How to achieve 48.4% cash-on-cash return and 190.3% equity return with our unique Townsville rooming houses development model.
Have you ever wondered why property developers seem to make more money than property investors?
In this post we will explain how experienced property developers and investors in property developments understand one of the most powerful wealth creation tools – cash-on-cash returns – and how understanding this simple principle can help you realise almost 50% return on your money and almost 200% equity return when investing in Townsville rooming house projects.
Just one project for two rooming houses can generate over $350,000 annual income with an equity uplift (or profit) up to $1.2m.
If you haven’t heard of cash on cash returns, there’s nothing new or secretive about the principle.
Developers have been using it since the beginning of time.
In simple terms, cash-on-cash return addresses a simple principle;
Getting Your Money To Work Harder – and FASTER
Most people spend their lives working for money.
Successful investors turn that around by getting their money to work for them.
And the most successful investors take it one step further.
They use strategies most people have never been taught – strategies designed to create wealth faster, not just accumulating property over time.
The most effective strategy is property development.
Rooming accommodation development shines above almost all other strategies.
Rather than simply buying an investment property and hoping it increases in value over the next 10 or 20 years, savvy investors partner with experienced developers to create wealth through the development process itself.These partnerships can be structured as a joint venture or a fee-for-service Development Agreement, allowing investors to leverage specialist expertise while maximising the returns on their capital.
Instead of waiting years for market growth, investors can manufacture equity, generate stronger returns and significantly accelerate their property wealth.
Unfortunately, many first-time investors are still encouraged by marketers to follow the traditional “buy and hold” strategy – often purchasing negatively geared properties in the hope that future capital growth will eventually deliver a worthwhile return.
While buy-and-hold has its place, it is one of the slowest paths to building substantial property wealth.
Creating wealth is always faster than waiting for it.
What Is Cash-on-Cash Return?
Cash-on-cash return (CoC Return) measures how much annual pre-tax cash income your property generates compared to the amount of your own money you invested.
One of the most effective ways to increase your cash-on-cash return is by using leverage – borrowing money to help fund your investment.
Not all debt is the same.
There is bad debt, which finances liabilities that cost you money, and good debt, which helps you acquire income-producing assets.
When used wisely, good debt allows investors and developers to leverage other people’s money to control larger assets while investing less of their own capital. This can significantly increase returns on the cash they have invested, making leverage one of the most powerful wealth-building tools available.
Formula
| Cash-on-Cash Return |
| Annual Pre-Tax Cash Flow ÷ Total Cash Invested × 100 |
For developers, the formula is often modified to also measure manufactured equity:
| Development Cash-on-Cash Return |
| Project Profit (or Manufactured Equity) ÷ Equity Invested × 100 |
This metric enables investors to compare different property projects on an equal basis, regardless of how much debt or leverage is used.
Apply this simple formula to each project, then repeat the process again and again to continue building your property portfolio and creating wealth.
Don’t wait for wealth to happen over time.
Create it. Build it. Repeat it.
The Townsville Dual Rooming Accommodation Example
In this example, an investor purchases a large development site and subdivides it into two lots.
Two six-bedroom rooming houses are then constructed.
(Above) Before and after. One of our Townsville development projects for two low set, side-by-side rooming houses
In the example above, our investor will get a cash-on-cash return of 68% due to the uniqueness of the land, purchase price and style of house we are developing and building.
This investor will also get a 268% Development cash-on-cash equity uplift (or profit) return. More on that below.
Needless to say, not every project is the same, and no two outcomes are identical. Development is not like parking your money in a bank or managed trust and getting single digit returns. There are unique variables with each project. The purpose of this exercise is understand the principle of cash-on-cash returns.
Below is an example paying $600,000 for the land.
Project Costs
| Item | Amount |
| Land Purchase | $600,000 |
| Stamp Duty | $20,000 |
| Total Land Cost | $620,000 |
| Development Costs | $2,000,000 |
| Total Project Cost | $2,620,000 |
The development costs include:
- Subdivision
- Civil works
- Consultants
- Development approvals
- Infrastructure Charges
- Construction
- Furnishings
- Fit-out
- Finance costs
- Leasing costs
- Property management setup
- Project management
How Development Finance Works
Unlike a traditional home loan, rooming accommodation developments are typically funded using specialised rooming accommodation development finance.
A specialised rooming accommodation development lender understands:
- Rooming accommodation
- Construction risk
- Development risk
- Subdivision risk
- Exit strategy risk
Banks and second tier lenders generally do not lend for these types of specialised projects, therefore lenders for rooming accommodation developments are typically niche, (private) lenders. As a result, development finance usually attracts interest rates approximately 3% or more above standard bank rates.
Loan-to-value ratios generally range from:
| Lender Type | Typical LVR |
| Major Bank | Not usually available |
| Second Tier Lender | Not usually available |
| Private Development Lender | 60% – 70% (depending on location and development type) |
Even if you could find a non-private lender, they usually do not finance:
- Furnishings
- Infrastructure charges
- Development costs
- Capitalised interest
However, the right private development lender does. You will need to source the right broker and lender, which we have at Brisbane Rooming Houses. We can assist you through the entire finance and development journey.
