My Slacks Creek, Logan Granny Flat Build

Thought I would share some details on the project I am currently working on. Hopefully there may be something of value in here for people considering something similar.

Firstly a bit about me, I am based in Brisbane, holding several other properties up here, waiting patiently for this long awaited Brisbane property boom to materialise. In the meantime, I made the decision last year that I would like to go down the path of adding a solid positively geared cash-flow property to our portfolio.

Stage 1 – Property selection

Settled on a freestanding home and then building a granny flat in Slacks Creek Logan. I like the suburb of Slacks Creek for the following reasons:

• On the 20km ring of Brisbane CBD,
  
• One of the closest suburbs to CBD where my budget was achievable (median ~$340k)
  
• Lower stigma than Woodridge, Logan Central or Kingston.
  
• Transport Excellent – M1, Gateway, Busway Train-line nearby,
  
• Employment – Commercial area, Ikea, Springwood, Hyperdome etc,
  
• Established suburb, no development risk/land adjacent,
  
• Older homes: Price is all land value, not a depreciating new build,
  
• Less expensive than other suburbs further out,
  
• 60% OO, (not great, but OK)
  
• Vacancy rate ~3%
  
• Low price driven by Demographic/Stigma only – no fundamental flaws with location.
  
• Logan Council are Granny flat friendly (have since become less so!)

House type: 3 bed, 1 bath lowset brick home, built 1995. Neat, tidy, well maintained.
Land Size 1,055m2
Site: Quiet street, not in the flood zone, level block, two crossovers, one leading to side access to rear, house positioned at front of block, no easements, drainage/sewerage all runs to road not through neighbouring properties.
Price: $356K.

A couple of points on the property transaction:

• Deceased estate, house vacant not listed on internet. Local agent knew what I was looking for took me down to inspect.
  
• Offer made that night. I think $345K? REA advised a local buyers agent had also made an offer (hate dual offers by the way, and if any PC member/lurker was the other party – thanks for doing me out of $15K!)
  
• Came back with best and final offer $360K. Vendor Accepted. Negotiated down to $356K on B&P (very few faults to pick on!)
  
• Finance: 88% LVR, 2 years fixed P&I at 4.19%.
  
• Settled late 2017, day after settlement spent ~$2K on new carpets and other bits and pieces, next day tenants moved in, renting at $365. 1 day vacancy = Good outcome!
  
• Thanks to @RPI and team at Certus legal for conveyancing. 3rd time using their services and always happy to recommend them.
  
• Thanks to @Lindsay_W and @Rolf Latham at ASAP financial for mortgage broking services.
  
• Thanks the @Bill Franks “The Inspector” for B&P. Always impressed with their thoroughness and value.

 

Stage 2 – Auxillary unit (Granny Flat) Planning

Firstly, I need to say I have an interest in development, but no practical experience. I have done some significant renovations/extensions but this is my first time building something from scratch. The Granny flat seemed like a nice option to dip a toe and see if I like it, maybe next will be a duplex/triplex if I don’t find the process too painful. Details of planning process:

• Firstly, >1000m2 blocks in Logan are great, as you are allowed a 2 bed GF up to 100m2.
  
• Got a couple of quotes but settled on 98m2 3 bed Dixon home with a base price of $107k. Concrete slab, brick home, steel frame - none of this demountable/Shipping container business thank you very much!
  
• 1 wall deleted to make 2 large bedrooms and lo and behold it complies with GF requirements. Once complete I will install a partition/door where the wall was to make it “feel” like a 3 bedder again.
  
• By the time you add site works/excavation, flooring, windows treatments, carport, alfresco area, dishwasher, A/C, the final price with Dixon is $143K.
  
• With some extra expense for extending the driveway, putting in a dividing fence etc I am confident that the whole project will scrape in just under $150K
  
• Spoke a town planner, proper subdivision is a possibility, but total cost ~$70K. I have positioned the house so that this option may still be possible in years to come but for now I am happy to keep the $70K and only pay 1 set of rates.
  
• Once final design chosen, plans submitted to private certifier for approval and council for drainage/plumbing approval. Certifier done in 5 days, council in 3! Jaw drops to floor!
  
• Bank valuation done on final value, comes back at $520K, in line with the total cost. Very happy with this, as I have heard some GF vals come back low.
  
• Rental estimate is around $675-700 (7% gross yield)
  
• Another 88% loan for construction costs and away we go!
  

 

Stage 3 – Building

So this brings us to where we are today. Construction loan approval provided to Dixon a bit over 1 week ago. They seem to have hit the ground running and sent the excavator out to the site last Wednesday to level it off. Caught me a bit off guard how quickly they started actually. In that time I have:

• Felled a few small trees and overhanging branches, hills hoist etc from building area. 3 tonnes of waste to the dump.
  
• Built the existing tenants a new shed and installed an Extenda-line for them as they lose these items when they get fenced out of the work area
  
• Worked with electrician and plumber to ensure separate metering for the new house.
  
• Tenants now started paying reduced rent. (negotiated prior to construction, reduction to $330/week, reverting to $345 once construction complete.)

