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a lot of people would love to invest in positivecash flow properties, but they also want a property in a capital city to have that securitythere and the potential for capital growth. so today, i'm talking with ben everinghamfrom pumped on property about how to get an 8% rental yield in a capital city. ryan: hey ben, thanks for coming on today. ben: good day, ryan. ryan: okay, so 8% in a capital city just soundsamazing. i have seen it in terms of properties withgranny flats out in western sydney and things like that.

they do come up from time to time, but theyare quite rare. but, what we are going to be talking abouttoday is how to take, not just any property, but how to take quite a few properties andto get a higher rental yield from a capital city. so if people are really desperate to buy ina capital city that's a big part of their strategy, they can also achieve a higher rentalyield and potentially positive cash flow as well. ben: yup and we've got to remember, just toset everyone's expectations, that every capital city in australia and local council area hasdifferent rules around this stuff so this

is definitely not a one-size-fits-all. you have to talk to a planner in the localcouncil as well. ryan: yeah. you'll see as we get in and talk about thestrategy, guys, that it is really property-specific, council-specific, etc. and so, there will be some due diligence andthere will be some work to achieve this. but, we just want to plant the idea in yourminds that this is a potential opportunity for you so that rather than just acceptingthe 4% yield that you might get from buying in an area, to go, "well, no, maybe i canachieve a better cash flow."

let's stop teasing people. let's stop keeping them in suspense. what is the strategy? ben: beautiful. a developer that i know and a builder recentlysent me an example of this and this is how i was gotten on to the idea. i've also seen through the dymphna boholtnetwork when i did their program a couple of years ago. but, basically, the concept is buying a vacantpiece of land.

again, this is specific to brisbane, but that'swhere the market is at at the moment. that's why i saw this opportunity. because you can't really buy a vacant in sydneyor it's very hard to do. ben: yeah. maybe find a knockdown-rebuild or a subdivisionsite for a premium. but in brisbane right now, for example, theopportunity i saw looked like this; it was a 400 sqm piece of land and the builder wasplanning on building a 4-bedroom, 4-bathroom home on that piece of land. ryan: how would you build that on a 400 sqm?

is it a 2-storey? ben: it was a 2-storey. the turn-key price that he sent to me, whichlooked artificially inflated to me based on my knowledge of what you should be payingfor something like that. it was around about $600k, in this particulararea, but i think you could do it - ryan: is that $600k for the build and theland? ben: $600k for the build and for the land. the feasibility he gave me in terms of therental return was about $1,000 a week. it looked good enough for me to spark my interestand to talk to you about it today.

basically, the way that it was was the downstairswas a living area; like a shared living area with a shared kitchen, open area and a carport downstairs. and then, upstairs, there were 4 bedrooms,each with their own private en suite. it's kind of difficult to explain withoutshowing the plan, but the reality is it was nice-sized bedroom, like 3x4 meters upstairswith its own nice little private en suite. the concept is basically renting by the roomand that's how they're making it work. as opposed to your traditional, which is justbuilding a house or buying a house and putting one family in there. ryan: this is obviously a more advanced strategybecause we will talk about doing this in existing

properties as well. but, it's a more advanced strategy becausewhen you're building a house that's 4-bedrooms, 4-bathrooms, a standard family in the areais probably not going to buy that. and so, you need to now what you're doingwhen you're doing that because re-selling that property could be more difficult, etc. there are risks that come with this. but, the idea that we wanted to get acrossto you guys is that there's an opportunity that rather than just having a standard lease,that there's opportunities to rent properties but the room and as a result, you can geta higher than average rental yield.

you see this all the time in areas that havea university within that suburb. so you see people converting existing housesor building houses specifically for uni students and there are boarding houses where the peoplerent for the room and then there's common areas. so the kitchen is a common area, the laundryroom is a common area, etc. ben: exactly. i know they've been really, really popularin new castle and new south wales. and i know they're extremely popular in partsof victoria as well, in terms of the boarding houses.

we're not really talking about creating aboarding house in this queensland opportunity, but more doing something to rent somethingby the room up there as well. slightly different strategy, but along thesame vein. ryan: so we're not talking about renting touni students, are we? we're just talking about creating an opportunityto rent by the room to everyday people. the reason why this type of product is beginningto emerge outside of the university marketplace is there are almost zero affordable housingoptions for the average australian. and so, when i have conversations with clientsabout granny flats, for example, or when i started to invest in secondary dwellings andstuff like that myself - dual income properties,

i was really concerned about who would rentthese places off me. but, the weird thing is, in new south walesand in queensland, i've never had a single week's vacancy on a one-bedroom place. they rent like that because there's nothingin the area that's comparable, that's affordable. let's say, for example, you're a young couple,you're moving out of home to save some money for your first investment property or yourfirst home. you've got people with bust-ups. you've got people that are fly-in, fly-outworkers. you've got people that are young and wouldlike to part of a shared house experience,