Capitalised Interest — And How It Works
One of the major advantages of development finance is capitalised interest.
Rather than making monthly repayments throughout construction, the interest accumulates during the project.
While the development is underway, the borrower therefore does not need to fund:
- Interest payments
- Loan fees
- Establishment costs
These costs are added to the loan balance and repaid when:
- The completed project is sold; or
- The project is refinanced to a lower-cost lender.
This greatly improves project cash flow during development and construction.
Rental Income From Two Rooming Houses
Each room rents for approximately:
| Item | Amount |
| Weekly Rent Per Room | $550 |
| Number of Rooms | 6 |
Annual gross rent per property:
$550 × 6 × 52 = $171,600
Annual gross rent for two properties:
$171,600 × 2 = $343,200
Net Income
For this example:
| Item | Amount |
| Gross Income Per House | $171,600 |
| Net Income Per House | $150,000 |
| Gross Income Both Houses | $343,200 |
| Net Income Both Houses | $300,000 |
These figures assume highly efficient management, which we do at Brisbane Rooming Houses.
Many rooming accommodation operators pay management fees between 8% and 15% plus added fees.
Where specialist management is undertaken internally with us at Brisbane Rooming Houses the property management fee is 6% plus GST, therefore operating costs are lower.
Rental Cash-on-Cash Return
The investor contributes only the land component:
| Item | Amount |
| Investor Equity (land including stamp duty) | $620,000 |
| Annual Net Income | $300,000 |
Formula
Cash-on-Cash Return = Annual Cash Flow ÷ Cash Invested × 100
Calculation
| Calculation | Result |
| $300,000 ÷ $620,000 | 48.39% |
Rental Cash-on-Cash Return
48.4% per annum
This means the project generates annual net cash flow equivalent to almost half the investor’s original cash contribution.
Manufactured Equity
One of the greatest advantages of development is the ability to create equity. This is often referred to as manufactured equity.
Rather than waiting for market growth, value is created through:
- Subdivision
- Development approvals
- Construction
- Increased rental income
- Improved valuation outcomes
Gross Realised Value (GRV)
The completed Townsville rooming houses in this example are estimated to be worth:
| Item | Amount |
| House 1 Value | $1,900,000 |
| House 2 Value | $1,900,000 |
| Total GRV | $3,800,000 |
Development Profit
| Item | Amount |
| Total GRV | $3,800,000 |
| Total Development Cost | $2,620,000 |
| Manufactured Equity | $1,180,000 |
Formula
Manufactured Equity = GRV − Development Cost
Calculation
| Formula | Result |
| $3,800,000 − $2,620,000 | $1,180,000 |
Development Cash-on-Cash Return
The investor contributed:
| Item | Amount |
| Land Equity (including stamp duty) | $620,000 |
Manufactured equity created:
| Item | Amount |
| Profit or Manufactured Equity | $1,180,000 |
Formula
Cash-on-Cash Return = Profit ÷ Equity Invested × 100
Calculation
| Formula | Result |
| $1,180,000 ÷ $620,000 | 190.3% |
Development Cash-on-Cash Return
190.3%
In simple terms:
For every $1 invested, approximately $1.90 of additional equity has been created.
Comparison: Building One Rooming House
Many investors prefer the simpler strategy of purchasing a vacant lot and building a single rooming house. That’s if you can find a suitable vacant lot in the right area in Townsville (Tip: Unlike S.E Queensland, they generally don’t exist or rarely found – you need to create your own)
Assumptions:
| Item | Amount |
| Land (If you can source a suitable lot for a rooming house in the right area ) | $400,000 |
| Stamp Duty | $13,000 |
| Infrastructure Charges | $140,000 |
| Construction Loan | $700,000 |
| Furnishings | $33,000 |
| Total Project Cost | $1,286,000 |
Investor cash contribution:
| Item | Amount |
| Land | $400,000 |
| Stamp Duty | $13,000 |
| Infrastructure Charges | $140,000 |
| Furnishings | $33,000 |
| Total Equity | $586,000 |
Loan:
| Item | Amount |
| Construction Loan | $700,000 |
Interest Costs
Assuming:
| Item | Amount |
| Loan Balance | $700,000 |
| Interest Rate | 7% |
Annual interest:
$700,000 × 7% = $49,000
Rental Income
Gross income:
| Formula |
| $550 × 6 × 52 |
Annual rent:
$171,600
Assuming net income before interest:
$150,000
After interest:
| Item | Amount |
| Net Income | $150,000 |
| Interest | $49,000 |
| Cash Flow | $101,000 |
Single-House Cash-on-Cash Return
Formula
Cash-on-Cash Return = Annual Cash Flow ÷ Cash Invested × 100
Calculation
| Formula | Result |
| $101,000 ÷ $586,000 | 17.2% |
Result
17.2% per annum
Why the Development Model Produces Higher Returns
The dual-house development model delivers superior results because:
- The investor controls more value.
