, you're going to end up in jail or have very significant penalties attached. So, yeah, beautifully said. In that context, then, who are rooming houses best suited to? And I want to look at this from both sides, from an investor perspective, but also from a, I'll call them rumours, there's probably a better word for it, but a rumours perspective. Yeah, that'll do.

They are called different things in different legislation, like Victoria is mostly where I play, you know, residents in the legislation here. Could be borders or lodges in other states, rumours is fine, we know what he's talking about. Look, from that side of the market, I suppose housing affordability has had a big play in that at the moment. So it's often, yeah, it could be first home leavers,

um you know just looking for something to get you know established rental history and get into the broader market uh it could be um you know people later in life that don't need as much there and they're happy with that it's somewhere comfortable for them to live everything's included yeah where they go it could often often we're actually dealing with people that have a um you know employment contract in an area for a period of time so it might be in an area for six or twelve months and yeah don't need to go and buy all the furniture and don't need to worry about connecting utilities all the other stuff and yeah they've got somewhere where they can sleep and have their uber eats delivered to because yeah people aren't cooking that much anymore yeah well well it's

funny you mentioned my son uh is a rumor uh well i'm going to call it a rumor in victoria uh for the reasons you mentioned he he likes to travel a bit uh he takes up jobs when he needs it he needs the flexibility he doesn't want the headache of being tied to a to a formal lease or all the other stuff that goes with it uh so uh that that suits him perfectly it gives him his own space but he's got common areas that he can enjoy so it's a yeah i think it's a pretty good option for those that that need that lifestyle flexibility and and can do it at a cost that's uh affordable to suit their lifestyle so no beautifully said uh the um so from an investor perspective Again, not every investor is going to be able to have the ability to get into rooming houses, but what sorts of investors and what's the sort of profile of an investor that would be appropriate to consider rooming houses and a strategy that's attached to that?

Well, it's probably two things. Even though my journey was different where it came from chasing cashflow from the get-go, it's typically probably a later investment strategy once you've built up some equity because they are equity heavy. There's money tied up. Even if you're getting 80% lending on a million dollar property, there's a couple hundred thousand plus other costs you probably need 300 000 yeah to be able to do it so um so generally a later investment product other than that it could be someone in a high income high net worth individual that gets into it even high income could be enough to get you going in it if you're not in a hurry to leave your job yeah so because what you can do from there like i had something that was said to me

at one stage when I was sort of looking at that, well, how can I do more? Maybe I need to do some development or something like that. And it's like, what do you want to do that for? You've got the cashflow there, just keep building the cashflow up and it replaces that anyway. And it's like, yeah, okay, that works. But that was the point I was at where I already had a reasonable number of properties from the time I'd been investing. So unless you can go out and buy 15, 20 properties, then a different approach is probably better than mine well and why would you buy 15 or 20 where you can buy one two or i don't know how many how many but that's going to give you the cash flow income that's going to sustain your lifestyle because that for me the only reason i invested in growth

was so that i can convert that to cash flow at the other end of the journey uh but but what i'm loving about the rooming house exercise given the the much higher cash flow uh capacity if you've got the horsepower you can fast track that exercise to to create a residual income of a much bigger size far far earlier than we you would if you go down the traditional route look you're right and look if we look at some of the things uh even with buying something even early on if you're planning to hold the property doing what you can to maximize the cash flow from it makes the most sense yeah anyway yeah um but yeah there does come a time when there may be better uses for that land yeah yeah um properties get run down over time that's why you can claim

depreciation on them uh it's it's a great way to hold some land for the future value as well not that i've ever chased the growth but um it's it's happened anyway yeah yeah and that's a it's a side benefit basically yeah okay well just to to state the bleeding obvious uh can you sort of talk us through a bit of a summary of the pros and cons of rooming houses again for both the investors but also the the rumors so that we look at it from both sides yeah look um i suppose the pros of it obviously it's yeah great cash flow um it's a great way to hold land con i suppose it's it's equity heavy um it is a fair bit of work to get it right it's yeah When you think you've got your rental property, you've got issues with tenants or whatever, you go to apartment block, you've got a lot more interaction between people, it's all that on steroids.

It's like not only managing the property, but also managing the owner's corporation, even though it's one owner, but you've got common areas to look after as well. It's a lot of work. You're dealing with a variety of people that may or may not get along. And that shouldn't be your problem, but it becomes your problem. It becomes your problem, yeah. And yeah, different stuff in different markets. I get people sometimes that go and say, oh, yeah, I want to do a rooming house targeting a specific market.

And it's like, well, that's great. How are you going to find them? I would tend to say in a lot of cases, you can do your best thinking of what's there, but generally the market will choose you rather than the other way around. Yeah, yeah. So, and if you're not prepared for that, And if you think, oh, I want to do this and I want to get people that work at the hospital or whatever, and then they come and they don't want that, and the only market you're getting for that product is unemployed people that are on welfare payments that might have mental health or drug issues or whatever, and you can't cope with that, well, then that's not it.

