Dual Occupany - Tenants in front property

Interested in whether anyone has done a dual occupancy development (battle axe block) and kept the tenants in the front house during the construction period. I have tenants who don’t have a fixed lease but are keen to stay. Can the front house be fenced off and managed in a way that minimised disruption to the tenants in the front property. Obviously, rent would need adjustment during the construction period and an adjustment to the rent long term given the effective land size is being reduced. This is a straightforward dual occ. with driveway down side and new house in backyard (600sqm block).

 

Hi Harry,
Yes I have done this a couple of times. Temp fence of pine posts and solid G.I. or colorbond sheets to keep the mess out worked best for me. Give the builder as much room as possible in the back and down the side. The biggest issues are with the site bin, toilet and workers cars all over the front lawn of the front house. Also the clearing of the lot creates a lot of dust, last time I had a water truck there to wet it down and avoid all the dust issues I had on the previous one, cheaper than cleaning up the neighbors houses after the fact (they were dusty sites though). The interruption to the services as the back house is getting connected is fairly minimal really, a couple of hours at the most.
You just need to be mindful that there is a big impact on those living in the front. Be seen to be concerned about the impact and manage it as best you can.

 

Yea. Its just a matter of discussing it with them the issues - smaller block, site mess, site noise, etc.

If it was all one big block when they moved in, they might expect it to stay like that - so you can understand they might not be happy about it - so discuss with that in mind. Or if you discussed it at the start, thats brilliant.

Rent might need to be reduced to reflect smaller property, but this will be more than made up when the back one is rented.

 

Yes I did it for a GF build. I gave them full disclosure, fencing, paid for the bills, a general rental discount, as well as additional discounts for particularly disruptive periods.

Basically bent over backwards for the tenants during the time, which is probably the best thing to do imo.

 

Thanks for the detailed reply. A couple of further questions. I assume in the period up to construction starting (plans drawn up, surveyor inspecting site, going through council approval), disruption is pretty minimal and can be managed with the tenants, albeit with plenty of transparency and communication. Of course, from a standing start (now), it may be 12 months before I can turn any soil.

(BTW, the tenant has been living in the property for 17 years, and has indicated they will move out in Jan next year (retiring) but wish to stay put for the coming year. Their lease expires in Aug and they will then go onto monthly. I have told the tenants that I will be doing this development so have kept them across it. I am very keen to do the right thing by the tenants, as they have never missed a single rent payment during that period, kept the property immaculate, and turned the back yard from a bomb site into something that could go into house and garden magazine).

A final more difficult question. These dual occs (battle ax blocks) are less popular in the area. Most do side by side. Property is in East Bentleigh Victoria, so sale price ~$1.4m (land price only as front house is in good condition but is 50 years old and does not add very much to price). Side by side would probably cost around $1.4m (for 2) which I have decided not to do (I am a conservative borrower). Don’t want to sell one off as I will be hit with capital gains tax (I have held this property for a long period). I merely want to add another house (maybe spend $150k) to improve the yield as rental yield is currently very low. I plan to rent out both houses forever (I am very long term buy and hold person. Yes, bit boring but it suits me). Expect to get $500 per week rental for the back house as I am not looking to necessarily do high end build).

Please critique my plan.

I know you will probably say I am going too cheap on the build for the area, but again, I am not looking to borrow huge amounts of money, and I am not planning on a quick sale (children can worry about that when they inherit the property).

 

Doing exactly this right now, site excavation commencing tomorrow. Have negotiated a $35/W rent reduction during construction, reverting to $25/W reduction post construction for the loss of yard and side driveway.

Also, separating fence goes in once site levelled and I am paying for water and electricity during the building.

 

I don't know the specifics of your project, or the area, but alarms bells are ringing for me. I don't think its ever good enough to ignore the growth side of the equation just because you intend to hold on for a long time and you are aiming for yield.

If you just want yield then tap into some equity and buy some dividend shares. Or in a property sense, go buy something else as a yield play. I think building in the backyard just because you can is not a good strategy.

 

I should say I considered the granny flat option, but understand you need to subdivide the block to do that (assuming you are renting out the front house and granny flat to separate parties). Still checking that out.

 

I must say those things were niggling away at me. I started thinking of just a granny flat (good yield) but council restrictions prohibit this (Double checking this point).

 

Hi there, did you subdivide the block for your GF build? If so, was there a council requirement to do so. And could you share some high numbers on the economics of that GF project. Apologies for all the questions. Keen to learn from those with a little more experience.

 

No the definition of GF in WA (and most states I think) expressly prohibits subdivision of the GF. Building a GF where you can subdivide seems like wasted potential to me.

So I utilised a backyard that couldn't otherwise developed. Rough numbers were $190k for a 2x2 GF turnkey with landscaping and upgrades to the front facade as well. Medium spec. Rented for $380/week which was a little lower than expected due to rental downturn in WA.

Probably increased the value of the lot by around 80% to 100% of the build cost. Which isn't great, and typical of most GF builds, but I guess the yield is nearly 10% on the cost so overall worth it and aligned with my long term strategies.

I would have some serious reservations in subdividing in a sub-optimal way just for the sake of yield (battleaxe v side by side as you mentioned).

 

I hate to say it but I think you are right. Ultimately, I need to think of a build on the total site that maximises total value (or maximises total profit). And I think that would be achieved with a side by side build. People are doing these types of builds in the area of a reason.

 

Its early with first coffee but reading between the lines it sounds like you and I maybe similar, perhaps find ourselves getting closer too/thinking retirement (who would have thought).
Not much super, wasn't compulsory until mid 90's, being self employed most my life the mortgage seemed more important than something I might not live long enough to collect, want some income to supplement pension, if I live that long, asset caps etc to consider.

We all have different backgrounds, work/life experience, investment knowledge others have gained, find easier, I lack.
Its hard to trust diy best case scenario/strategy when we don't have much knowledge in this stuff, reading, discussing etc can be mostly gobbledygook, everyone has different opinions, conflicting. Pay for professional advise but being burnt in the past can't help wonder if the advise is best serving for them or me (ponzi schemes etc), in the end everyone else seems makes good profit from fees and cash injection, not me.

Share trading seems high risk gambling, confusing, (tried it pre GFC & lost 30k), labour now talking fiddling with it so no certainties. Like monopoly as a kid property seems a safer bet, less stress (depending PM), income top-up from rent on property I own, no debts, if the place burns down insurance will look after it (hopefully), use it for what it is until I die, leave it to the kids for an asset bump, which they'll hopefully do likewise for my grand-kids.

My current plan - I have two 3x1's on 1100sq single title (duplex) I could put ~12 units on atm, currently happening on blocks around me, but its a poor market atm, many new units been sitting vacant on the market for many months, I don't want the debt, risk, stress. Currently live in one but going to turn a garage into a GF for myself, use as a base while I grey-nomad, rent/live off both units, if I live long enough I might develop or sell later, otherwise its the kids problem.

Hard to know if I'm going about it the right way, uncertainties, fear. All would be sweet if only the right numbers dropped on Saturday night.