- Manufactured equity is created.
- Development finance reduces upfront cash requirements.
- Capitalised interest improves cash flow.
- Furnishings and fit-out can be funded.
- Infrastructure Charges can be funded.
- Subdivision creates additional value.
- Rental income is significantly higher.
The result is both:
- Strong ongoing cash flow.
- Significant equity creation.
The Importance of Specialist Advice
Rooming accommodation is a specialised asset class.
Success depends on understanding:
- Planning approvals
- Infrastructure charges
- Rooming accommodation design
- Development finance
- Property management
- Valuations
- Exit strategies
Most banks and many mortgage brokers have little experience with rooming accommodation projects.
Investors should consider working with experienced specialists such as Brisbane Rooming Houses and our finance professionals who understand rooming accommodation development and private lending structures with whom we have many years of longstanding relationships.
Conclusion
Cash-on-cash return is one of the most powerful measures available to property investors because it focuses on the return generated from the investor’s actual cash contribution.
In the Townsville example examined here, a dual rooming accommodation development generates:
| Metric | Result |
| Rental Cash-on-Cash Return | 48.4% |
| Development Cash-on-Cash Return | 190.3% |
| Manufactured Equity | $1,180,000 |
Let an Experienced Developer Do the Heavy Lifting For You
The real advantage of this strategy is that you can leverage the knowledge, experience, industry network of specialist consultants and contractors and proven unique systems of an established, specialist rooming accommodation developer, builder and property manager Brisbane Rooming Houses.
Instead of learning property development through years of trial and error, you become an “armchair developer” while experienced professionals manage the complex development process on your behalf.
This gives you the opportunity to participate in development-style returns that are generally beyond the reach of the average property investor.
While a traditional single rooming house investment in a regional market might generate high return on investment (ROI), a cash-on-cash (COC) return, after interest costs, from a well-executed development project produces significantly higher cash flow while also creating substantial equity through subdivision, planning approvals, construction and value creation.
Like all property investments, every development carries risks and returns are never guaranteed.
However, this example illustrates why experienced developers focus on creating value—not simply waiting for the market to do the work.
You have the choice of using your manufactured income to reinvest in a new project, and continue to leverage your equity to grow your strong positive cashflow property portfolio, while simultaneously providing high quality affordable accommodation for Townsville’s key workers.
Important: The figures used in this article are based on a development example designed to demonstrate the principles of cash-on-cash return and manufactured equity. Individual project outcomes will vary depending on site characteristics, finance structure, market conditions, occupancy levels, construction costs and management arrangements.
Disclaimer
The information contained in this article is provided for general information purposes only and should not be relied upon as financial, investment, taxation, legal or lending advice.
The figures, calculations and examples used throughout this article are illustrative only and are based on a hypothetical rooming accommodation development scenario in Townsville, Queensland. Actual project costs, development approval requirements, infrastructure charges, construction costs, finance costs, rental income, operating expenses, valuations, market conditions and investment returns may vary significantly from those presented.
Cash-on-cash returns, development profits, manufactured equity outcomes and rental yields are estimates only and are not guaranteed. Past performance is not a reliable indicator of future performance. Property values may rise or fall, rental income may vary, and unforeseen costs or delays may impact project outcomes.
Development finance terms, interest rates, loan-to-value ratios (LVRs), lender requirements and funding availability are subject to change and may vary between lenders and borrowers. Not all lenders fund rooming accommodation developments. Contact us for your rooming accommodation development lender.
Readers should undertake their own independent due diligence before making any investment or development decisions.
References to Brisbane Rooming Houses or any other service providers are for general information purposes only and should not be construed as a recommendation or endorsement. Investors should independently assess whether any development, finance structure or property investment strategy is suitable for their individual circumstances, objectives and risk profile.
Neither the author nor publisher accepts any liability for any loss, damage or expense arising directly or indirectly from reliance on the information contained in this article.
About the author:
Paul Zanetti is the Founder and Director of Brisbane Rooming Houses Pty Ltd and has been the leading proponent in Queensland for a new type of rooming houses – ‘Executive Living’ designer studios for key workers.
Paul is also a prominent and active advocate for reform of Queensland’s regulatory framework governing rooming accommodation and affordable housing.
He has prepared and published multiple reports for governments identifying regulatory, planning and infrastructure-charging anomalies affecting rooming accommodation in Queensland. His advocacy has included engagement with State Planning Ministers, senior departmental officers and Directors-General, as well as local government elected representatives, planning officials and other relevant stakeholders.
Paul continues to advocate for evidence-based planning reform and the development of proportionate regulatory frameworks capable of supporting the delivery of affordable housing by the private sector.
Paul can be contacted at: paul@brisbaneroominghouses.com.au