I mean, you can do things to design what you're doing to be more suited to a market that you'd prefer to deal with, but they've got to be there in the first place. Yeah, yeah, yeah. What I'm hearing there is the property profile, the layout and the amenity, it's got to be flexible enough to appeal to a number of different potential user needs

because they're not all going to be the same. They might work different hours, have different needs, different cultural backgrounds, different expectations uh so so being very careful about uh where and what you actually provide in that context is because it's easy to get people in but i'm i'm guessing that there's probably a fair bit of turn uh potentially in these sorts of exercises uh so being able to manage that would be its own challenge too i would have thought it definitely can be and that's where there's there's a big difference between converting a house and purpose building um it's like when

your purpose build you're designing for the use to specifically target that market you're taking into consideration things like you know noise between rooms and all that sort of stuff yeah when you're converting an existing house that's already there it's like there's a lot of stuff you can't deal with um you just got to make the best of what you can and it'll be a different market because of that yeah of course yeah that that makes a lot of sense uh obvious question what are the uh potential downside risks associated with uh rooming houses mark I'm probably a bit biased. I don't see much of the dance.

But I suppose, you know, like any property investment, you get the wrong person in there, you can have some issues to deal with. I mean, damage is one thing, having stuff you've got to fix. I suppose the biggest issue with that, whilst a lot of the legislation does give you the ability to act a lot faster than normal tenancies,

you've still got the issue that if people don't want to go you've got to go through the process of getting a tribunal order all that sort of stuff in the meantime if you've got someone that's particularly disruptive you can lose all your good residents from the house so that's probably one of the bigger downside risks typically it's not too bad because you know you can address the issue the legislation's pretty good to help with a lot of that um yeah and you can cope with it and if you're losing some rent from one room but you've got eight or nine of them in the house it's like yeah you can still cope with it but if it becomes a point where other people are leaving because of someone's behavior that's a hard one to deal with

well you almost become a hr manager because you only need one rotten apple to spoil a barrel and so so i guess the selection of the people who end up renting the rooms becomes a much more important than it would be if it's a single tenant in a in a home so there'd be some skill involved in being able to to sift the the wheat from the shaft and that that regard i would have thought yeah and it's not just a matter of you know just the selection of a person that's how they fit in yes that's the common yeah exactly the personality interaction yeah that culture cultural fit that's that's yeah that that's a that's a whole new world uh for most investors actually because you're going to have to have those people skills to be able to see that

sense. And let's face it, I know my good wife used to be a property manager and so she used to look after properties and someone could be completely sane, ideal, happy-go-lucky person today and a complete nutbag the day after because their whole life circumstances have changed. So it can be interesting. In relation to the rooming house space, Mark, are there any incentives, and it probably varies by state, any incentives for investors in the rooming house space? um there's i don't know that there's a lot at the moment there is in um the east coast states at least um reasonably good planning legislation so the state government at least realizes they need it and put stuff in the planning schemes to you know make it easier to do yeah um you know

queensland um recently a while ago now um they had in brisbane city council at least that you you'd have five occupants you know no planning permit i think that number's a bit low because you know we're much higher than that in victoria but um that recently got expanded to the entire state saying anywhere in queensland you can do that without a plan any permit the challenge is that a number of the councils charge reasonably hefty contribute council contributions on that so a lot of that's been you know talked about as a tax on affordable housing and stuff like that and is something that's, yeah, a little bit of an issue. It's often the state and government supportive,

the councils are not. It's like they get a little bit of a battle. Yeah, New South Wales did have some reasonably good incentives, but they got eroded over time and stuff sort of changed now. I suppose there is a good thing in, well, New South Wales has changed a bit because of the boarding house stuff now has to be housing associations. You've got existing ones there or existing VAs

and you can still build it. you can still qualify for that and they do have land tax exemptions available and victoria has land tax exemptions as well which is actually a really good incentive yeah that i've thought about and talked about it yeah 100 so yeah so land tax exemptions is a big one um the planning scheme is reasonably good but yeah we are running into some differences of opinion with councils on in some situations for that so but that's that's councils for you it is the interpretation by councillors and the individuals that are in council often have a massive influence on that exercise. So, well, that's its own fun and games. A lot of the time, the individuals, yeah.

Yeah. Yeah. Spot on. Yeah. Okay. So, we've touched on this a bit already then, but compared to the normal run-of-the-mill investment property, what additional legislation and compliance considerations apply to rooming houses over normal rental properties? Just so that those listening in yeah head around it look there is um uh well we've talked about in victoria or at least there's been um minimum standards brought into regular tenancies which is you know happening in other states as well yeah um victoria we've had minimum standards for rooming houses since 2012 so we're pretty familiar with it yeah um so there is that there's yeah residential tenancies regulations and minimum standards and stuff that come into it

we mentioned planning so there is pathways through planning and there is certain things you can do that meet planning exemptions however you may still get some argument from council along the way the building class is a different class of building so even if you're taking a standard house and we touched on that before it's not just a matter of going and staying I'm just going to rent the rooms out there's upgrades you've got to do in terms of fire safety because it's a different class under the building code there's often disability access requirements which can add some complications to it as well, especially on conversions.

