Dual key / dual income properties ( near-new )

I'll give you a very simple , quick and dirty cash flow analysis which will demonstrate their potential

Using a 3 bed house + granny flat or fonzie, as an example, in regional NSW - Orange, Bathurst, Wagga for example. @ 500K

For this exercise lets assume land is 150K and construction costs are 350K. After accounting for stamps , legals etc.. total debt is 510K. To be conservative, lets also account for a 10K buffer , for a total debt of 520K

Expenses
520K @ 4.5% I/O = annual repayments of $23.4K
Allow @ 3.5 - 4K for rates, utilities, insurances and property management . remember, only one set of rates. You can choose to individually meter the other utilities if you choose, though.
Total cost to run the property for a year @ 27 - 27.4K

Income
3 bedder $380-400 per week
flat /fonzie $230 -250 per week
So you could generate between $610-650 per week.
@ 31.7 - 33.8K annually

Pre Tax Position

@ 4.7 - 6.4K CF+ ( taxable)
However, lets use the lower figure to be conservative , and assuming depreciation of 15 -16K , which is reasonable for 2 x new dwellings, you'd have @ 11K pre tax loss

Post Tax Position

Using the lesser figure of 11K @ 32.5% MTR , ATO refund should be @ $3575. When added to the pre tax CF of @ 4.7 K, thats a net position of @ 8.2K CF+ after tax.

@ 37% MTR, ATO refund should be @ 4K. Net after tax @ 8.7K CF+

@ 47% MTR, ATO refund should be @ 5.2K. Net after tax @ 9.9K CF+

Obviously you'd need to account for your personal circumstances, and fine tune these estimates a little, and have these figures confirmed by your accountant. You may be able to borrow at below 4.5%, for example, which would improve the yield, or you may get better than 15 or 16K total depreciation for example, which would also improve the yield..... and there's an extra 10K borrowed in this scenario for buffer purposes, which probably isn't strictly necessary but is there just for "what if" moments... removing that would also improve the yield a little bit ...

But this quick example should demonstrate what a typical 500K regional type dual occ should be able to produce, using fairly conservative estimates.

 

By the way,is rooming accommodation approval required to lease dual occ home to seperate families?Any idea of how it works in WA?

 

I am interested in converting one of my investment property (3+1+1) to dual occupancy. It's a 25 years old house with 620sqm block. Can you do it in Victoria? Any restrictions from council?

 

I've seen them advertised in the Saturday paper lift out a little while back. Take a walk around a display village near you as a few of the major players have the house and granny flat floor plan. Maybe try Beechwood. I think they had one.

 

In VIC you can only add a detached granny flat as a Dependent Person Unit.

 

Thanks Euro73.
I have seen a few house extensions with separate kitchen. They are literally two separate units tied together and generating dual rental opportunities under one council rates. Not sure how did they do it. Will do some more desktop research.

 

You can certainly go through council and do it in VIC , as long as you are happy with everything under one roof. It's not Dual Occ thats the problem in VIC per se, it's the detached/stand alone version of Dual Occ that's a problem in VIC. Detached granny flats cannot be done as anything other than a DPU there.

By way of comparison, in NSW the detached granny flat doesn't require council approval whatsoever, provided it is 60M2 or less. It is called a "complying development" and all that's required is a private certifier to sign off. You really only need to meet the minimum lot size and not exceed 60M2 and you are good to go .

VIC has been talking about adopting similar planning laws to NSW for years now... so far it hasn't happened. If they do ever allow the same thing in VIC ( on 600M2 lots or larger for example) I'd be surprised if it didn't become a "thing" there like it has become here in NSW ...

I think its inevitable that demand for these kinds of dwellings will grow. At an Owner Occupier level they accommodate ( excuse the pun) for all kinds of circumstances - a place for granny ( or grandpa) - literally, or a place for adult children, or a home office, or guest accommodation... plenty of families have ageing parents who cant afford aged care. Plenty of families have adult children staying at home far longer to save for their first home. Increasing numbers of people work from home these days... and who wouldn't find guest accommodation handy? At an Investor level, if the events of the last 4 years haven't convinced investors of the merits of stronger cash flow , nothing will. If you can add a 2nd rental income stream for a small outlay and boost your yield significantly to assist with debt reduction or P&I holding costs, that should hold a huge amount of appeal.

These types of dwellings make sense for a lot of different reasons...

 

Thanks heaps, Euro73. It's very detailed and convincing. I have two investment properties with 600sqm land and I am planning something similar. If I can do these extensions, they would become super investments in terms of cashflow. Time to do some mathematics.