---
title: "We Bought a House for $820K and Turned It Into $1,200 a Week"
description: "Step-by-step rooming house conversion case study: $820K purchase, $85K renovation, three rental units producing $1,200/week. Real costs, real floor plans, real numbers."
author: Joey Don
date: 2024-08-05
category: Renovation & Development
url: https://premiumrea.com.au/blog/rooming-house-conversion-820k-to-1200-week-rent
tags: ["rooming house", "renovation", "cash flow", "rental yield", "property conversion", "Melbourne", "dual occupancy", "granny flat"]
---

# We Bought a House for $820K and Turned It Into $1,200 a Week

*By Joey Don, Co-Founder & CEO at PremiumRea — 2024-08-05*

> I'm going to walk you through a deal that my accountant called 'obscene.' Not because it was risky — because the numbers were almost too good. An $820,000 house producing $1,200 a week in rent. Let me show you how.

Let me take you through a property I walked through last spring. It's on Lloyd Avenue, about a ten-minute drive from Fountain Gate — Melbourne's second-largest shopping centre. The kind of street where every second house has a boat in the driveway and the lawns get mowed on Saturday morning.

From the street, it looks like a standard three-bedroom brick veneer from the 90s. Nothing special. The sort of house most buyers would scroll past on realestate.com.au because it doesn't photograph well.

We bought it for $820,000.

Today it produces $1,120 to $1,200 per week across three separate rental units. That's a gross yield of 6.5% on the purchase price alone — and we haven't even factored in the land's development potential.

This is a rooming house conversion. And it's one of the most powerful wealth-building strategies nobody talks about.

## Why this property and not the one next door?

Not every house can be converted into a multi-unit rental. Attempting it on the wrong property is how people lose $50,000 and end up on VCAT's bad side.

Here's what made this specific property work:

**Land size: 727 square metres.** That's well above the 550-600 sqm minimum we look for. More importantly, it has a 20-metre frontage — which is extraordinary. Most blocks this size have 15-16 metres of frontage. The extra width gives you flexibility for separate access points and, down the track, opens up three-lot subdivision potential [1].

**Layout: existing separation.** The house already had a natural division point. A long hallway with bedrooms on one side and living areas on the other. When you're converting to multiple units, existing walls and plumbing locations determine 80% of your renovation cost. If you have to move a sewer line or relocate a kitchen, costs blow out from $80K to $130K. This house had its wet areas concentrated in two zones, which meant we could create three self-contained units without touching the main plumbing stack [2].

**Side access: 3.5 metres.** Wide enough for a crane truck, which matters for any future granny flat or subdivision construction. Also wide enough for a separate pedestrian entrance to the rear unit, so tenants don't share a front door.

**Zoning: GRZ1 (General Residential Zone).** Not NRZ, which would limit density. GRZ allows for the kind of internal conversion we planned without requiring a Planning Permit — as long as we stayed within the 1a building classification of three tenancies maximum [3].

I check all four of these before I even schedule an inspection. If any one fails, I move on.

## The three units: what we built and what they rent for

We spent approximately $80,000 to $90,000 on the conversion. That's the all-in cost including materials, labour, Building Permit, and compliance items. Here's what each unit looks like.

**Unit 1 — front of house, standard layout.**
Approximately 20 square metres. Kitchen, bathroom, one bedroom with a built-in. This was the simplest conversion — essentially the existing master bedroom plus the adjacent bathroom, with a kitchenette installed along one wall. We added a separate entrance from the side path. Rent: $320 per week.

**Unit 2 — centre of house, the largest unit.**
Kitchen, laundry, two bedrooms, bathroom. This is the premium unit — it got the original kitchen (upgraded with new handles and a splashback for about $1,500) and the larger bathroom. Separate entrance through what was formerly the main front door. Rent: $450 per week.

**Unit 3 — rear of house, granny-flat style.**
Kitchen, bathroom, aircon, one bedroom. Built into what was the rumpus room and back porch area, with a new ensuite bathroom and a compact kitchen. Separate entrance from the backyard via the wide side access. Rent: $320 per week [4].