With that, there can be pathways deemed to satisfy provisions or what you can and can't do, or you might get some relaxation on that. But generally, it's probably best to assume that you're going to have to do some sort of disability access. Yeah, and this is really important, I think, because a lot of people are going to be going, oh, this is fantastic.

I'm just going to grab this little bit of a house. I'm going to carve it up into weight. what they're probably knocking their head around and you will know this way better than I do but I used to be an architect many years ago don't hold that against me Mark but that's the black is it

exactly right you got it yeah exactly right it probably means stepless entries it probably means a metre wide passageways and doorways so the ease of access ease of access in

in bathrooms and other bits and pieces and the egress distances from a room to the exit from the property. Again, this is, I'm a bit old hat, I'm a bit out of the league, but those are the sorts of things, because a retrofit is probably going to be much more challenging now and potentially more expensive as a result of that. Am I right in saying that? Yeah, look, typically, yes. And there are pathways and we can't help with that because Obviously, I've been in this for a little while now and I've read a lot of the legislation, so I understand how to navigate it.

But typically, yes, it's something you would want to consider and look at what you want to do because it depends on what you're going to do. If you're adding a bathroom, you need to look at the fact that you're probably adding a disability-accessed bathroom, which is six and a half square metres. It's a massive amount of space that you're taking up in the house and then you've got all those access paths that you were talking about as well. so yeah you need to look at that you know and consider well what work do i want to do on this

property and if i'm doing that what does that mean i have to do um to comply with the building requirements yeah um so yeah so there's that's a different class of building so your standard dwelling you know not to get too technical but class one a and the building code rooming house is a class one b or can go to class three which is the same as hotels and stuff yeah right right So it's – yeah. The requirements once you get to hotel level are even more significant again. Yep. So, again, knowing what you're getting yourself into and not blundering

and then suddenly finding out you're getting penalised and hit and then having to spend major dollars to get it up to speed are pretty important. And I guess while we're touching on design, in your experience, how important is the design the layout and the location of the the rooming house in terms of its success oh look i think they're all really important things yeah um yeah we took when we talked before about you know conversions or new builds like new builds and this is the thing i suppose yeah you're saying a rooming house and people think oh it's just a house you're renting by the room and i think part of the problem with the name is that word house because it's nothing

like a standard house yeah so um yeah if you're designing something purpose for the use it is completely different to what you would do for a house and sometimes i get people coming and saying i want to do something that i can convert back to a house later to sell it and it's like well really what you're designing is not going to be good at either so you know pick one and commit to it yeah and do that and that's where you know converting a house is always going to be a compromised product. Yeah. It's what most of mine are

because I started with what I had. Yeah. And I would suggest that what the ideal outcome is, if you can't afford to do that, don't let it stop you from doing what you can afford to do. Yes.

So do something anyway. You can refine later. Yeah. Yeah, great advice, mate. Really good advice in that respect. Now, I'd love for you to just, But without getting specific, run us through a bit of an overview of the numbers and let's look at both our conversion and a potential new build, looking at purchase costs, reno costs, compliance and ongoing running costs. I just want to get a quantum here because what I'm wanting to clearly identify is a difference between just buying a house that you put a tenant in versus what we're now talking.

because from a capacity, a buying capacity and equity perspective, I think it's going to be a completely different ballgame. Can you give us a sense of what that looks like? Yeah, I was going to ask, before I do that, can I go back a little bit on the more of the legislation, the regulation there is? Yes, yeah, please, absolutely. No, no, great.

Sorry, I cut you off there, mate, because that's a very important piece of the pie. My apologies. So there is, in at least the East Coast states, there is registration requirements as well. and victoria has licensing queensland still has a formal fit and proper person's test so they're and they're administered differently in the different states yeah victoria is probably the heaviest on the regulation side there but they're the easiest in the first steps in planning

so that means that there's registration there's probably regular inspections from the council to make sure it's maintaining you know the levels that it needs to yeah um there's yeah so there's requirements. So there's requirements around minimum room sizes, number of bathrooms, so facilities that have to be provided under health regulations, as well as the residential tenancies regulations. And I mentioned licensing too, is another thing that was brought in Victoria in 2016. It was looked at in New South Wales in 2012. Queensland have sort of got it, but it's part of the registration process. So there's a lot of that as well. there's yeah sometimes there might appear to be contradiction between what planning says what

another regulation says and stuff like that as well so it's a matter of trying to figure out how it all sits together yeah yeah and convincing the people that they probably don't have the knowledge you do this this is the challenge i think is that you're dealing with people who might do this occasionally and therefore try and interpret the black and white but as we know that there isn't any black and white it's always gray in terms of how you interpret it so you have to being able to communicate and and potentially i guess refute if if someone who who's uh you know only early in the space is making it making a decision based on their interpretation being able to say well hold on um uh i need to advise you of this and this is what's been done elsewhere

and that's why would would be a big part of the equation i'd imagine yeah yeah and look at this tipping points one of the ones that's coming up a lot at the moment um in victoria and queensland I've said this argument before, is how much is, it sounds a bit silly, how much is too much amenity provided in the room, right? So when does it become a self-contained apartment or unit or whatever, and it's not a room anymore? Yeah, of course.

