I was driving along the other day and had the idea of buying a block of land somewhere and building a two story house on it.
Downstairs I would build five bedrooms 2 bathrooms a laundry, kitchen, dining, lounge ect. and furnish it.
Upstairs I would build a 3 bedroom residence separate for myself to live.
The idea is to rent downstairs as backpacker accommodation and live upstairs separately with a passive income.
Your thoughts, suggestions, and ideas would be greatly appreciated.
Thanks :-)
Speak to a good Chartered Accountant to understand the tax implications and how best to structure the transaction.
What kind of area are you in? If you were in any of the backpacker hotspots, you'll be competing against hostels with lots of rooms, economy of scale and bigger advertising budgets to draw people in. If you're not in a hotspot, why are the backpackers going to be drawn to the area (e.g. it's a fruit/vege farming area and they'll do it to extend visa etc)?
It would be a very seasonal business and I don't imagine a bank would be hugely keen to finance too much of it from a business perspective unless you've proven the model works before. If you have a big enough deposit to do it they may not care so much.
Council approvals are the next big thing as cuteduck points out.
As with the advise for a an Accountant, also trust the insurances to a suitably qualified Insurance Broker.
Public Liability and Property insurance alone can run into many thousands of dollars. If your in North Qld double the property insurance cost.
refer Childers backpacker fire http://en.wikipedia.org/wiki/Childers_Palace_Backpackers_Hos…
)
Many underwriters and brokers have long memories.
Disclaimer, I don't work for a broker and am not providing financial advice.
You'll need to disclose this and therefore "maybe" disclose your income:
"What is a rooming house?
Under the Residential Tenancies Act 1997, a rooming house is a building where:
• one or more rooms is available for rent, and
• the total number of people who may occupy those rooms is four or more."
each LGA will have them rules and regulation you'll need to abide to, in simplest terms you'll need to setup exit signs in each room, ensure there are adequate emergency practices in place (fire extinguisher, fire escape plan exercised, etc)
NSW/VIC has been cracking down hard on undisclosed rooming houses, YMMV depends on which state/area you're in.
http://www.consumer.vic.gov.au/library/publications/housing-…
If the Council zoning/policy area provides for it then its potentially a good business but location would be key.
Also, there is a bit of a difference between a backpackers hostel and rooming houses type scenarios. Rooming houses can be any private residential home and you rent out the rooms individually to unrelated persons. A 'Backpackers hostel' is more a 'business' and treated differently from a Council point of view (well in SA anyway). So look into that further.
If there was an option to buy an existing place and convert it, i would look at that option first. To build a specialised house like that (and don't forget being a 'backpacker' type place involves alot more regulations such as fire regs to comply with than simply renting out rooms in a house) doesn't seem feasible to me but again, investigate it thoroughly before you get serious about it.
We used to run several rooming houses and they were great cashflow, it was hard work but we had 0% vacancy rates because we went above and beyond (which is why it was hard work). I would say if this idea is to generate cashflow, i would say rooming houses would be your best option. In SA, the magic figure is 5 so as long as we keep it under 5 unrelated persons living in a house then we dont' trigger the local council getting involved so check in your state/local council what this magic figure is because rooming houses would not cost as much….you can buy an existing place rather than building OR, what we did was we rented out houses as the head-tenant and then sub-let each room out. For example, we would rent a 5 bedroom house out (near a study institution) for say $350/week and then furnished each room (basic things like bed, desk, lamp, chair) and rented them out for $180/room/week + expenses. More than covered our expenses.
What type of backpacker do you have in mind? If the usual night or two type, then besides the excellent advice above, such as location, location, location, legalities, insurance, etc, do you have what it takes to be a backpacker host? Backpackers in their own way are demanding guests as the hostel is a point of support for them. They'll want meals or cooking facilities, tourist information, and general advice. From what I've seen of hostels I've stayed in, it's an unrelenting task from morning till night. It's not going to be a rent and forget arrangement. What are you going to do for vacations? Do you have trusted assistants and backup? And if the vibe isn't good and you get a few bad reviews in Hostelworld or Tripadvisor, backpackers will be staying away in droves.
Or do you mean longer term rentals like a month or more? How is that any different from renting to non-backpackers?
Ozb is a great place to get others to start you off on any research you need to do for your next best idea of the day. Very generous and we learn lots whilst doing so.
Thankyou for your thoughts and ideas, I'm always trying to think of ideas that will help me generate some passive cash flow and help me get out of the ratrace… :-)
Check with Local Council first