Below are some photos of the site, house plans from Dixon and the site after excavation. I will update this thread as key stages of the development progresses. So far I am very happy with how it is going along. Feel free to ask any questions if you are interested in further details or offer any suggestions if you think I have missed something. Also two shout-outs –Thanks to @euro73 for his early posts highlighting the APRA lending changes that had taken place and the need to balance a portfolio to keep moving forward. Was timely advice and ahead of the pack here. Also big thanks to @Leo2413 for encouraging me to post this, his posts on mindset and sharing the details of his developments, inspiring stuff for us mere mortals just starting out!

 

Awesome work @Blueskies this is something I am currently contemplating in my Crestmead IP. Did you fund the Granny Flat out of your own pocket - i.e. no loan. Or did you take out a construction loan for it?

My serviceability is nearly capped at the moment so I need to think about whether I want to dump my savings on a Granny Flat build or use it as a deposit for another property.

 

No, I will tip in the deposit +LMI only, construction loan for 88% of the cost of the build. Also some funds set aside for contingency, landscaping etc etc.

 

Really good stuff! I am at that stage where I am seriously considering building a couple of granny flats because want to have peace of mind and a stronger cash flow. Pretty much want the portfolio to be able to survive with all expenses such as being able to service all loans, maintenance, council, strata, management fee, insurance and bad case scenarios without any money out of my pocket.

 

did you extract the equity off the property to obtain the deposit for the construction loan through a revaluation or you added the amount from your buffer to obtain the construction loan?

 

Awesome. Thanks for working with us. It is very much appreciated.

 

Shortfall for the construction was from separate funds I had set aside. I.E I will need to put in ~$25K to the Granny Flat, with Bank putting in ~$125K

 

Well done @Blueskies, your energy and attitude is inspirational mate. Love it. Do you estimate the completed GF will have equity at all to pull out? Will be following this project with interest!

Cheers

 

Thanks @Leo2413. Regarding the equity, it is hard to say. There are not a lot of comparable sales for this exact type of setup. Onsite bank valuation, perhaps a tad conservative, came back at $520k vs my investment of $510k, which is a good start. Valuers report also listed some comparable sales of similar setups, in all case these were smaller granny flats on smaller blocks, or likely non-compliant dual OCC highsets. Located in Logan or Ipswich. Most went for $550k+. Conservatively I would like to think the end product might sell for mid to high 5s, giving me around $50k manufactured equity.

This is only a 10% gain which I know is low by developer standards, but my primary goal here was the cashflow (and avoiding equity destruction!)

 

Great post, love the amount of detail you've shared and can't wait to see the finished result!

 

great thread and trust me with the online system dixon have you will have no trouble
Wont mention any names but if you have the same site manager that i had last time (which would operate in slacks creek) the only time you hear from him is the house is ready for handover

 

$346,000 for 1000sqm block in slacks creek is good,

I didnt think you can get that.

 

Progress – Slab laid. Exciting to see the scale of the building, and easier to now visualise how it will sit on the site relative to boundary and front house. Should be a nice little home for someone. Dixon portal has the completion date as early July, would be very happy with that

 

Good stuff @Blueskies! Really good to see the progress you are making with your granny flat and hoping to do the same later on in the year as well on an IP or two to increase my cash flow. Looking at the dates, it has taken you one month to obtain the granny flat loan/ construction loan approval and the approval?

 

@jins13 you aren't far off took about 6weeks actually from having a signed contract with Dixon to having finance approval.

 

Good on you.

Being Devils advocate here, over 500k tied up in a single Logan property is not the best strategy IMO. $150k outlay for a depreciating asset GF.
Did your figures include stamps on initial purchase?

IMO not worth the outlay to achieve only 7%.
Needed to be closer to 10% yield.

Initial property itself doesn't generate the yield, to then capitalise on building a GF on the back to pump out some awesome yield.

Plus on completion project has not generated any additional equity. Cash tied up..

88% LVR on completion still with only 7% yield and half a mill tied up in Slacks Creek isn't a solid deal to me.

I feel it is too much capital invested, servicing power hurt as yield is not high enough, would prefer 2 houses with strong yields.

Not confusing action with results.

My 2 cents anyway.

 

Some fair points in there. I did consider some of these along the way. For me the scope for this purchase was first and foremost yield. Factors that then came in were a good land component, location with potential for CG near a capital city, and reasonable budget, up to around the $500k mark.

On that brief what would you see as an alternative product to purchase?
Could have done a dual Occ high set for a bit less in Logan, but less depreciation, no potential for subdivision, smaller tennant pool.
Could buy two houses on small blocks for $250k but they would be veeery old and rough, with lower yield and two sets of rates.
Maybe a few units in Logan? Equivalent yield but would still be old and low land component?
Proper subdivision might get me more equity up front but the yield would be less as I would have sunk an extra $50k into the subdivision and now paying two sets of rates.

I would say if I could only do a 70m2 granny flat, and the separation from the main residence was poor, and I had to pay LCC $23k infra charges then I might have come to a different conclusion, but I for now I am still happy with my decision.