Yeah. And so that's one that we're looking through in definitions because the regulations say you can provide a bathroom, you can provide cooking facilities and all that sort of stuff, But then planning goes, no, but if you provide all that, then it's a separate dwelling, and it doesn't make the planning exemption to be a rooming house anymore. So there's a whole lot of crossover and arguments about interpretation, and I'm actually doing some work on that at the moment. So we'll have probably some submissions into the government on that anyway. And that's been argued in more than one state.

New South Wales is probably the most relaxed on that. but Queensland and Victoria it's like you can't give people too much private amenity and like really you'd think it'd be better for people living there but again I talked about before oh but that rule's stupid it's like yeah it's what the rules are so that's what we can do. Yeah and that's

the hard, I guess the good news is it's a bit of a moving feast is what I'm hearing but hopefully the moving feast is heading in the right direction not making it harder and more difficult You'd hope so, sometimes you counter something and they go and change something that has an impact somewhere else and yeah that's the challenge with a lot of the regulation as well it's like

oh yeah okay let's check let's let's let's fix this oh you've broken this yeah yeah the unforeseen consequences and the effects of the the fun bits again just for a bit of clarity here and this is for someone who who knows enough to be dangerous really uh from my perspective mark is there an expectation that a boarding house property is furnished or or is there a level of furnishing or is it again it'd be interesting to understand because again in terms of a cost burden to a potential investor yes there's some depreciation benefits and being able to write some of that stuff off but can you sort of put some clarity around that for us i think there's more of an expectation that it's furnished and i tend to pretty much only do furnished yeah um i

do know people that do yeah unfurnished or sometimes a bit of a combination i have occasionally had people want to bring their own furniture yeah um it doesn't happen all that often uh but yeah it's yeah it probably varies in different markets as well yeah so um i would typically suggest that you know furnished is going to be you know where it's at and it's easier because it's easier for people just to come and move in rather than having to sort out their own furniture yeah um but you know you certainly can you know doing some unfurnished but probably not where I play. Yeah. There's a lot of properties that got sucked into the NDIS exercise and investors spending big money to build properties that all had their own bedrooms, dedicated

bathrooms, et cetera, and then suddenly found out there was no NDIS people to actually fill those properties. Is the co-living exercise, is it similarly aligned to boarding houses? are those people able to perhaps turn that property into a boarding house or am I making that too simple? Look, they probably could. It's interesting you're saying that with NDIS because it's not the narrative year, is it? It's like, oh, there's all these people and it's like, yeah,

but they're specific in specific markets and you're spending additional capital for a specific person that's not tied into it. Exactly. So, yeah, and I think there is, and we have seen that a bit and we've had people contact us with that saying, hey, we've got this NDIS property, can I turn it into rooming? And they're usually reasonably good for it.

The disability accessary requirements, there's different standards in that. Like you've got some of it in the NDIS stuff, but it's probably different. But again, you can probably go and say, yeah, look, it's near enough that we can satisfy the requirement. Yeah, a bit of a minefield. What I'm hearing, there's so many overlapping different areas and legislations that don't necessarily talk to each other, trying to join the dots of all that and get the box,

which sounds like a bit of a challenge in that regard. So, look, I really appreciate you sharing all of that. It's making it clear that you really need to know what you're doing before you dive into this space. But let's turn back to the numbers now and just put some shape around that in terms of build, conversion, likely purchase price, renovation costs uh and the compliance piece and then i'll then we'll dive into the financing piece because i again this won't be a standard residential loan i'll be absolutely probably

going to flipping into the commercial space from what i'm hearing so where can you put the bit of shape around that for us so um like numbers to begin with if you're looking at doing something yeah let's take a conversion and then we'll look at a new bill just just ballpark if we do a conversion how much we've got to you know it's going to vary by region clearly but absolutely let's take victoria if you're looking for a property that's that's going to tick the boxes that you can convert what what do you need to be allowing how what what sort of an order of cost we need they'd be throwing out it's a bring it up to speed but can you give us or perhaps give us an example might be the way to go yeah look i um probably can um like sometimes yeah we're

getting people that wanting wanting to convert a property that's a property they've already got um if they're buying a property then they're looking at you know what they've got to pay in that suburb um now typically um it's probably better to buy something that you're going i mean you want you want to try and get a large property where i mentioned before the building class requirements you'd probably want to aim to stay under 300 square meters because that tips you into class three and then it's a whole world of extra costs that you don't want to get into yeah yeah so you stay under the 300 square meters but you still want to try and maximize the number of rooms in that so there's a few things to look at when you're buying it yeah um and you know

typically i've probably seen that you'll get a better price if you're buying a property that needs work done so if it needs to be renovated you'll probably buy it cheaper but then you're going to spend more on doing the work yes yes yes overall it's probably better then but that It changes the financing model too, because you're probably not financing the work. You've got to have the cash for that. Yes, good point. Very good point.

