A few different ideas

Hi S!

All of these ideas have the potential to be profitable; to me the main disadvantage is that you can generally only get lower LVRs (usually from 0 to 60 on the ones you've mentioned, I think) and I like to leverage at a higher level.

I do own a fully furnished student accommodation in Spring Hill (Brisbane), which I bought not because I was particularly interested in this niche but because this specific opportunity was a good one. The main advantage was that the building was vacant when I bought it, and residentially zoned but with permission for multi-tenancy, therefore it could feasibly have been a family home and I was able to borrow at a high LVR using residential lending. Then after doing all the works and signing leases, I was able to refinance it based on the commercial valuation (much higher than residential), and then even though the LVR was lower, I was able to get back 100% of what I'd put in, if you follow…. so whilst it wasn't a "no money down" deal, I only had to have my equity in for a year.

The property had previously been a pretty low end boarding house, but it was a nice enough building and well-located. It is within walking distance to the CBD and Chinatown, and I decided to target Asian students (though I get plenty of other demographics, too, as it turns out). I targeted students because I discovered that this suburb was the most favoured suburb for students to live in, and because of different fire safety requirements for students vs boarders. (Go figure!) I specifically refurbished with the Asian market in mind because of proximity to the Asian markets in Chinatown, and because I thought that the high-density living environment would be less off-putting to Asians than, say, Europeans.

I refurbished the property throughout 2007, and now let it out as luxury student accommodation. Each room has air-conditioning, high-speed broadband, LCD TV/DVD with Foxtel, bar fridge, loft bed and bunk, all new contemporary furniture (mostly Ikea, bless them), and their own VOIP phone line on which they can call China for 3c per minute (for example). The common areas have a stainless steel kitchen, gas burners (essential for Asian cooking), huge plasma TV with entertainment system, etc – all the stuff young people want. There are a few tricks to managing this type of property, so I suggest you get a property manager who's very familiar with this niche.

There are some things that you can do that dramatically increase your return, like air-conditioning. I figure it costs me about $5 per week to provide it*, but it's an unusual feature in student accommodation and highly sought after, and students are willing to pay at least $20 per week extra for it (in the market I'm targeting).

(*Just for depreciation and maintenance of the unit; I had to rewire the building anyway, so I got every room wired on its own meter and the students pay for their own room's electricity costs and I pay for common areas. This was purely to prevent "rampant" abuse, ie leaving air-con on 24/7, which is what I suspect would have happened if I paid for all electricity!)

If you have any other questions, there are heaps of special considerations with this kind of property – insurance, fire safety, town planning, tenancy laws, etc – and it's crucial to get them right. Many operators don't get the right framework in place and they're courting disaster, as this is an area with plenty of potential for litigation and other disasters. I've built up a brilliant team of consultants who specialise in this area, who were invaluable. If you're looking for advisors in Brisbane, I'm happy to share if you PM me.

Best wishes,

Tracey in Brisbane

Oh, yes I improved the ROI! The rent appraisal as a big house was $400 per week on a $720K house. Now it grosses $3100 per week … So yes, even with my exceedingly high leverage, it's cashflow positive.

It cost me about $1.1M to complete (purchase $720K plus refurbishment and furnishings plus holding costs $380K), was worth about $1.4M immediately on completion a few months ago, and nets $120K pa. So after finance, at the moment it's about $25K pa cashflow positive, with 100% of my costs financed (ie I refinanced on a commercial basis and now have $1.1M in loans outstanding; I've gotten all my equity back). Obviously the cashflow position improves every year, and this should be a great retirement asset for us.

With regards to the laws, they are a combination of local (town planning, accreditation) and state (fire safety, tenancy). It's certainly achievable, but it pays to talk to the experts. Fire safety and insurance are the two areas with regard to which it's essential to get expert advice.

Best wishes, Tracey in Brisbane

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