All Topics / Creative Investing / Sub-Leasing Business

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  • Profile photo of kong71286kong71286
    Participant
    @kong71286
    Join Date: 2009
    Post Count: 261

    Hi guys,

    I am currently living in a property in a relatively nice suburb, and am renting out the other two bedrooms in the house, and it seems to be working out quite well.

    Initially there was the upfront costs of paying the bond, buying all the appliances such as fridge, washing machine, TV, as well as the time component in setting things up, but I’ve recouped a significant proportion of that cost over the past year.

    I was just wondering if you guys had any ideas on how I could do this on a bigger scale?

    Basically offer the entire package to the tenant that includes rent, bills, internet, furnished house, cleaning and gardening for $120-140/week in exchange for a small profit of around $15 profit per tenant per week

    – Do I just rent out a property under my name with permission to sub-lease from the owner?
    – Or is it best to do this under a different entity such as a company?
    – What are the legal and tax ramifications of doing this?

    I know $15/week doesn’t sound like a lot, considering the time that would be involved in setting everything up, but I think it is quite worthwhile since you can get +60% ROI on your $3500-5000 outlay, and if you can get 10-20 properties that’s $450-900 of passive income per week!

    Cheers,

    David

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681
    kong71286 wrote:
    , and if you can get 10-20 properties that's $450-900 of passive income per week! Cheers, David

    It will be anything but passive.

    You're making the common mistake of looking at this from an investor perspective. You have to look at this from a businiess angle and model it accordingly. IE develop a business plan and see where it takes you. If you can't make it work at a business level then it's probably a poor investment.

    Tip: set it up as a business (P/L). Much easier to sell if you can get it to work. There's a dude in the US doing it out of Atlanta. Works  over there but that's a different kettle of fish although some aspects of his model would fit in AU and some aspects would lend themselves to a bit of reshaping to make an AU model more compelling.

    Tip 2: Can it scale up to a point branding becomes a strength. Think F1 Motels. That helps drive a market and shifts mindsets towards this style of living. For example you may find their resistance to this model initially but growing your base reduces this friction. This kind of service experience is everything.

    Tip 3: There's already casual room rentals systems for travelers etc like easyroommate.com and www.couchsurfing.org. Their models will have aspects that can be copied into your model.

    Have fun

    Profile photo of kong71286kong71286
    Participant
    @kong71286
    Join Date: 2009
    Post Count: 261

    Thanks for your input Freckle – I never really looked at this from a business perspective.

    If I were to setup a business it’d probably have to be a Property Management Business that focuses on maximizing landlord’s rent, and then getting a commission from that rather than renting it myself first, and then sub-leasing. However, before setting up a business I think it might be best for me to be able to prove that I can succeed with this idea on my own with a few properties.

    Since I am looking to make baby steps first with one property at a time, is it best for me to just rent out a property under my name and then sub-lease it, or should I be setting up a separate entity right from the beginning (and if so, would that entity be allowed to rent out a residential property, and have utility bills under its name?)

    Profile photo of Dave WardDave Ward
    Participant
    @dave-ward
    Join Date: 2004
    Post Count: 37

    Hi David,

    If you are going to set up a subleasing business, you could set one up in the corporate short stay, furnished apartment market. The rates you an get for a Sydney CBD furnished 1BR apartment are around $1,100 per week and from our experience in doing it, they are leased out around 90% of the time if they are furnished tastefully ($15,000 per apartment to furnish).

    There are so many people looking for this type of accommodation in Sydney that don't want to stay on a hotel. You can also find apartments that are located close to shops, entertainment and transport for around $550 per week.

    That is certainly something you could start a business with if you wanted to sub-let as a rule of thumb. Of course you need to ensure the owner is happy with you doing it, but if you can build a relationship with the managing agent, it really isn't an issue at all. 

    Dave Ward | Geronimo Finance
    http://www.geronimofinance.com.au
    Email Me | Phone Me

    Property Investor, Property Investment Expert & Advisor, Finance Expert & Strategist

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Consider whether you need to be registered as a real estate agent too

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 992

    You either need a bigger margin or the tenants pay their own utilities – they're more frugal when they pay their own utilities.

    Check with Dept Fair Trading or RE licencing body in your state on what kind of RE licence you need, some are quite easy.

    Cheers

    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

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