So there's a balancing point of all of those things that you need to be aware of going in. If I use an example, there's one that we're working on at the moment for a client, which is regional vehicle. It's a few hours from Melbourne. There's a good market there. We've got a hospital there.

We've got other rooming houses in the area. The purchase price on that one, it was a bit over $450,000. Okay. I don't know what I thought. Yeah. How much have you got to spend on it? Well, they're probably going to spend more than $100,000 on it. Yeah.

Because it needs renovation and other works as well. That's not adding any bathrooms or anything like that. Yeah. That's working with what's there. Yeah. It needs renovation and stuff like that. But, yeah, again, you're probably, yeah, your median house price there, I'd have to look it up,

but your median house price there is probably getting up, you know, high 500, 600 or something anyway. So they've ordered at a price that needs reno-ing. The reno will include the conversion, bring it up to spending about what they would spend for a decent house there anyway. But they've got more cash tied up. Yeah, of course.

So they can refinance at the end, which isn't always easy with rooming. Yeah, I can imagine because the bank value is going to say, hold on, this is not a residential house. This is something different. and yeah but they'll they'll probably look at the if one property is a rooming house and the other one's a normal uh tenancy even though there might be more spend in the rooming house they're probably going to value it as a residential level anyway yeah so but but that's sort of at 450 that's way

lower than what i that's that was that was that was a good buy so yeah yeah but you know things like that are out there still if i if i compare that to say if you were doing something that was a new build there you might pay you know 300 ish for a block of land um you'll spend you know mid sevens or so for the build you're gonna you know you got your site costs and stuff like that furnish it you're probably over 1.1 by the time you're all in but you can probably finance more of that yeah so if you're looking at a yeah cash input that's where the balancing point comes about if you if you were getting up to you know saying it's going to cost you 1.1 1.2 compared to yeah you go to buy a property for conversion at 800 or something like that you'd probably go you

know what we'll do the near build yeah exactly right i've got a product i've got depreciation i've got yeah all this other stuff i can do with it it's it's going to be easier to manage because it's a new product totally less maintenance that yeah they've improved cash flow because the depreciation all of those assets and probably more more appeal to the rumors actually yeah because it's new, if you're selecting the location and you're purpose-building the exercise. Let's talk about the financing piece then. If you're going to build one, does it still classify

under residential lending or do you fall into the commercial? There's a couple of hybrid products out there. It is more towards the commercial, but there is a couple of hybrid products out there now from a couple of lenders. So we have been able to get 80% loans. I've had someone talking about maybe going to 90 now. Wow. but 80% would be able to get usually at reasonably good interest rates

and often based on a commercial valuation. Now, people will then say to me, okay, if it's a commercial valuation, what's the cap rate? Well, short answer is there isn't one because it depends where it is and they'll adjust that to suit what they want to lend on. Yeah. Case by case a bit. Yeah.

But the lending is getting pretty good. And some of the major lenders, you're probably 65%, 70% LDRs, but there's lenders out there going higher than that. And that's where it might depend on, because it depends on the applicant too. So it might depend on how the person presents as an applicant. It might be easier for them to finance something they buy as a residential house with residential lending

and then convert it. Yeah. That's what I said before. What's perfect? Don't let what's perfect stop you from doing what you can do. Yeah, spot on. Where there's a will, there's a way. It's just a matter of how you actually carve it up. I love that. We've touched on the obvious cash flow benefits of the rooming house exercise, and you did touch on that you've had some growth in your properties almost as a matter of bonus. If the property's well set up, well designed, structured, and it's operated well, what's your experience been with the capital growth performance of rooming houses?

Look, the capital growth has more just been a function of the underlying land. Yeah. So I don't necessarily, there may be some uplift based on how the valuations are working now based on the cash flow from them and people's interest in chasing cash flow a bit more investors. Look, I still wouldn't call interest rates high. No. I've been playing with property for a long time.

Me too, mate. And they're about where they've been. Where we are now is about the average long term. Yep. Yeah. But in saying that, they've gone up a fair bit in recent times. Yeah. With that, people have bought properties based on that,

and they're thinking, oh, this isn't comfortable there. And a lot more people are chasing cash flow. So we're starting to see a little bit that people are prepared to pay a bit more for that. So in some instances, there is the uplift based on the income, but it's not a major thing, and I wouldn't bank on it. It's more, yeah, any growth is going to be the underlying land value. And before those prices, I was talking regional, Vic.

Yeah, I like the regional areas because the cash flow is better because the land is cheaper, and the rent is not that much lower. If you're going to metro, probably add half a million to those numbers I was talking about, if you're in metro Melbourne areas. and people are still doing it there and we're doing projects there as well but the rent isn't 50% higher. Yeah, no, no, exactly right.

It's the argument of it. Some people like that because they think, oh, well, if I buy there, I'll get better growth. I'd challenge that. I don't think you're going to get better growth. It's the land pool pushing the grows and you've paid the same for the building no matter where it is and that depreciates.

Exactly right, exactly right. which leans more heavily to me, to the regional location, because I often use this argument, you might pay for a Land Cruiser versus a RAV4, but to the tenant, they're a four-door Toyota, and they're not going to pay any more to ride in the RAV4 than they are in the Land Cruiser. It's just how it is.

