Granny Flat returns VS share investment

Well, that can change things a bit. Of course it all depends on if you want to stay there long term, and how you view having tenants in your back yard and how hands on you wish to be.

We used to live in a home that had a second 3 bed home at the rear. Managed by a local PM, but we did all maintenance ourselves. So long as you leave the tenants to do their own thing, just like another neighbour, there's no issue.

 

Yep - that was idea and to use the income coming off the GF to supplement our retirement income.

 

It's not a bad idea....but it's by no means the only idea.

I guess you'd have to weigh up the pro's & con's for your situation.

If you're not on a large income & have no other investments and retirement is looming, and the prospect of living off of the pension is a scary prospect, and you're not planning on moving any time soon, and you've got not much in the way of Super, then it's a pretty safe place to spend your $140k to give an ongoing income.

It won't disappear like investment in the wrong shares can, although if you ask around there's not many that would advise on that strategy. It's not going to bring in huge capital gains, but you can't sell it anyway unless you sell the house. It's purely an income play.

I have a friend who has done exactly this, but has her elderly parents living there at present, and when they eventually move on, it's set up to be her income for life as an addition to the pension.

 

Is there a reason why original poster cannot:

1) build granny flat

2) use rents from granny flat to buy shares for dividend income (well,he did say no Gearing!)

3) Repeat, repeat for 15 years

4) At the end of 15 years, live off Granny Flat rents AND share dividend income...

 

Who would be the most appropriate type of person to speak to about this?

 

Start with a few books and learn the basics yourself.

When experienced investors do this, the question isnt 'what should I do', but 'with my knowledge and after weighing all the options and objectively deciding these are my best options, I'm going to talk to tax advisers etc to find out the more efficient way to do this'.

From the (very) limited information you posted, you probably need to start with a proper plan. What do you have? What are you aiming for? Realistic ways to get there? How do you know that a granny flat or shares (which shares?) are your best options? What else is there? Understand that you don't want to borrow, but can you get to your goals without it?

 

Thanks Trainee,
To be honest this area is not my strong point - I am just not wired for deciphering the complexities of something like this. I really need to speak to someone who really knows their way around this type of situation so that they can advise me. The fee I would pay would be a lot less than in wasted opportunity cost time if I had to study this to the point where I would be the expert.

 

Suggestion is to at least understand enough to evaluate the experts.

 

… because, in reality, the only person who is accountable for YOUR financial journey is YOU

 

I believe I will be able to comprehend details set out by a competent professional. What I need to know is if I take 41K and throw it into shares given our particular circumstances what the likely outcome would be or if that 41K was used to build a granny flat, again with our particular circumstances - what that likely outcome would be. I don't think it will be that hard to compare the 2 options once the details of each scenario are uncovered by a competent professional being paid a fee and not having their judgment possibly clouded by a commission muddying the waters.

 

**140K (correction to the amount)

 

I think everyone was too harsh on Jonny. At least they're giving a thought experiment a go, and learning a little Excel along the way.

Jonny, your original assumptions were *okay* for a starting point, but you can end the experiment at the very first calculation.

You've assumed 5% returns on the shares. Yep, cool. No problem with that assumption.
Then you've said you'll get $20k rental on a granny flat that cost $140k.
That's a 14.2% yield. You don't need to keep playing around with your spreadsheet.
Other than trying to see the effect of compounding (assuming you're using the total returns of dividends + capital growth, and reinvesting the whole 5%).
You've basically proved that 14% yield is greater than 5% yield.

You've actually got a good head start on completing your spreadsheet. It won't be hard to slot in all the other missing variables you spoke of. Just add extra columns:
- maintenance, - electricity, -water, - property management fees, - income tax, + depreciation.
While you're there, split the total return into capital growth and dividends for your shares.

Then see what comparable rentals yields are in your area for granny flats. And then factor in how many weeks per year you won't have someone living there and deduct that missing rent from your equations.

 

Rough idea of $140K invested the last 15 years (or the start) in different company’s and last annual dividend


APE $2,100,000.00 last Dividend $54K

ARB $4,500,000.00 last Dividend $71K

ARG $420,700.00 last Dividend $11.5K

ASX $720,000.00 last Dividend $20.5K

BXB $236,257.00 last Dividend $6.8K

CBA $780,000.00 last Dividend $29.5K

MQG $790,000.00 last Dividend $25K

QBE $173,900.00 last Dividend $2.1K

TLS $365,000.00 last Dividend $5.4K

VAS $422,000.00 (from 2009) last Dividend $14.5K

WES $810,000.00 last Dividend $44.5K

 

Thank you ShireBoy, your feedback certainly makes me feel a whole lot more positive!
The rent is at the lower end of what we could anticipate and we have factored in 4 weeks vacancy. I will give it a go to add in the other bits to make it more complete.

 

Sorry
APE Should read.
APE $5,500,000.00 last Dividend $56K

 

Interesting post. We built a GF for $140k, renting at $340pw and put $140k in VHY, Vanguard dividend ETF.
Pretty similar income. Just waiting for the end of the tax year to see the tax implications of this, the wonders of franking credits, vs the wonders of depreciation. I too am curious about which one puts the most dollars in the hand, post tax.

 

This will be a great comparison over time. Please let us know what happens