Boarding House and Rooming House Loans Australia

Rules for shared accommodation are state based, and the names differ. In Victoria, a rooming house is broadly a building where one or more rooms are available to rent and four or more people in total can occupy those rooms. The premises must be registered with the local council, and the operator needs a licence under the Rooming House Operators Act 2016. In NSW, the Boarding Houses Act 2012 requires registrable boarding houses, generally those with five or more paying residents, to be listed on a public register. Queensland and other states have their own registration or accreditation rules. Confirm current requirements with council and a solicitor.

Planning rules shape the asset as much as finance does. In NSW, new boarding houses approved under the Housing SEPP must be used as affordable housing and managed by a registered community housing provider. Co-living housing is the market rent alternative, with private rooms, shared spaces, a plan of management and minimum stays of three months. Other states deal with similar buildings through rooming house, rooming accommodation or residential building rules. Lenders read the approval conditions closely. A condition that limits rents or requires a particular manager affects income, value and who could buy the property later.

Lenders first decide which policy applies. A house with up to about five or six bedrooms on a single title, let room by room, may still be accepted by some residential lenders, particularly if it could be re-let as one dwelling without works. Some will only count the rent the property would earn on a single lease. Once room numbers rise, rooms have their own ensuites and kitchenettes, or the building is purpose built, the security is commercial. Non-bank lenders with published boarding house policy commonly allow up to about 80% LVR under 10 rooms and about 65% at 10 rooms or more.

Valuation drives the loan amount. Valuers usually report two figures: market value as-is, based on net room income capitalised at a yield, and value on a vacant possession residential basis. Many lenders adopt the lower of the two. The gap is small for a converted suburban house and large for a purpose-built building. Net income is calculated after owner paid outgoings such as rates, insurance, utilities, internet, cleaning, furniture replacement and management fees, plus a vacancy allowance. Read how a lender's property valuation works before paying for one, because a short valuation is the most common reason these deals stall.

Serviceability under commercial policy is tested with an interest cover ratio on net income, commonly around 1.5 times, along with the borrower's other income and debts. Residential lenders use their standard calculator and usually shade rent to about 80%. For an existing property, expect to provide executed occupancy agreements or managing agent statements and a tenancy schedule. Self prepared income figures are generally not accepted. For a new or converted property, lenders rely on an agent's appraisal with comment on room rates, vacancy and the let-up period. Commercial terms commonly run 15 to 30 years, sometimes with periodic reviews.

Building or converting a boarding house is funded separately. Many lenders that finance completed boarding houses will not fund their construction. Conversion of an existing house may fit a residential construction loan if the works are modest and the end value holds up as a house. Purpose-built projects usually need commercial construction or development finance, with approved plans, a fixed price contract, a quantity surveyor report and an as-if-complete valuation. LVRs on cost and end value are lower than for completed stock, and the lender will want to know who manages the building once it opens.

Tax treatment is a specialist area. Long term residential accommodation is generally input taxed for GST, but some boarding houses fall under the commercial residential premises rules, which changes GST on the purchase price and on rents. Land tax and depreciation also differ by state and ownership structure. Get accountant advice before exchanging contracts. For exit, keep records clean. A property with current registration, three years of agent statements and documented compliance is far easier to refinance or sell than one run informally. Lenders may review commercial facilities annually, so expect requests for updated rent rolls and compliance certificates.