So that's a really good point you made there. You touched on this before as well, and this is probably the piece that's going to make or break the experience for the investor. How important is good rooming house operation and management to the outcome? That is pretty vital. Like I said, I had started that doing myself, and we talked about it in the previous podcast, my background in doing security in pubs, but that certainly helped. it's not not in not in the you know getting physical with anyone but just people yeah um and how to influence the outcome you want in a conversation with them so um and you know to not be you know put off by the way people present and stuff like that so um so it's it's not for

everyone and it's not something everyone can do um it's you know it's not something that typically is what um property managers do and there's a yeah there's a few real estate agents out there that'll say they do it most don't do it well some do a completely different kettle of fish yeah it's a completely different it's more from my uneducated perspective it's more more like running a small hotel than it is a than managing a tenant they're very different dynamics i think it's closer to a caravan park than a house yeah that then that's a that's a that's a much better analogy yeah spot on spot on and yeah and i use that because i mean the residential tenancies act has multiple sections there's one for your regular tenancies one for rooming houses one for

caravan parks and i often say to people you don't go buy a caravan park and go to your local real estate agent and ask them to manage it for you yeah it's like i think what are you crazy and it's like well why do you think they can manage a rooming house so um so there are some that do well there are i was going to say yeah because the average punter is not going to have the time or the skills to be able to do this effectively uh so uh but there are and i'm i'm from what we've already talked about that that certainly sounds like something that uh you and your business uh can potentially offer obviously depending where it is yes but you know it is a challenge but beyond beyond that i guess uh if people are going to be serious about that they need to factor

and the cost of appropriate and skilled management to make this work. And yes, I guess that's going to impact on the cash flow to some degree. But in your experience, if you do have the right specialist management, it's still profitable from a cash flow perspective? If you do, yeah. Look, if you don't have the right management, the risks are you'll get higher turnover, lower occupancy, lower rents. I've had that before.

I had another company look after some of mine, and they're saying, oh, we're struggling to rent the rooms. We need to drop the rent. And it's like, well, let's look at what you're doing in the process that's causing that to happen rather than just going straight to the, yeah, let's drop the rent. So, yeah, I often say to people, like you talked about the cost of it. I'll go and say, oh, but that's expensive or a high percentage

or whatever to look after their rooming house. Well, it's not about that. It's about what's left at the end. Exactly. If you had experience in real estate, obviously, but in normal property management, where you've got a leasing fee, a lot of the money pretty quickly. Like if you've got people moving out every two or three months and you've got to refill that room again, then that's not good for your bottom line at the end.

And that's what you need to look at is what's left at the end. It's always the case that it's the money that hits your pocket once everything's out, but it's the important piece. Every day of the week. And in terms of those net yield positions, just to put as a frame of reference, and again, averages are very dangerous, but what sort of a net yield positions

are you achieving in some of the boarding house examples? If I don't factor that in, it's probably easier to work out where it's at. But with where land costs and building costs and stuff like that are in the property prices, we're probably netting out at around 8%, 9% for interest in a lot of cases. um yeah i i'd like to try and you know see if i can squeeze it up to 10 plus but that's

that's pretty tight in the current market um yeah i've seen seen some of it yeah in the sevens um i probably wouldn't want to go under that you can you absolutely can depending on what you do but yeah it's sort of reasonably important to yeah understand what you're doing it's like i um i sometimes get with people and i've had people other people have been talking about doing this i just do yeah five rooms six rooms or whatever because it provides better amenities for the occupants and it's like yeah but if the numbers don't make sense at the end then you can't even really afford to do that if you're having to subsidize it i mean why would you do that and try and do something that's supposed to be a cash flow product if you're ending up negative

hit. 100%. You're taking a whole lot more risk and cost for no advantage. What's the point? And a lot more time involved in the management of the asset is becoming pretty clear in that context. So absolutely spot on. Look, I really appreciate your whetting appetite and also looking at the good, the bad and the ugly of the exercise on this, Mark. I know we've only just scratched the surface on the exercise, but for those that are thinking,

gee whiz, there's an opportunity here, I think I've got the horsepower. We can de-risk our investments because just on the face of having multiple income streams on the one property straight up is a de-risking strategy from that context. How do we learn more about best practice and establishing and operating rooming houses other than talking to you? Well, we mentioned previous as well, the Registered Accommodation Association of Victoria is a peak industry body for rooming houses in Victoria. They do have other interstate members as well

because we haven't found similar associations in other states. There has been talk about aiming to set something up for other states, but that hasn't happened yet. So, yeah, the Registered Accommodation Association of Victoria is good for promoting best practice and learning more about how it works. So it's r-a-a-v.org.au. Yeah, perfect, perfect.

Good suggestions. Other than that, I mean, I suppose you could look at like state regulators like Consumer Affairs in Victoria, Office of Fair Trading in South Wales. So they do have information on their websites about how that works. And so the state regulatory bodies are, yeah, as much as, yeah, as much of the government, they're reasonably good sources of information. Yeah, no, it's spot on.

