How to assess demand for granny flat

Hi all,

Looking into the feasibility of a granny flat in Sydney, Matraville. Property is on 560 sqm flat land with decent amount of space in the backyard. Unfortunately there is an attached single car garage which will need to be removed in order to access the back of the property. Not sure how complicated this is to remove as tile roof is continuous across the garage but there is no internal access to the garage. Property is old and relatively small, looks like a 1970's 3x1.

What is the best way to assess the demand for granny flats as I don't see many in the area? Are they equivalent to two bedroom units?

Thanks

 

Talk to several local PMs to assess rental demand.

 

At the same time, assess the demand for the front house with a granny flat in the back yard. I would imagine it is somewhat less than for a stand alone house.
Marg

 

Thanks.

Good point Marg as I've been looking for a PPOR too and don't place much value on some places with granny flats that I've inspected. Reason for placing a granny flat was an idea to create a revenue stream for my parents place as they head into retirement. If build cost $125k for a 2x1, then rent out equivalent to 1 bedroom unit $400-500/wk equates to 15-20% gross yield.

Thinking options as I don't think the current property value will be equal to downsizing & buying a unit.

 

All the granny flats I've had built have rented at equal or more to a typical 2 bedder unit. Never less. That said, the existing house did have a $20-$30 reduction in rent as a result.

It simply comes down to how its structured and how well it can be divided.

As for demand, as long as there are two bedders in the area that are snapped up for rent then you won't have a problem with renting out the granny flat.

Also, allowing pets increases the attractiveness of the rental - as most units don't allow them and houses that do are generally 3 bedders (more than what they require) that are "well maintained" at best.

Couple examples (i don't own all of these, but have had a hand in them):
Hills: House $600 + Granny Flat $470
Parramatta : House $600 + Granny Flat $510
Ryde: House $750 + Granny Flat $550
Bankstown: House $500 + Granny Flat $500

 

Not sure I understand this - 560m2 of land at Marrickville is going to be pretty valuable regardless of the condition of the house.

You might also want to consider the tax aspects of creating an income stream from their PPOR.

 

Good point on the tax implications. You are right that a property in Marrickville is worth a bit but not sure if it will be equivalent to two smaller properties. I guess the investment property could be in a cheaper area or a unit. Also serviceability for a loan may be tough too as parents have very limited income and close to retirement.

There are some non-financial aspects, main one being financial discipline. Parents aren't financial savvy or good planners. If value is locked up in the property they are less likely to spend it. If the place is sold, they may not invest the same amount and splurge like winning lotto. All for living life, but they have many years ahead of them.

 

So its this Marrickville or Matraville?

 

It's Matraville. Didn't realise Tonibell referred to a different suburb which I just copied.

 

@FrivolousPanda I was wondering how you made the same mistake
Next thing you its going to become a Granny flat in Macksville - at which point i would be surprised that you could get that much rent

 

I live in the area. Recently there was a house and granny flat for lease on perry st for 1300pw older style 1 bed gf double storey and 4 bed house from memory.

In my street a few months back battle axe block with granny flat under construction, front house got leased for 900, gf still under construction now.

Next door to me old school house is split in tandem ( tenants at the front 2 plus study and down the back 2 bed) very original. I think rent they for 550 and 500. Across the road has the same and rented for 600ea a few years ago (I think they were 3 beds each).

So judging what Iv seen in the local area depending on position of gf (corner block or dual access) you should have no problems getting around 500-600pw in my opinion.

 

Good to read these observations on granny flats. Any ideas on lifespan of a granny flat? Assume usual investment in comestic renos (carpet, paint etc) and appliance replacements for upkeep. Will they be relatively structurally sound and comfortable to live in after 25 years or will they need to be demolished.

 

Depends on the build and up keep, but generally I'd say yes.

 

Odd question I would have thought - what sort of construction were you planning on using? I built mine using the proper construction methods and expect mine to last a lot longer than 25 years, or even 40 years as per the ATO expected lifespan.

 

Not planning anything out of the ordinary. I'm just ignorant to construction and didn't want to assume that a granny flat is a proper build and end up with a surprise that it has a much shorter life than a modern day house.

As the property is already owned (sunk cost), the gain/loss from a granny flat is only rent less expenses, build cost and possibly removal of granny flat. The gain/loss from the land is already there irrespective if a granny flat is built. So how the long the granny flat is rentable is important in evaluating the option.

Given the long life of the granny flat, how long it takes to recoup the build cost may be a simpler way of looking at it.

 

It's built to the same spec as a house... except limited to 60sqm.

So with all buildings, it comes down to quality.

 

Too many variables to consider (eg. is it shared access for the main property, parking etc). Usually you will find that you will get rental similar to a 1 or 2 bedroom unit but best thing is to call your real estate agent to assess demand since it's very dependent on the area you are in.

We share our office with a builder who does heaps of granny flats. They also do those container granny flats which are assembled off site and installed via a crane. A little bit cheaper than traditional timber and steel frames so might be more viable as an investment. We do all the post builders cleaning for them and the quality of the interior looks pretty solid, although I'm not sure how they will hold up long term.

 

Thanks @FelixW. Interesting to hear there is an alternative construction method which is cheaper. I guess it depends on the how long owners wish to have a granny flat, finish quality and if tenants will accept it as equivalent to a normal structure.

I've parked this idea for now. Whilst this idea seems to stack up financially, the need to involve family makes me hesitant to pursue it any further for now.

 

If it looks like a house, it'll rent like a house.
If it looks like a container, it will rent like a container.

So while you might save some money on using a container, you'll pay for it by way of less rent.