NRAS and income vs growth

@euro73 I read everything on this topic... Just a question which despite looking over your previous posts(maybe I didn't go far back enough?) but I don't recall finding why you chose the whole "dual key" rather than a dual occupancy or two properties on two titles or duplexes? I would think that 2 x 3 or 4 BR would be more desirable than a four bedder or three bedder with just one granny flat which valuers value as a five or six bedder rather than just two separate roofs? Did I miss something is the cost outweigh that option? Maybe @Connor can understand why and explain because he is doing something I would think is more desirable as I don't know many people will find a granny flat all that suitable to live. I totally get the numbers so maybe just explain why youll go dual key rather than the ones I mentioned?

 

I have chosen dual occ, not dual key. Dual key is an attached dwelling, under one roof.

The reason I prefer detached dual occ dwellings to dual keys is that when you build 2 under one roof - with 2 x kitchens and wet areas, valuers end up hurting you because they value them as one home.

What @Connor does in Victoria requires subdivision ($$$) and council approval ($$$) - Vic laws are years behind NSW in regards to dual occ/granny flats. There's nothing wrong with subdividing and building 2 separate houses , but because of the requirement to subdivide, you end up with a far more expensive exercise that doesnt deliver any extra income. It wont suit everyone's budget or skillset ie buying a large block. subdividing. building 2 dwellings. Yes, you might be able to sell the 2nd dwelling, but I am aiming to retain my rental incomes, not sell them off. But if your preference is to develop the subdivision and sell, its a perfectly good strategy

For me though, dual occ that will pay itself off , without the headaches and additional costs of councils and subdivisions, is preferred

 

Thanks for your response. Do you actually get people interested in renting the granny flat because according to what I've seen, the pool of people interested in living in one is quite limited? Does a duplex have the same issues as a dual key?

 

Thats the same question everyone said when we delivered 10 x NRAS 1 bed villas at Nile Street, Orange - 2 years ago.

Those are 65M2 internal. 1 bed. No one would want them, we were told .... well, they were heavily oversubscribed, at $212 per week ($265 minus 20%)

Then we did another 6 at Frost Street - also oversubscribed. "Surprise surprise" said the local managing agents - "we never believed there would be a demand for this kind of rental product in regional towns"

"Demographics " said I .... "whether it's Orange , Bathurst, or anywhere really, you have elderly people wanting smaller accommodation with lower maintenance. You have students who are in shared accommodation who like privacy. You have young families with elderley parents who will enjoy having a granny flat...etc etc etc... "


The granny flats we are building are 60M2 . 1 bed. No NRAS on these, so they can rented to anyone, irrespective of income levels. I would say they will be well , well received We are planning on leasing them at $200 - 210 per week.

Duplex has different "issues" to dual key - duplex requires that you pay for subdivision.

 

Hey @euro73 - do you have any links of those properties we can have a look at. Also for NArs you had a neat spreadsheet that shows the breakdown of all income and costs. Do you have something similar for dual occ?

Also, why are you only doing 1bed on 6osqm? you can easily fit 2 bedrooms and increase rental income.

 

PM'd

 

Thanks for that! Just saw it. It looks really nice.
Was there a reason why you didn't go with 2 bedrooms for granny flat?

 

We just didnt want to make them feel that cramped. It would be easy enough to make them 2 bedders I guess, but we'd have to make the living area and bathroom/laundry areas smaller.

 

Can you give any idea what the build cost is? Assuming it's for middle-market grannies , then $1500/sqm should be possible, hence about $90k (excluding council et al)?
Are you building from scratch, or using one of the multitude of granny-flat builders/purveyors?

 

Build cost for the house and granny flat is 370K.

House is @ 215M2 . Granny flat is @ 60M2 = @ $1350 M2

Land is typically 160K, so the package is 530K

Because the land is 160K, stamp duty is @ $4100. When you apply the $5000 NSW new home grant ( which you are allowed to claim one per financial year on new stock under 650K) the stamp duty is effectively zero. In fact, you get @ $900 back. So purchase price is effectively $529,100.

New Home Grant scheme | Office of State Revenue

 

Thanks Ultan!

 

Using a 90% loan as an example, which is 88% + LMI, you'd be contributing @ 12% - so @ $63,600. There is no stamp duty to pay, but you'd also need to set aside 6-7K for interest during the build. So @ 70K invested in total, for an 8-10K after tax return ( depending on your marginal tax rate) That's an 11.42% - 14.28% return on 70K. I wonder how many forum readers would be happy to invest 70K into any other asset class- LIC, ETF, term deposit, online saver, for an 11-14% after tax return BEFORE growth? Plenty I'd say.... and that's exactly what these offer

Unlike those other asset classes, these also have the added advantage of being able to gear /borrow without "at call" lending, and because they can sit in your portfolio forever and a day churning out positive cash flow, they are never a burden on your household budget. In fact, they only help with bringing additional income into the household, which can be redeployed towards debt reduction, which improves the 11-14% return even further.