No, that's a really good, good place to start. Putting on your, or grabbing your crystal ball and looking at where the future's heading, Mark, and I'm talking specifically in the rooming house space itself. What's your read on property conditions in the medium to longer term future in that context? And where do you think and where and what are going to be the best rooming house opportunities as we move forward? Yeah, that's an interesting question on where the market is going. I think for me, like we talked about before, I don't focus on growth. I think that's a byproduct that happens anyway. Yeah.

But I'd avoid markets with volatility. So if you've got stuff that's fluctuating a bit, be careful with that. So I think the best investment opportunities are probably going to be in markets that you know. Yeah. Yeah. So know where you're buying in.

cash flow is everything that I'm aiming for so I think if you structure stuff you've got the cash flow there you can ride a bit out in volatility and pricing and long term I really think there's always going to be the growth there in the underlying land even if the building's worth nothing I think it's something I didn't touch on that I might talk about the couple of bigger rooming houses were probably well known in Victoria and if you watch the block all the ones that were done in 2018 and 2019 i think yeah the gap week hotel in um yeah in st kilda and then around the corner of the oslo yep um they're you know pretty good examples of the long-term effect of the underlying land yeah they had those properties probably cash flow positive for a long

time like with the gap week i rose and i've had that for 47 years and their parents before them and channel nine came along and gave them 10 million dollars for it right um and look it needed something else done with it the property was run down it was yeah it was effectively end of life for the building without that revival yeah so yeah and that's where yeah make money along the way and yeah better use for the land at the end well for me it's more a cash flow play and in my head we're effectively bringing forward the income side of the equation from the property, which ultimately is what we're all endeavouring to do long-term,

is to create enough income that we can put our time into things that we enjoy rather than things that we have to do. So I think, you know, if someone's in a position like yourself where you can obtain two, three, four of them, that's pretty much job done. Oh, yeah. from the from the income perspective uh is is there anything that we haven't covered that you want to say yeah uh and like to expand on before i yeah give you the blindfold and see right we do

the ambush round again look um like i suppose we we have touched on it a bit i think i'd just you know reiterate again be careful about where you get your information from um yeah since i've been doing this you know over more than a decade i mean there wasn't Obviously, there was people out there doing it, but there wasn't much focus on it because interest rates were pretty low. It was pretty easy to make money out of property. As that's tightened up, more of the marketers have moved into this space. So, yeah, I just say be a little bit careful. Look at the track record of who you're listening to, where you're getting the information from, and check the facts behind it.

Yeah, that's very good advice. Well, let's jump into round two of the ambush series, Mark. And the first question there is, what's your favourite quote and why? Look, this is one that I use a bit and it goes in with what I've been talking about and with my own mindset of, like, I have to read and understand things, not just believe it, but somebody said it. It's, if you think education's expensive, try ignorance. That's right.

Exactly right. that's a yeah that's very self-explanatory yeah that one uh what's the top book that you'd recommend we read and why um look that that changes too depending on with where i am and what i'm doing but if i look at something and i tend to do audio books a lot more now but this is one that i listen to on audio and i'm saying i've got to actually buy the book as well because i need to make notes yeah um and it's uh principles by ray dalio oh it's gold it's gold One of my favourites, mate. And he looks at the return on investment of everything,

including, like, you employ people, how much time do you spend with them versus the return you get out of them in the time you get back? Yeah. So, and his big thing, and he has a podcast on it as well, about how the machine works. This is what the legislation is. This is how it works.

Yeah. Right? No, it's a great book. Well, what I like about Ray Dalio and his ilk is that they focus on what doesn't change rather than what does change. There's so many people racing around, chasing every puff of smoke that happens and look at the implications. But if you boil it down to the fundamentals that are pretty much set in cement and you follow those principles and then you have the patience and persistence to endure the time, you're going to do okay. We have this habit of overcomplicating things because if it's simple, it can't be good. I totally disagree.

I think perfection is when you can't take any more away is my view of life generally. So gold on that front. I'll look at – I want to stand a little bit more on it because with – one of the things that Ray Dalio has said as well, and I look at things this way is to predict what's going to happen, look at what happened last time the same thing happened, right? And one of the things that he said

is just because something hasn't happened in my lifetime doesn't mean it hasn't happened three or four times in history. So to predict what's going to happen next, look at what happened last time. And that's a good forecaster for the property market too.

100%. I quote this quite often, good old Warren Buffett. He said that the thing we learned from history is that we don't learn from history because we just don't look far enough back. And one of Ray Dalio's reasons where he looked back 300 years and has gone through all those cycles, all the signs are there,

nothing's new, it's just got different clothes. That's a good saying. But to get back to the investment for a second, what's both the worst and the best piece of investment advice that you've ever received? that's probably a hard one because i've sort of tend to look behind things and make my own decisions anyway um yeah and i said i mean there's a lot of advice around or has been a lot of advice around negative gearing and stuff i've never bought into um so i don't know is that is that

the worst advice because i haven't taken it on so you know probably is yeah yeah it probably is it doesn't matter whether you've done it on it it's whether the advice is what about the best What would be the best piece of advice? Look, again, this is around in what works for me. And that would go around. I said, yeah, I touched on a customer in my phone shop that said, yeah, well, why don't you do what I do? It's like, yeah, they got me into renting houses because that's been the best thing for me in my investment journey. So I don't know where I'd be without it because it's like, would I have gone down the path of whole auto rentals?

and maybe we'll hear you talking about Airbnb. I don't know. I doubt it, mate. I doubt it. That's a flash in the pan, that exercise. That was a post-COVID bonus. I'm probably pretty happy with that one. That got me into wanting to do what I do.

