Rooming houses and dual key properties are both ways of earning more rent from a single block of land. They work very differently, though, and they suit different investors. Here's how to compare them.
What is a rooming house?
A rooming house is a property where several people rent private rooms, usually with shared kitchens, bathrooms and living areas. Each resident has their own agreement with the operator, and each room produces its own rent. Co-living is a close cousin, usually with a more modern, purpose-built design.
What is a dual key?
A dual key is one house on one title with two self-contained dwellings, each with its own entrance, kitchen and bathroom. You end up with two tenancies instead of a handful of room-by-room agreements. If you'd like the full explanation, see our guide to what a dual key property is.
Side by side
- Income potential. Rooming houses collect rent per room, so total income can be higher than a standard home or dual key. That's the appeal, but income also swings more as rooms turn over.
- Regulation. This is the biggest difference. In Victoria, for example, a rooming house must be registered with the local council, the operator must be licensed through Consumer Affairs Victoria, and the building must meet minimum standards covering privacy, security, safety and amenity. Other states have their own rules. A dual key is generally treated like a standard residential tenancy.
- Management. More residents means more turnover, more inspections and more day-to-day management. Many rooming house owners hire a specialist manager, and that cost needs to be in your numbers.
- Tenant mix. A dual key suits households, such as a couple or a small family, in each dwelling. A rooming house suits individuals who want a private room at a lower weekly price.
- Build and budget. More rooms, more bathrooms and compliance requirements usually mean a bigger build and a bigger budget. Always get a full cost breakdown before comparing.
- Finance and valuation. Lenders and valuers can treat both differently from a standard house. Talk to a broker who has funded them before.
- Resale. A dual key can appeal to investors and owner-occupiers alike. A rooming house is a narrower market, mainly investors.
Which one suits you?
A rooming house tends to suit investors who are comfortable with regulation and active management and want higher income potential. A dual key tends to suit investors who want a stronger rental return than a standard house without the compliance load of a rooming house.
Your budget, borrowing capacity, how hands-on you want to be and your plans for the next five to ten years all matter more than the headline yield. Neither one is automatically better.
Before you decide
- Check the local rules in the state and council area, since registration and standards differ.
- Ask for a net cashflow estimate that includes management, vacancy and compliance costs.
- Check the builder's track record on the specific property type.
- Speak to a broker about how the property will be valued.
Want help narrowing it down? Take our short Property Match quiz and we'll show you which strategies fit your situation.
This article is general information only and is not financial, legal or tax advice. Investlogic does not hold an Australian Financial Services Licence. Regulation varies by state and council, so confirm the current requirements before you buy.