Yet, where property is concerned, the growth argument continues to dominate... I really dont understand why the strong cash flow maths dont make sense to so many here.... you are essentially purchasing income, underpinned by the least volatile asset available in Australia - resi property. That purchased income allows you to accelerate repayment of debt while retaining the income... and therefore improving capacity over time. And thats the key difference- every other strategy mentioned here requires selling the asset and therefore losing the income stream...so while debt might disappear faster using after CGT profits, income does not improve whatsoever. Which means you need to be able to repeat that success many many many times over to build up sufficient lump sums to reinvest somewhere else... This is where some will argue that LIC's and ETF's are a smart alternative. So ask yourself , if you had been lucky enough to purchase really well, several times in a row, sell and realise a good profit each time, had paid off your mortgage and had $500K, or 1 Million, or even $2 Million left over... where can you put it today and do better than 11-14% after tax , without extreme capital risk?

Banks are offering what... 1.5% Maybe 2.% for 3 months....reverting back to 1.5%?
Share market.... up down, sideways.... sometimes you feel like a genius, next day you feel like a dunce. Your 500K, 1 Million or 2 Million might be worth 10- 20% less by next month , if the market has a bad week or two...

But each to their own. My clients are extremely happy, with assets in their portfolio that are simultaneously paying down debt, costing them zero to hold, never going to need to be sold ( unless they choose to) , not at call, can survive much higher rates, and P&I if required, and will end up with substantial passive incomes by retirement.... and that's all that matters really.

 

Be very careful with NRAS as there is a lot of compliance and if you have a PM you are not happy with you seam to be stuck with them for 10yrs, this is the experience of a close friend, she was unable to change PM

 

Both are different strategies and will suit different types of investors. But in essence the end result for both is paying down debt and owning the property.
Whether you're a passive investor and want to do it using the high yields, or an active investor and don't mind dealing with councils, subdivisions, buying/selling will really depend on the individual and their timeframes.

Personally, I've always been an active investor, chased markets and developed. So I've always looked for ways to create large chunks of equity/cash from sub divs to pay down debt. This won't suit everyone's skill set or appetite for risk, but it's one of many strategies.

 

With duplexes either side can be sold off separately, the dual occupancy needs to be sold as one, ensure if you are renting that each side is separately metered water / electricity, most will be but double check. This has become very popular in our area, as the combine rent generally exceeds $650 per week. I haven't have the experience in dealing with the local council but would expect the dual occupancy would be more convenient and less expensive exercise when dealing with council.
We currently have 4 of these properties in our portfolio and they seam to work well. Although we had one a couple of years ago that wasn't fenced off separately leaving the tenants to share a back yard, finding compatible tenants was impossible until the yard was split, since then no problems at all.

 

Could not agree more. Proper separation needs to be done. The plans @euro73 showed me there is proposal for the fence where the two are separated. Please correct me if this is wrong.

I agree with @Connor too. its all up to how you want to do things. Personally, I try and do a mix of both. Just suits me, but at the moment what @euro73 is talking about does make a lot of sense where you want to increase your income as much as possible. Ideally you want one income properties debt offset with one active investment (build/subdivide and sell) . That way you can make more than 8-10k euro73 suggests.

I'm just little-bit hesitant of doing this in regional towns. Just my personal preference. I prefer cities of 100k or more population. So that leaves me with Wollongong and Newcastle area. picked on NSW because of ease of dual occ.

 

I am doing a project now that is renovate and retain with a build and retain out the back. I am not planning to sell anything. Nice little earner for me.

 

Yeah I'm more or less in the same category with a mix of the two strategies. Got 1 PPOR + 2 IP and want to give myself the best chance at rapid expansion post APRA so ideally at least one dual occ and maybe subdivide one of my IP to develop into a duplex or another house to either sell or keep depending on yields. Also hesitant at doing it in Orange even though I hear young professionals are flocking there. Maybe @euro73 can tell us where he might be heading to next for his next dual occ project?

 

I'll be concentrating on Orange, Bathurst amd Dubbo... possibly Wagga . If you want the great cash flow and the cheap land so you can hold multiples of these and stay below the land tax thresholds, these are the locations where it works best

Have investigated Port Mac, Coffs etc- but land is 200K dearer. If you want to pay 730K instead of 530K, I'm happy to put those sorts of deals together, but you'll eat up land tax threshold, equity and borrowing capacity much faster

 

You are absolutely correct