Perfect. Now, I'm a big believer in habits leading to sustainable success. So what's a personal happy habit or a rewarding ritual or a daily discipline that you employ that's contributed most to your success, Mark? Probably a hard one to answer because I don't, yeah, I'm not, yeah, I have actually talked about this before, but I don't do it much though, that, yeah, when people are going, oh, you've got to get up at 5 a.m., have cold showers, all that sort of stuff, I don't like any of that, right?

I think for me it's like I get out of bed when I wake up. Yeah. That's a good habit right there. If you're not driven by the alarm and you're letting nature do its thing, that's a great habit. Yeah. So I like my warm showers and I like sleeping as much as I need to. Getting the rest.

I'll work hard when I work and play it hard and take down time when I take down time. I like getting away. I'm going away camping in another week or two. I like getting away and doing that. um i think you know it's important to schedule those things in as well yeah schedule time out and make yourself do it yeah yeah so you can come back and go full on again yeah i'm i'm uh i'm a bad one for that uh yeah i tend to get so caught up in what i'm doing that uh that uh i forget the fun stuff at times but uh but then like you i enjoy what i'm doing

so it's fun anyway yeah you know having great conversations with people like yourself that that that uh turns my lights on uh because uh you know that hasn't been a conversation i haven't had that i haven't learned something uh which is which is a case in point today mate so we're awesome and just to sort of wrap things up there mark what's one final thought and key takeaway that you want to leave with us um i suppose everything we've been talking about it's uh yeah making sure that what you're doing is right for you yeah yeah um you're comfortable with it that it makes sense to you um that's probably the bottom line of it it's i can't say that um yeah rooming houses work well for me it doesn't work well for everyone else so i'm not suggesting everyone goes out and

doesn't mean that'd be pretty boring anyway but uh yeah that's right but i think i think the thing with that is find what suits for you and you know really go deep in it become the expert in it yeah um specialize i don't agree with this diversifying yeah with people talk about because then what are you actually good at yeah i know people who you know focused on development and they make a hell of a lot more money from their future developments than they did from their first ones. So if they tried that and said, yeah, I'll try something else now, then none of them would have been really good.

Really good advice, mate. Stick to it, refine it, recycle it. Yeah, 100%, that's really good advice. So if I was to ask you to get invested, what does that mean to you? I suppose that's, well, get invested. I mean, that's about committing to something, isn't it? It's like, it remains to me, like get committed to it. Yeah.

Yeah. That's a commitment. Simple as that. But way too many Aussies that sort of sit on the fence or do it, you know, excuse my French, half-assed way. Coming back to your deep dive exercise, I think that's the key. If you want to do something, then learn everything about it and then keep learning too. It doesn't stop. So awesome advice there.

For those like myself who have really resonated with what you've shared with us today, how can we find out more and do more with you, Mark? Look, we've got a couple of websites for businesses. Do you want them? I'll have them in the show notes so people can click on those to make it easy for them. So I'm just going to reinforce that anyone watching or listening to, if you want to reach out to Mark, even through Rooming House Expert or the Super Cashflow – no, is that the right – am I using the right words? Yeah, exactly.

Supercashflow.com.au and, yeah, RoomingHouse.Expert is the other one. Perfect. That's probably the best ones. Get in touch there. Yeah, awesome. And now I know that you and I had a chat pre-going live. you're offering a special opportunity for Get Invested listeners who are prepared to take some action. And I guess to talk about that and create from a wrong here, Mark, but you appear to offer

a 45-minute Zoom session with you for the best email sent to hello at knowhowprobability.com.au. We'll have that link in the show notes. And you've got to tell us what's your the takeaways from Mark's great discussion on rooming houses here on Get Invested. So look, Mark, I want to thank you again for taking the time to inspire and motivate us with the potentially life-changing rooming house opportunity and the super cashflow opportunity that flows from what you've shared with us on the last two episodes. And we look forward to keeping the conversation going with that in the future. But before we close, if you're watching or listening and you'd like to delve deeper into your specific property needs or challenges, feel free to book

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will welcome and help you. That's another wrap. So thanks again for getting invested and let's keep the conversation going, Mark. Thank you. Thanks for tuning in to Get Invested on the Property Hub podcast channel, your home for property investment insights and inspiration.

make sure you subscribe to property hub for free get your weekly dose of get investing inspiration along with every episode of realty talk australia's top online property show for red hot property investing news and insights direct from industry leaders and influencers and finally i'll see you next time