So real estate is expensive across most of Australia. Luckily I live in one of the least expensive cities in the country but still looking at $250-350k as a minimum for a cheap 3brm house in a modest suburb 15km from the city. Rental yields are also quite low and most rental properties return a net loss which owners use as a tax offset. I’ve done some thinking about how I can get around this expensive market. I’d be interested to hear what other people think or perhaps some other examples of interesting housing hacks to get around expensive markets. Here’s some general thoughts/ideas/examples:
•Rent. As I said rental yields are low in comparison to RE prices. It makes financial sense to rent unless prices continue to increase above inflation.
•Duplex/quadplex – live in one and rent out the others. These guys are expensive and hence I would need to load up heavily on debt. Not comfortable doing that in what could be an inflated market. Also rental yields may not cover expenses.
•Interesting example: I have an acquaintance who rents a house in the suburbs from his father. The house is quite interesting in that it contains 2 self-contained units attached to the main house which is quite small itself (2 bedrooms). He has done a lot of the building and electrical work himself and I wonder whether it is all council approved and by the book (I doubt it but he seems to be doing okay for the time being). He sub-lets the 2 units for $250 pw each inc. bills. He also rents out the spare bedroom in the main house for about $100 pw. Here’s the interesting thing: more recently he has moved into a tent in the back garden and has rented his own room out for another $100 pw. He plans to build a small earth-hut in the garden to live in. This guy is a self-taught carpenter, electrician, bee keeper, clothing spinner, gardener and beer brewer and is living off the income provided by hacking his housing situation with no financial capital. Very interesting. My biggest question is whether he:
oA. built these extensions legitimately and how he did it.
oB. operates covertly and how he manages to avoid council interest (it’s a pretty visible site opposite a park)
oC. has just done this stuff and doesn’t worry about council
•Before meeting this guy I had some similar ideas. My idea was to buy a cheap fixer house with a substantial backyard, fix the house and build a small detached dwelling (called a granny flat in Australia) in the yard, rent the house and live in the granny flat. I would also have the option of living in the house and renting the granny flat if I decided I needed more space/wanted a family etc and could move back in when the theoretical kids moved out. Regulations have recently been changed in a few states (not mine) to allow people to build granny flats and rent them out. In addition, a lot of people convert sheds etc to granny flats and rent them out unofficially. If I could get around all the planning laws this could be a good option.
•As a more extreme version of the above I thought about buying a house, renting it out (possibly by room) and putting a caravan/campervan on the block as well to live in myself. This would be a lot more flexible and probably not too hard to avoid any council interest if I operate the house as a sharehouse type arrangement and blend in with the other occupants.
•Wait around for a potential housing correction and then use one of the above approaches to secure some pretty sweet cash flow. If I bought in this market I would probably struggle to reach neutral housing costs.
•Buy a van and live between my family’s rural property 50km from the cbd and stealth camping in the city/beach/hills as required for leisure/social activities. Could do this while I wait (possibly forever) for a correction.
•Just a thought: My parents own real estate, my nan owns real estate, my childfree aunty owns real estate. Unless they all sell up to fund their retirement years it is likely I could inherit some real estate. If you look at the family scale asset allocation perhaps it makes sense for me to put my capital into something other than (potentially) inflated real estate? If real estate continues to go up then I potentially inherit a lot of real estate. If real estate crashes then I still have my personal investments in other assets.
Statistics: Posted by Matty — Thu Nov 06, 2014 10:59 pm