but don't want to move out with friends, forexample. there's this whole audience of people thatyou wouldn't expect that would actually rent these things. well, there's even an older demographics ofpeople who their marriage is broken up or their widowed or something like that and they'relooking for affordable accommodation because it's just themselves and they don't need alot of room or a lot of space. it appeals to a whole wide range of demographics. it's not just 20 year-olds or 18 year-oldswho want to live together in a party house. there's a lot of people in the market whoare looking for affordable housing and they

don't want to pay for a 2-bedroom unit whenit's just one of them. it feels like a slightly inflated price for1-bedroom and shared common area, but their other option is to rent their own apartment,which is going to be even more expensive for them. so it does make sense that there's a lot ofpeople out there looking for this affordable accommodation. ben: one of my clients in sydney, she's actuallyinvolved in the whole healthcare industry in terms of providing this temporary accommodationfor people where women that are in abusive relationships and things like that.

so if you can actually reach out to a localcommunity organization because it's very expensive for them to go and build something like thisthemselves. it's far easier for them to partner with aprivate investor and that investor to basically rent the rooms back to that organization andregardless if you've got a tenant in there or not, they'll continue to pay the rent week-in,week-out because it's much more affordable for them to do that. there's so many different ways you can creativelyget a better return on investment if you start thinking outside the box. obviously, that's not something that you justgo to the market with.

that's something that you kind of need toform some sort of partnership of work with orgarnizations if you want to achieve that. obviously, you could go out there, you couldbuy the land and you could build this sort of property. do you think there would be difficulties gettingcouncil approval for something that had 4 bedroom and 4 bathrooms? ben: obviously, that's area-by-area dependent. i know in this particular area of brisbaneit would be no problem because it's legal to basically rent up to 4 bedrooms to 4 differentun-related parties.

it would slip through fairly easily. i think the problem you would have is a traditionalbank valuer wouldn't really understand the project and they would say it's over-capitalizingin the area. because the cost of 4 bathrooms is extremelyexpensive so they might ask you for a slightly larger deposit. again, it's a much more advanced strategyso you've just got to work through that stuff as it comes. so work with your mortgage broker, obviously,on that to try and find out, well, what exactly do we need and is this going to be feasiblefor me?

ben: yeah, exactly. yup. ryan: so what about existing properties? because not everyone wants to build a newproperty but they might want to take an existing property, maybe that they already have orthey want to go out there and they want to buy an existing 4-bedroom house or somethingand they want to do a version of this strategy. how would someone go about doing that? ben: sure. again, it really comes down to the managementand the area that you're buying in.

but, for example in brisbane, we talked abouta couple of options just before we started this conversation or this video. in terms of legally managing it, obviously,the ideal outcome for somebody that's renting by the room is having a room with their ownen suite, their own storage and a lock to that area so that they've got their own space. but, the average property in australia isnot going to support that, the average 4-bedroom home. so it means that these tenants are sharingbathrooms. they probably still want a lockable area tothemselves with good storage.

but, there's so many different ways. in queensland, for example brisbane in particular,that you can do something like this. the tenants sign a co-tenancy agreement, forexample. the owners takes on a head lease and rentsto a number of individuals or tenant takes on a head lease and starts renting to individuals. ryan: we're getting a bit technical here. let me slow you down a little bit. basically, what you're saying is that someonecould take an existing maybe 4-bedroom, 2-bathroom house and actually rent that out by the roomand the tenants obviously aren't going to

have their own bathroom, they're going tobe sharing a bathroom. but, you might just put locks on the doorsto their bedroom and assuming they've got enough storage in there or maybe you can putsome lockers or sheds out the back or they have lockable storage, too. i think what we're trying to say is that peopleneed affordable accommodation. in a perfect world, yeah, they would havetheir own en suite and they'd have a room with great storage and be able to lock itup. but, these people want affordable accommodationand often, just having a room and a shared bathroom is going to be fine for them becauseof the savings that they're going to have.

are we saying that, yes, you could potentially- obviously, depending on the area and stuff like that - take a 4-bedroom, 2-bathroom houseor even a 3-bedroom, 1-bathroom house and rent it out by the room? ben: yeah, potentially, exactly. obviously, there's some things that you'vegot to consider; like fire-proofing walls, potentially, which we're not sure about. you just have to work with your local propertymanager, your local town planner. ryan: and your insurance company as well. ben: and your insurance company to make surethat everything is covered before you even

consider doing this. but, if everything stacks up in that localarea, absolutely. there's plenty of people renting by the roomaround brisbane right now. ryan: if people wanted to do this, it wouldbe that hard to talk to a town planner, to call up your insurance company and to talkto local rental managers and to say, "well, can i do this?" it wouldn't be that hard to work it out. few phone calls, a bit of research and you'llbe on your way. potentially, getting a higher-than-averagerental return for this.