**Total weekly rent: $1,090 to $1,200** depending on the market at lease signing. At the time of writing, all three units are occupied and the combined rent is sitting at $1,120.

Let me be blunt about the renovation quality: this isn't Instagram content. The finishes are clean, functional, and compliant — not luxurious. SPC flooring at $62 per square metre, basic cabinetry, standard tapware. The tenants aren't paying for stone benchtops. They're paying for a private, self-contained unit in a suburb with 1.5% vacancy where the alternative is sharing a house with strangers [5].

## The compliance framework (this is where most people get it wrong)

Victoria's rental laws are specific about multi-tenancy properties, and getting this wrong can result in fines, forced remediation, or tenants who weaponise VCAT against you. Let me spell out the rules.

Under Victorian building regulations, a standard residential dwelling (1a classification) can have a maximum of three separate tenancies on a single title without requiring Council registration as a Rooming House [3]. Three tenancies. Three separate leases. Three sets of tenants who don't know each other. This is managed by Consumer Affairs Victoria, not Council, and it does NOT require a Planning Permit.

The moment you go to four or more tenants, you cross into 1b classification — a registered Rooming House — which triggers Council registration, DDA (Disability Discrimination Act) compliance requirements including wheelchair-accessible bathrooms, emergency exit signage, fire extinguishers, and annual inspections. The cost and complexity jump dramatically [6].

We stay at three. Always.

**Compliance items we installed:**
- Smoke alarms: hardwired, interconnected, in every unit and hallway. Cost: ~$1,200 installed.
- Safety Checks: gas ($250), electrical ($250), smoke alarm ($250). These are mandatory before any tenancy begins in Victoria [7].
- Separate metering: We installed sub-meters (reader devices) for electricity in each unit, costing about $800 total. We did NOT apply for separate official meters — that would trigger two additional Council Rate notices and cost $20,000-$30,000 in connection fees. Instead, the lease includes bills in the rent price ("bills included" model) [8].
- Building Permit: obtained through a private Building Surveyor for the internal conversion works. Cost: ~$3,000.

> "The biggest compliance mistake I see is landlords going to four units to chase extra rent," says Joey Don. "You cross from 1a to 1b classification and suddenly you need wheelchair ramps, emergency lighting, Council registration, and annual audits. The extra $300 a week doesn't come close to covering the $30,000 in compliance costs."

## Show me the full numbers

Alright, here's the complete investment breakdown.

**Purchase:**
- Purchase price: $820,000
- Stamp duty (5.5%): ~$44,000
- Legal/conveyancing: ~$2,500
- Building & Pest inspection: $550
- Buyer's agent fee: $15,800
- **Total acquisition cost: ~$882,850**

**Renovation:**
- Internal conversion (3 units): $80,000-$90,000
- Safety Checks & compliance: ~$2,500
- Sub-meters: ~$800
- Building Permit: ~$3,000
- **Total renovation cost: ~$86,300-$96,300**

**Total all-in: ~$969,150 to $979,150** (call it ~$975,000)

**Income:**
- Unit 1: $320/wk
- Unit 2: $450/wk
- Unit 3: $320-$350/wk
- **Total: $1,090-$1,120/wk = $56,680-$58,240/yr**

**Annual expenses:**
- Loan interest (IO at 4.5% on $656K, 80% LVR): ~$29,520
- Property management (8.9% + GST for multi-tenancy): ~$5,554
- Council rates: ~$2,800
- Water service charges: ~$1,200
- Insurance: ~$2,200
- Maintenance reserve: ~$2,000
- Land tax (personal name): ~$1,900
- **Total expenses: ~$45,174**

**Net cash flow: ~$11,500-$13,000 per year POSITIVE** [4]

That's roughly $220-$250 per week in your pocket after every cost is covered. On an initial cash outlay of approximately $195,000 (20% deposit + stamp duty + renovation), the cash-on-cash return is around 6%. And that's before depreciation deductions, which add another $3,000-$5,000 in tax savings annually.

Positive cash flow from day one. No negative gearing required. No hoping the market goes up. The asset pays for itself and puts money in your account every month.

