Buy another IP vs Building Granny Flat

Hi all,

I am looking to build a granny flat in Moreton Bay on an IP I acquired last yr. Currently the IP is 80$ negatively geared P&I per wk. With GF rent income it is est to be around $80 cash positive per wk.

Since my partner and I have steady reliable income and 70K+ in savings I am now considering holding off on the GF build and instead purchasing another IP. Our borrowing capacity is only around 350K so next IP would be similar 300K IP neutral to cash flow positive income.

Question: would it be smarter to accumulate more IP's over building GF on existing IP. Goal is ultimately to retire on rental income, but currently as our income can fund more IP and we are not stretched beyond our means, should we keep accumulating IP's until we need more cash flow THEN build granny flat?

 

How would you fund it?
How much value would it add?

Compare this to getting a property.

The difference with a new property is that it can be dealt with separately such as mortgaged and borrowed against, taken to a diferent bank, sold separately etc. a GF is tied to the existing property, but the extra yield can be very high.

 

Explored this in our own journey, and concluded it was best to buy another Property instead.

If the 350k Property grows 10% you make 35k, so on and so forth. Granny flat won't give you that.

 

Often investors will buy IPs until they tap out lending and then look to build the granny flats to assist in retiring the debt.

min the end it all comes back to your plan and risk appetite - if the negative cash flow is negatively impacting your investing mind set maybe it is a good idea to granny flat first, but if it is not you are best building the portfolio and granny flatting once the portfolio is larger.

 

I agree with @Toby. I'm at a stage where l can't really acquire any more ips, so therefore will be looking at adding granny flats to improve my returns on my existing properties and pay down debt to improve my LVR position.

Besides, there are depreciation attached to the granny flat and it'll be nice for any emergency repairs still getting covered by the surplus funds.

I may even sell down a couple to fund the granny flats, because l know there is a market for it in my area.

 

The question is a variation of the eternal CG vs Yield debate. The GF will boost your yield and accelerate debt reduction, but the second IP offers greater CG potential.

My vote were I in your shoes would be another IP. If you want cashflow make sure the purchase leans that way.

 

Yep be clear on your strategy and your current stage in it. Granny flats work best at the end of your accumulation phase and for long term holds..if you ain't there yet get there first and then use equity to finance builds.

 

Thanks for the reply's everyone. It's settled, I will purchase another IP first followed by the granny flat. I'll try to get the GF at the same time if my borrowing capacity allows.