what i think you started talking about, whichi'd like to go through, is just the management of this. because a lot of people would be nervous that,would they have to manage this themselves because obviously it's more complicated thana regular lease or can you just get a rental management company or a real estate agent,like you would, to manage this instead? ben: a lot of people that own these sortsof properties actually do manage them themselves because a lot of people that buy these typesof products are looking to replace their income, leave work and it becomes a kind of part-timejob for them to do it if they're in their local area.

ryan: i have also seen people who, like, they'lllive in the property and they'll have one of the rooms and then they'll rent out theother 3. ben: i've seen that as well. my friend's dad does that as well. that works really well because you can controlwho comes in and out and who stays as well. i suppose that's a really good segue intoone of the ways that you can do this, which is the owner taking a head lease and thenfinding individuals to take sub-leases from without getting too technical about all ofthis stuff, it's basically the owner taking the tenancy agreement and then renting bythe room to different people on different

leases. they assume all the risk, but they also havethe control over who moves in and out. ryan: yup, and that would be if the ownerwas managing it themselves, right? ben: that would be if it's managing themselvesor they might have a property manager that they trust that can do this for them. we're going to go a bit technical here, guys,and talk about the management ideas behind it. but, a lot of this can be discussed with yourrental manager and just worked out. a lot of it is slightly different way to legallydo the same thing.

don't get overwhelmed with the terminologythat we're using and stuff like that. i think one of the options that we talkedabout was just an option to have co-lease agreements. that would be you have a lease agreement thatthe 4 people in the house sign and they each pay a portion of their bond and when one personmoves out, the new person is added to the lease agreement and the old person is removed. the new person pays their bond, the old persongets their bond back, etc. it's slightly harder to do than just a regularlease agreement to one person, but it's definitely manageable and it's not that hard to achieve.

let's say we get a rental manager to do thisfor us, i'm guessing not every rental management company out there is going to do it, so weneed to call around. is this going to be a lot more expensive thana regular rental manager or is it going to be similar? ben: it really depends management to management. there's some companies that just do this. i think you really want to find a partnerwith experience in it because most managers aren't used to 4 un-related parties livingin one house all with their own agreements in place and moving tenants out in and outso regularly.

but, yeah, anywhere from 7-10% sort of managementfees. in some instances even higher, up to 20% insome cities in australia. so, yeah, you are going to pay a little bitmore in management, but you're also getting a significantly higher return than the averagein the suburb as well. let's use a comparison for people to say - iremember you were saying something about; say you rented a 4-bedroom, 2-bathroom housejust to one person versus renting a 4-bedroom, 2-bathroom house to 4 people. do we have any examples of the increase wecan expect or was it really so specific to the area?

ben: it's specific to the area, but a scenariomight be; you buy a 4-bedroom, 2-bath, 2-garage home on a 400-sqm block for $400,000. and then, you rent that house out for $400a week to your average family. the difference here is that if you were torent by the room, you might get anywhere between let's say $150 and $200 a week for each ofthose rooms in that house. so your rent could be between $600 an $1,000a week for the same thing. again, obviously, it really depends on thearea. but, because people need this affordable housingand because it's an option that isn't widely available, it feels like you're over-inflatingthe value, but you're not really because it's

what the market wants. it's what the market is willing to pay for. ben: you've got to remember that if i wasan individual, to get a 1-bedroom studio apartment in a half decent location outside of a capitalcity, they almost don't exist in australia. so it means you've got to go get a 2-bedroomunit and a 2-bedroom unit in most places, let's say a 4-bedroom rents for $400, a 2-bedroomunit is going to start at $250-$300 a week. if you're renting for $150 a week, you'restill saving yourself an absolute fortune. yeah, maybe it's not ideal, but it's shortterm accommodation. most of these people will only stay for 12months or so.

i'm thinking about mates who live in the cityor quite close to the city in sydney and they do this. they have 4 bedrooms, 2 bathrooms or evenjust 1 bathroom and they all co-lease together and they pay under $200 a week each personto live in that house. but then, if they were to go, the other optionwould be a studio unit in sydney somewhere or a 1-bedroom unit, you're looking at wayabove $200 a week, you're looking at $400, $500 a week or something for a 1-bedroom unitso you can see why people would do this. it's a significant saving. ben: yeah, absolutely.