## The development kicker nobody thinks about

Here's what makes this deal truly exceptional. The 727-square-metre block with 20-metre frontage has three-lot subdivision potential.

I drove past a nearby property where a builder-developer had bought an 800+ square metre block for roughly $800,000. He's building three townhouses. One has already sold off the plan for approximately $1,000,000. His total build cost across all three is around $1.2 million on a $2 million total outlay. Three units selling at roughly $3 million total. That's an $800,000 development profit [9].

Our property isn't there yet. We're collecting rent, building equity, and letting the area mature. But in five to seven years, when the suburb has gentrified further and townhouse demand has increased, the development play is sitting there waiting. The 20-metre frontage means we can retain the front dwelling and build two new units behind it, each with independent street access via the wide side path.

The strategy is: buy for cash flow now, hold through the cycle, develop when the numbers demand it. The rooming house conversion funds the holding period. The land does the heavy lifting on capital growth. And the development option is the exit — or the next level of the game.

This is what I mean when I say buy land, get the house free. The $820,000 purchase price is really buying 727 square metres of General Residential zoned land that happens to earn $1,120 a week while you figure out what to do with it.

## Is this replicable?

Yes. With caveats.

You need a property with the right layout, right land size, right zoning, and right side access. That rules out about 70% of what's on the market. You need $80,000-$100,000 in cash for the renovation (banks won't lend against rooming house conversions — the money has to be yours). And you need a management team that understands multi-tenancy compliance, because one misstep with a Safety Check or a lease structure can unravel the entire arrangement.

We manage about 300 properties across Melbourne, and our PM-to-property ratio is 1:50. The industry average is 1:170 [10]. At 1:170, your property manager is fighting fires. At 1:50, they're managing. The difference shows up in tenant quality, maintenance costs, and vacancy days.

If you've got the capital, the patience to find the right property, and a team that handles the back end, a rooming house conversion at the $800K-$900K price point in Melbourne's southeast can deliver 6%+ yields with genuine development upside.

I've done this play over a dozen times. The numbers are consistent. The execution is repeatable. And the housing crisis — bless it — keeps filling every unit we create within a fortnight of listing.

The $820,000 house that nobody wanted to look at twice is now earning more per week than most people's entire rental portfolio. That's the game.

## References

1. [PremiumRea land assessment criteria. Minimum 550sqm, 3m+ side access, 16m+ frontage for subdivision potential.](#)
2. [PremiumRea renovation division. Rooming house conversion cost: $80K-$100K for 1-to-3 unit conversion without plumbing relocation.](#)
3. [Consumer Affairs Victoria, 'Rooming House Standards', 2021. 1a classification: max 3 tenancies without Council registration.](https://www.consumer.vic.gov.au/housing/renting/types-of-rental-agreements/rooming-houses)
4. [PremiumRea portfolio case study. Lloyd Avenue property: $820K purchase, $85K conversion, 3 units, $1,120/wk combined rent.](#)
5. [PremiumRea renovation division. SPC flooring $62/sqm, basic cabinetry, standard tapware — functional finishes for rental market.](#)
6. [Victorian Building Authority, 'Building Classification — Residential'. 1a vs 1b classification thresholds and compliance requirements.](https://www.vba.vic.gov.au/)
7. [Consumer Affairs Victoria, 'Safety Checks for Rental Properties', 2021. Gas, electrical, and smoke alarm checks mandatory before tenancy.](https://www.consumer.vic.gov.au/housing/renting/standards-and-repairs/safety-checks)
8. [PremiumRea property management. Bills-included model for multi-tenancy: sub-meter monitoring ($800), no separate official meters (avoids $20K+ costs).](#)
9. [PremiumRea market observation. Nearby development: 800sqm block, 3 townhouses, ~$800K profit on $2M total investment.](#)
10. [PremiumRea property management. 1:50 PM ratio vs industry average 1:170. 300 properties under management.](#)

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Source: https://premiumrea.com.au/blog/rooming-house-conversion-820k-to-1200-week-rent
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent