Granny flats

Hello All

I recently listed one of my ips on the market to take advantage of the hot market. The plan is to use the funds to build two granny flats in NSW. This should result in an improvement to my cash flow position and my serviceability to purchase in other markets. I think it's a win- win situation as I can also be adventurous with my career or alternatively work part time.

So far from my initial contacts with several granny flat builders, I have been advised:
- Certificated approval period of 4 to 5 weeks by a private certifier
- Construction period of 8 to 12 weeks
- 5 per cent discount on 2nd granny flat build
- Additional timber cost of $2 to 3K (shortage due to busfires, delivery issues and building boom overseas)
- Additional cost of $8 to 12k each to remove existing garage for access
- Additional cost to deliver and transport materials to job site

 

Have you consulted with a broker on this? Actually a good one (as a lot may not disclose trivial obstacles)

Sounds great plan in theory but your plan may have obstacles (ceilings on rental income, pre/post apra lending capacities etc)

In saying that as long as you havent closed any existing loans there are many ways to overcome

 

Thank you, already have done this hence why my post is in the granny flat section.

 

I was looking into the same thing a couple months ago although was only planning on building one. The feedback I got from companies in QLD was that it was a much longer waiting period to complete the flat. Due to the lack of supply for certain materials, they were quoting me with a 6-month time frame from start to finish. The cost of the flat was also up by 20% from 12 months ago so, in the end, I opted not to take this approach. If you are adamant about increasing cash flow then it could be a viable option but just keep in mind the premium paid on new construction at the moment and the increased time frame.

 

On average it's 100k+ per GF and will add 50k equity to the property, be careful of overcapitalizing, and further investigation is required in regards to the ideas you have around servicing and increased borrowing capacity.

 

Agree, I recently inquire about building granny flat in Blacktown LGA and i was told that council will charge around 25k for development fees (for my suburb) plus a building for 2 bedroom unit (60sqm) will cost around 125k plus landscaping, new service meters plus fencing another 15k to 20k. So basically builders and council both want to rip you off before you even start getting cash flow from granny flat.

Granny flat don't come with superior fittings and furnishing so around $1500/sqm is reasonable but builders want around $2,000/sqm plus more for other works which is outrageous.

I decided to invest all money that I had saved for Granny flat into Stocks (ETF & Big 4 banks) which is much simple and headache less solution. no real-estate agent, tenant, builder and council issue and I retain my house as it is for future development or upgrades...plus get dividend and capital gain year on year... !

If I need cash-flow from property at low budget then will buy unit in regional NSW/QLD and get it tenanted then paying outrageous premium to builders.

One thing I discovered talking real-estate agent and looking at recent sales around my suburb that Granny flat doesn't add value to your property so what's the point?

 

I have decided to still continue with the granny flat builds as the granny flat locations are very tight with no rental stock. Recently a granny flat in the area rented for $450 per week and my managing agent has had no rental stock as anything available appears to be gone within a week therefore I am very confident of this market.

Anyway, I recently received mixed news whereby one site needs to go via the DA approval due to issues with the stormwater drain/ flooding plan but fortunately the other site can possibly be approved by a private certifier. I may decide to forgo the granny flat build on the DA approval site and decide to go with a complete renovation once the current tenants leave to increase my rental return as it is currently receiving $440 per week but could potentially fetch up to $600 per week with completed renovations which will be completed by my personal contacts who completed the renovations on my PPOR. My wife would like to build a duplex on this site, but I am not keen to do this until later on in my investment journey.

I'm meeting with the granny flat builder later this month when they are back to work and hopefully, there will be no more issues or surprises. I see this as an opportunity to share the information who may be interested in this route.

 

In Sydney, most GF builders are quoting over $ 140,000 for 60sqm and time is certainly not 12 weeks.

CDC can not be granted when your property is affected by bushfire, flood, biodiversity, heritage etc. Site fall away from the street may require drainage easement which takes a long time and can cost $40,000 - $ 100,000 (legal fees, compensation, earthworks etc). .

 

Hi @jins13,
I’m interested in your journey. I completed a granny flat in 2015 as an owner builder and have a property now in Sydney that is prime for a granny flat.

I’d go for a granny flat builder this time, as I’m time poor and just don’t have the capacity to manage a build.

Happy to share my experiences and am interested in how you go with yours.

Cheers

John

 

Sounds good John and yes I'll let you know how I go with my appointment with my granny flat builder on the 21/01. The aim would be to proceed as fast as possible with the build as this would allow me to complete my next couple of goals off my investment targets for the year. I would go crazy if I tried to manage a build as I went almost crazy with a complete renovation project on a house due to tradies letting me down and my constant threats at them to get things done properly!

@ParraEels has provided me with some good information (thank you) which I'll ask the granny flat builder and if it is not a feasible option for that site, it would just mean that I get to build only one granny flat on one site and the other site would be a renovation to the house only.

 

Agree, most builder in Sydney including the one with five star google review rating will tell you to build granny flat for 90k on their website but when you call the first thing they will tell you is timber is hard to get this days and many other material are difficult to get so prices gone up to 140k. Now, this 140k probably won't include landscaping.

their contract will also say that they can apply escalation for increase in timber or steel or other material cost increases.

they will promise the world and do things within 12 week but won't finish within 12 week in most cases. ask them to give you contact number of the people whose granny flat they completed in last 2 months.

be careful on payment terms as to when you pay the money in particular keep final instalment bigger which will make them work to finish off and handover but builder will argue not to do it because they know that they will easily let go final $5000 when they have defect worth $10,000.

if you get builder who charges $1500 / sqm for granny flat including all cost (site cost, construction cost, fence separation, separate water & electrical meters, landscape if any).

granny flat normally don't increase value of the property if it is in good / wealthy suburb but lower socio-economic area it will increase as long as you haven't bought in last 2 years when prices are significantly high... IMO.

 

Castle hill based GF builder quoted us $148,000 for brick veneer GF in Western Sydney.

 

Yep, it was tough dealing with the tradies - most difficult part of the job.

 

Wow prices have really escalated. Did you go with them?

 

No, average rent $375/w, recoup investment in 7.5 years. Not find attractive

 

Unless you are builder yourself or know construction there is no point building granny flat at rate above $1500/sqm.

The rate you got was about $2499/sqm so builder will make around $1000/sqm to $1250/sqm for 3 months ...which is insane IMO.

Obviously currently there is issue with supply thanks to Covid and China which adds to cost as well so best to wait for me until all supply uncertainty are sorted and bank rates go up to 5%.

 

I also noticed that GF rent has come down from $ 400 to $ 375 in last 2-3 years. Too many granny flats in Sevenhills/blacktown area. Many stay in the market for 5-6 weeks, not easy to get tenants when too many GF is available for rent.

 

Yep I had to reduce rent on my GF due to covid. I thinks it’s a bit below market now but not gonna turf the current tenant for a few $$$ a week.

I didn’t have the knowledge back then, but the $90k or so I spent would have multiplied 5x or more if I had used it to buy another IP instead of a GF. All part of the learning curve.

 

Have you considered if you are able to do a CDC duplex construction?

From a capital growth perspective this may be more attractive than a GF construction.

 

well, 90k deposit would have allowed you to purchase new property but also created massive debt as well but the good thing is that you managed to built it within 90k budget and that is the right amount for tiny 2 bed granny.... so don't regret it was worth investment in my opinion.