just because your life stage might not suitthis type of accommodation doesn't mean that somebody else in the local market does. there's plenty of people experiencing financialhardship at all different times. there's plenty of people whose lifestyle - ryan: i'm just thinking i'm married and ihave 3 kids. imaging us trying to co-lease or somethinglike that as such a big family unit of 5 people. it's not feasible for us. it's not something that we would want, but,yeah, a single person who doesn't have any kids that they're looking after or something,it would be so much easier.

ben: i just imagine the 5 of you in 1 roomwith 3 other families with 5 people as well. ryan: okay, so for every room, you have tohave at least children to get accepted into this 4-bedroom house? so there's going to be 5 people in each room,so there will be 20 people in the house? it's going to be bedlam, mayhem! ben: the only type of accommodation i've seenlike that i think is in the northern territory. ryan: or in other countries, like india orsomething like that where they all share one room. ben: yup.

ryan: i think you guys get the idea. i think you get the concept. maybe don't rent out your 4-bedroom houseto 20 different people because that probably won't work very well. but, renting by the room can be a great wayto increase the rental yield of your property. so, if for some reason, you need a higherrental yield or you want a higher rental yield to maybe replace your income, to pay downsome debt, whatever reason it may be. there's a lot of reasons that people wantto make more money. this could be an opportunity.

there's the opportunity to buy land and thento build it specifically for this purpose or to take an existing property and rent itby the room. i think the cons of doing this are it's goingto be harder to find a rental manager. rental manager is probably going to cost moremoney. there's going to be more fluctuation in termsof who's renting there and so, that's going to be probably slightly more work. probably a bit more wear and tear on the propertyas well. but, the benefit is that you're all this extraincome and the ideal is that the extra income more than pays for the effort and the expensethat goes into having these extra people.

ben: absolutely. i think it suits people with a really negatively-gearedportfolio. i wouldn't say go out and by 10 of these becauseit's an extremely high-maintenance style property to own and all the things that you just said. but, for somebody that's got a property insydney or melbourne that's negatively-geared $300 per week, an extra $300 of passive incomefrom something like this may well help offset that current deficit. and as interest rates rise, it would createa bit of a buffer as well. and it's something for people to think aboutas well.

let's say you get to the point where you owna few properties and you're kind of getting a passive income but it's not enough to allowyou to quit your job. converting to something like this could actuallyboost your income enough for you to become financially free and you could live in itas an owner or just rent it as a rental manager and that could be an opportunity. you see people's lives change all the time. people lose their jobs and they can no longerafford to pay their mortgage and to live in the property themselves. and so, they might want to rent it out bythe room or do some airbnb or whatever it

may be to get some extra income coming in. this could be an advanced strategy that youuse as part of your portfolio-building or it could be something to just keep in yourback pocket in case a situation arises where you want to do it to achieve just to boostyou forward to financial freedom or maybe you need the extra income. it's just something great to keep in the backof your mind as an opportunity. that's all it is. ryan: i guess we'll just finish it off therebecause we've presented you guys with the idea.

hopefully, you've taken this onboard as aninteresting idea. i did want to ask you, have you helped anyonedo this? do you help people do this if they're interestedand want some help? ben: no. this is a much more hands-on active investor. something to go out and create yourself. i can definitely point people in the directionof people that can help do this that do this for a profession and a job, but it's not somethingthat we help people do as buyer's agents. unless, you wanted to go down the brand-newoption.

because finding an existing property and themine field that exist around compliance and things like is just too much for us to wantto take on. but, if people are interested in doing thisunder a brand-new arrangement, we can help them source the land, introduce them to abuilder and a manager that could help them throughout the entire process. so if you're interested in building, thenyou can go ahead and talk to ben. you can check him out, but if you want todo it in existing property, you're on your own. ben: goodbye!

ryan: no. there's lots of people out there that i'msure can help you if you're interested in this. but really, as we talked about, it wouldn'tbe that hard to work out whether or not you can do it yourself. so you guys will be all right, you'll be fine. ben: you'll be all right. to finish that off, so that we're not justleaving people hanging because we don't want to just leave people hanging.

i know there's a guy in the australian marketthat specialized in affordable accommodation. his name is ian and he's one of the coachesin the dymphna boholt program. i think he actually runs a program for about$4,000 called the high income real estate system, so you can probably google that. his name is ian ugarte and he's a guy, we'vegot no association either of us with him in any way, but i just know from experience ofsitting through his workshops that this is something that he does and he'd be a goodpoint of contact if you're really interested in pursuing it. so if you're really interested and you reallyfeel like you want some help, you can call

up this guy. but, we don't have association with him. i can't vouch for him because i've never heardof him before, but something that you guys can explore. well, we hope that this idea has inspiredyou guys. we hope that this is something that may beuseful to you in the future. we're going to leave it there for today. i hope you guys have the best day ever. and until next time, stay positive.