There’s an understandable misconception with novice investors a Rooming House is a ‘residential product’.
It makes sense, right?
People live in them.
They are homes.
So, if a rooming house is somewhere people reside, surely they must ‘residential’.
Well, yes.
Unless you’re a bank.
Then, no.
Banks don’t view rooming houses as residential products, so you’re unlikely to get a standard residential loan to build or buy.
You can disagree with the bank as much as you like, but you won’t change their mind – even though a rooming house is a ‘Class 1’ structure under the National Construction Code, as is a typical family house. (There are 10 Classifications – house dwellings being Class 1).
Banks categorise family homes (Class 1) as ‘standard’ residential domestic dwellings.
This is where banks feel most comfortable and it’s what their standard home loan business models is predominantly designed for.
Standard Class 1a residential family homes, in their view, can be sold quicker than a ‘non-standard’ dwelling such as a Boarding House or Rooming House – which they classify as ‘non-standard’.
Subsequently, rooming houses are categorised as a ‘commercial product’, so they get boxed into the commercial loan category, with a lower Loan to Value Ratio (LVR) and higher interest rate. (A Loan to Value ratio is the total value ratio of a loan to the value of an asset purchased).
A residential family home’s LVR can be 80%.
That is, banks will lend you 80% of the property value. This is because the banks see residential property as low risk (plenty of potential buyers should a loan default).
A rooming house can be anything between 50% -70% LVR, depending on the lender, and how well they understand Rooming Houses.
Banks like to make money, so they will consider lending for the purchase of a single rooming houses.
They also like to de-risk their money.
Banks view a Rooming House as a ‘non-standard’ product, at a higher risk. Lending less money with a lower LVR de-risks their exposure.
Banks believe rooming houses are a niche product (true) with a smaller percentage of the home buying market (true), with less appeal to buyers (false), taking longer to sell than a standard family home (false).
Banks don’t know the rooming house sale market, so are making uneducated, flawed assumptions.
Until recently. few rooming houses were ever sold. Owners hold onto them. The sales supply is low but demand is high. We have sold off-market rooming houses to our data base, quickly at higher prices than standard family homes in the street or suburb.
Rooming houses are an ‘investor’ market product. A lot of investors want rooming houses. They rarely sell.
Ask yourself, why would an owner sell one of the best performing property investment products they could ever possibly own?
There are few, if any, better investment asset classes than a Rooming House. They tick all the boxes.
Let’s take a look at the comparison between selling a Class 1a Family Home and a Class 1b Rooming House.
Let’s imagine these two dwellings are in the same suburb, in the same street – in fact, are side by side, next door to one another.
They:
- Are on equal size lots
- Look exactly the same
- Have five bedrooms
- Are valued at $1.5m
The Class 1b house at 125 Smith Avenue is rented by the room for a total of $2,750/week.
Both are advertised for sale at the same time with the rental income included in the listing description.
Which do you think will:
- Appeal most to an investor?
- Attract the most enquiries?
- Sell fast?
Most Rooming Houses are sold off market. That is, to ldata bases. More recently some have been publicly advertised, generating hundreds of enquiries, selling above asking price.
Banks don’t know this because they don’t keep an eye on the market.
When a bank tries to value a Rooming House, they will ask a valuer to value for a loan.
The valuer may be a residential dwelling valuer, never having previously valued a rooming rouse, and won’t know where to start. This is a common experience with Rooming House investors. The valuer wants to be paid for a valuation, so may compare a Rooming House (Class 1a) to a Family Dwelling (Class 1a).
This is close to comparing apples with pineapples. They may both have the word ‘apple’ in them, but they are very different fruit.
Some valuers may try comparing to boarding houses – Class 3 where room rents can vary by as much as 100%. Boarding Houses often contain smaller rooms without the same ensuite and kitchenette private use facilities as a Rooming House.
Without a network or expertise in the Rooming House sector, an inexperienced valuer will not know which managing agent(s) to speak to for rent appraisals.
Banks should not pay for these flawed ‘guesses’. These are not true, professional valuations, so should not be presented as such.
These are valueless valuations.
A reputable valuer who specialises in Class 1a houses should refuse valuing a Class 1b Rooming House unless he has experience in Rooming Houses or Commercial property valuations, based on yield.
In recent years, as rooming houses have become more sought after, specialised rooming accommodation valuers have matured in the market.
To accurately value a Rooming House:
- First add up the property’s total weekly rent.
- Then multiply weeks in a year.
- This will give you the total annual gross income.
- Research all rooming house sales for the past 5 years.
- Take price for each sale, divide by the gross income (before operating costs).
- Divide the gross income p.a. by the sale price.
- This will give you the gross yield
- For the average gross yield, add up all the gross yields for the number of houses you found and divide by that number of houses.
E.g.
Rent : $550 per room per week x 5 rooms = $2,750/week (this is what we achieve, and higher in mid-2026)
Annualised : $2,750 x 52 weeks =$143,000 gross p.a.
In Brisbane the official gross yield used by the top valuers is 7.8%.
Gross income ($143,000) divided by the gross yield = $1.83m
Therefore the house value is $1.83m
If you are having your rooming house valued, always insist on an experienced rooming house valuer.
For all our rooming house, we work closely with the premier rooming house valuer in Queensland, where we supply the rent appraisals for our rooming houses.
