pros of regional pos cash flow property as apposed to granny flat for rental income

pros of regional pos cash flow property as apposed to granny flat for rental income

some say rather than building a granny flat or addition to my home to rent for income, that i should instead buy a regional cash flow pos property because they say i wont get back the money i put into a granny flat if i ever sell

however i'm not looking to sell and in my thinking a regional that i paid 140 000, for might at best bring me 200 a week rent
while if i put the same money 140 000 into a granny flat or addition then i can get back $400 in rent .

 

$400 would rent you a decent size/condition house in Adelaide, who the heck is going to pay $400 to live out the back of someone's house? I'm going to assume you are in Sydney. Have you considered whether $400/pw is sustainable over the long term or is it just a result of the current tight housing situation?

How will the granny flat complicate any CGT for your PPOR into the future?

Assuming the granny flat will be brand new vs dated house for regional, so seems likely there would be fewer maintenance problems to deal with, cheaper to update, etc...

 

If purely for the cashflow then the GF option make sense. It should cost less than $140k to build and the rent is double.

Cheers

Jamie

 

Don't buy regional property for cashflow. High rents = low CG typically. Add PM fees, vacancy, maintenance, rates, stamp duty on purchase and there are better options IMO.

 

It's Sydney.
People want to be in Sydney... as much as they complain about it.
Rent's in Sydney aren't going to get cheaper.... they'll continue as they are (as they have been over the past 2 decades).

Some places have risen more than others, but as long as they aren't out in the sticks, it should hold up fine.

 

If tight supply of housing has led to a big increase in granny flat rental prices (relative to regular homes), I could see that reversing if supply of regular apartments and homes catches up with demand.

 

take it from me as well

even if your GF market collapsed and your rent dropped from $400, to $250, youre still ahead

 

Depends on the granny flat. If you're thinking those dodgy garage half baked conversions, then sure.

But for a granny flat that is built properly and separated, they are considered as a proper home. No different to duplex or battle blocks (from a renter's perspective). Separate electricity, gas, internet, phone, water, etc.

 

thank you. much appreciated.
yes rents keep holding up and going up.

 

As propertunity said, after holding costs of 25-35%, you are not left with much going regional. the lower growth also means in the long term rents will not grow as much as a metro property, so you are shooting yourself in the foot twice.

If you are under 50, one option could be purchasing a middle ring suburb and selecting a property that you can subdivide and separate the titles, put a second house, and have double the rent for 1.5x the cost of a house and still get a location that will give good growth. The rent should grow more in the long term also along with the value growth. Unfortunately this means purchasing for 500k+ (plus 200k for the second dwelling - now or in the future) which might be a limiting factor.

For a compromise, have you thought about Logan with a granny flat?
I've read that 6% gross yield is achievable with some getting 6.5% (prob need a good BA to find under-valued properties). Add buying BMV for a house that needs a bit of a reno, and adding in the granny flat and you should be able to get a pretty high yield without having to go regional.
Also if I was going the GF route in Logan, I would want to plan to be able to separately title it in the future as laws change over time.

If you are planning on putting a GF in Sydney, check the change in value and cost involved and how many years you would need to keep it for it to be financially worthwhile. If it does not add any value and you sell it in 10 years, the cash flow has come at the cost of the build and you are out of pocket a lot more than you you get from rent.

 

For a granny flat in Sydney, the payback period would be around 4-7years depending on the area.

Generally the granny flat does a 1:1 increase in value of the property.

 

Oh wow 4-7 years is quick