Rooming House Investments: Should You Build New or Convert Existing Properties?
Introduction
If you are an investor seeking attractive, cashflow positive real estate, you have probably heard much about the benefits of Rooming Houses. These properties offer the potential for higher rental yields and can help address Melbourne’s ongoing demand for affordable housing. But when it comes to entering the Rooming House market, should you build a brand new property from scratch, or convert an existing home? At Jabel Property, we specialise in guiding investors through this exact decision. In this article, we break down the pros and cons of each approach, so you can make an informed, confident investment decision.
Building a New Rooming House: Pros and Cons
Benefits of Building New
Purpose-Built Design: Every aspect of a new Rooming House can be tailored for maximum compliance, tenant comfort, and operational ease. This includes optimal layouts, modern safety features, and accessibility.
Lower Maintenance Costs: New buildings mean new appliances, roofing, plumbing and electrical systems, which typically result in fewer repairs and lower ongoing costs in the early years.
Attractive to Tenants: Fresh finishes and modern amenities make new builds more appealing, potentially reducing vacancy rates and attracting premium tenants.
Depreciation Benefits: Investors can often claim significant tax deductions through depreciation of new building and fixtures, enhancing after-tax returns. You can learn more about Australian property depreciation here.
Full Compliance from Day One: Building new ensures you meet all the latest building codes, Rooming House regulations, and fire safety standards required by Victorian law.
Drawbacks of Building New
Higher Upfront Costs: Construction costs in Melbourne can be substantial, and land prices must be factored in, especially in sought-after suburbs.
Longer Timelines: From design to council approval to construction, building new can take anywhere from 9 to 18 months before you can generate income.
Development Risk: Unforeseen issues such as construction delays, cost overruns, or changes in council regulations can impact your returns.
Converting an Existing Property: Pros and Cons
Benefits of Converting Existing Homes
Faster Time to Market: Conversion projects can be completed more quickly than new builds, especially if you select a property that already suits a Rooming House layout.
Potentially Lower Entry Costs: Purchasing and renovating an existing property may require less upfront capital than a full build, depending on the condition and location.
Location Flexibility: Many established suburbs have homes ideal for conversion, allowing investors to target areas with high rental demand and close proximity to public transport, universities, or hospitals.
Retain Character: Some tenants appreciate the charm and larger room sizes often found in established homes.
Drawbacks of Converting Existing Homes
Compliance Challenges: Upgrading older properties to meet current Rooming House regulations, including fire safety, accessibility, and minimum amenity standards, can be expensive and tricky. Find out more about Rooming House compliance here.
Unknown Maintenance Issues: Older buildings may have hidden problems such as structural damage, outdated wiring, or plumbing issues that only emerge during renovations.
Design Limitations: You may be restricted in how you can reconfigure the space, which can limit your ability to maximise room numbers or optimise communal spaces.
Piecemeal Upgrades: Unlike a new build, upgrades in older homes may not always harmonise, affecting both visual appeal and operational efficiency.
Key Considerations Before Deciding
Budget: Carefully weigh your available capital against realistic build or renovation costs, factoring in contingencies for unexpected issues.
Timeframe: Are you seeking quicker returns, or willing to wait for a potentially larger payout from a new build?
Location: The best performing Rooming Houses are close to amenities, transport, and employment centres. Assess whether suitable sites are available for either option in your target suburb.
Regulatory Requirements: Both new builds and conversions must comply with complex Rooming House regulations in Victoria, including operator licensing, safety, and minimum room sizes. You can review the requirements here.
Your Investment Goals: Are you seeking maximum cashflow, long-term capital growth, or a balance of both? Your goals should guide your decision.
Jabel Property’s Expertise: Helping You Make the Right Choice
At Jabel Property, Melbourne’s leading Rooming House consultancy and investment agency, we have helped hundreds of investors realise their goals by providing honest, practical advice tailored to each unique situation. Whether you are considering a new build or a conversion, our team can help you:
Identify the best suburbs and properties for Rooming House investment
Assess financial feasibility and potential yields
Navigate local council approvals and compliance requirements
Connect with reliable builders and contractors
Project manage your investment from concept to completion
Conclusion: Which Path is Right for You?
There is no one-size-fits-all answer when it comes to Rooming House investments. Building new can offer a tailored, low-maintenance asset with attractive depreciation benefits, while converting an existing property can deliver quicker cashflow and entry into established locations.
The right strategy depends on your individual goals, your capital, your preferred locations, and your appetite for project complexity. Jabel Property can help you weigh your options and de-risk your investment journey.
Take the Next Step with Jabel Property
Ready to explore whether building or converting is the best way to access cashflow positive Rooming House income? Our specialists are here to guide you from strategy through to completion. Book a confidential chat with Melbourne’s trusted Rooming House experts today.