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Value added by Granny Flat Addition

Discussion in 'Renovation & Home Improvement' started by MethodMan81, 24th Jun, 2015.

  1. MethodMan81

    MethodMan81 Active Member

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    Hi

    I am looking at building a granny flat at my current residence. With the current value of my home being at around the $370K mark what do you think the affect of the total value of the property would be by either;
    -Building a one bedroom g/flat for around $100K
    -Building a three bedroom g/flat for around $150K

    Any input especially real life experience would be much appreciated.
     
  2. thatbum

    thatbum Well-Known Member

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    I'm going through the process of getting a valuation done for the construction loan right now. Its all about knowing the market and what sort of comparable sales a valuer can use to try and estimate the end value.

    I would say that its pretty hard in Perth at the moment though - GFs are still relatively rare.

    I'm building a 2x2 GF behind a 1x1 duplex. I have no idea what it will come in as.
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    this depends on the locn, AND if your bonded to the one lender.

    A granny in St Marys NSW will add 70 c in the dollar to the val, the same granny in Mona Vale will add 120 c.

    If you have a loan thats > 80 % and are stuck with LMI, or have a loan with a fixed rate, you may be stuck with one valuers opinion..............................

    ta
    rolf
     
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  4. Simon L

    Simon L Investment Property Buyers Agent Business Member

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    Hard to say without knowing the area specifically but in my experience, the capital required to build a granny flat will not add immediate value to the property at the end of the build unless you are building in a prestige suburb where values are already significant and a well thought out granny flat could work in its favor.

    Just remember the cost of building a granny flat is relatively constant regardless of the area.

    Definitely fork out the extra $50k for a 2 or 3 bed granny flat if you can
     
  5. MethodMan81

    MethodMan81 Active Member

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    Yeah, the lender has said that the valuation can be done once the plans and specifications are all done up but this is probably going cost $2,000 and if the valuation is not good, I've just thrown that money away.
     
  6. MethodMan81

    MethodMan81 Active Member

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    The area is Merriwa WA 6030, probably the lowest socio economic area NOR Metro Perth but I don't mind the area and the layout of the current residence would work out pretty well with a granny flat, IMHO.
     
  7. MethodMan81

    MethodMan81 Active Member

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    I did get a recommendation for a Mortgage Broker from one of the builders, would it be a better idea to go through him as he would probably have a better idea of the value of the property once complete.
     
  8. neK

    neK Well-Known Member

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    Having built 3 in Sydney, my answer is that granny flats have not added a whole of capital value.

    The main reason is that valuers seem to have very little to compare it to as most houses with properly certified granny flats are not sold given they are a cash cow for the owners.

    So far I've probably received $1 for $1.... Before and after the Sydney boom. No change in my opinion. One IP with a GF has been valued for $1 for 90c. The same property was then valued again by a different Valuer the following month for $1 to $1.20. So sometimes it just depends of the mood of the Valuer I guess.

    Could I get more than what the Valuer has stated, I'd say definitely... But then again why would I sell it?

    For me the granny flat strategy allows me to land bank while also making me regular cash flow. My first granny flat has already paid itself off.

    As for size, I would build a 3 bedder provided it doesn't impact the existing site too much. That said 100k for 1 bedder seems pricey. You can build 2 bed 60sqm for just under $100k in nsw.
     
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  9. MethodMan81

    MethodMan81 Active Member

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    I am looking to build in double brick at the moment which is causing the higher cost. I am setting it up sort of like a 'battle axe sub division' where half the driveway becomes the granny flat's down to the back of the residence. The current median price in my area seems to be $380K, I would like to think the valuation with the 3 bedroom addition would come back at $520K but I'm not very optimistic
     
  10. tobe

    tobe Well-Known Member

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    Unlikely I'd suggest. do you have any equity in the property at the moment?
    Does the valuation need to be $520 for this to work?
     
  11. MethodMan81

    MethodMan81 Active Member

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    No, working off numbers today it should be doable at a valuation of at least $450K. But then I'm thinking I'm making a stupid move over capitalising, which is why I started to consider the cheaper option, any thoughts?
     
  12. tobe

    tobe Well-Known Member

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    Granny flats are a cashflow play, they don't usually increase the capital. Is cashflow what you need right now in your investing journey/plan?
     
  13. Depreciator

    Depreciator Moderator Staff Member

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    Yep, GFs are good for cash flow but only sometimes result in a commensurable val increase. Yes, part of the problem is that there isn't much of a sales history yet, but the other thing is that so many of them are just awful. People take a house in a family area with an expansive backyard and cut off two thirds of that backyard to build an ugly box and a Colorbond fence.
     
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  14. Biz

    Biz Well-Known Member

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    This. All this.

    I have done three of them in NSW so I know a bit about it. What you build has to match the area. I see a lot of them that look like nothing more than demountable site shed. Or they are just designed poorly and destroy the backyard of the house and create privacy issues. When I have been looking for blocks with GF potential sometimes the agent will say "Hey!!! Look at this one it's already done!" but it is done badly and will only create issues in the long run. I have seen very few that I would actually buy already done.
     
  15. JMica

    JMica Well-Known Member

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    Going through this soon, hoping I get a valuation done once the GF is completed and rented. It will be interesting to see what the valuation comes in at but, with the Sydney boom the figures may be skewed. Hoping I can get at least the cost of the GF added...
     
  16. MethodMan81

    MethodMan81 Active Member

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    Don't really need the increased cashflow, I guess this is more stepping stone as the idea is to purchase at least one more property down the track and build a granny flat on that property as well.
     
  17. thatbum

    thatbum Well-Known Member

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    I really like a granny flat strategy, but personally I think you need to be very selective on where you decide to employ it. I only go for what I consider to be premium rental growth locations, because I really want to know that when I "double down" on capital outlay, I want an above average return because of the opportunity cost.
     
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  18. neK

    neK Well-Known Member

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    Any reason why you want to go double brick. Maybe because I'm in Sydney and everything built here these days are brick veneer.

    My opinion is that people won't pay more in rent to live in a double brick.
     
  19. MethodMan81

    MethodMan81 Active Member

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    My lender had told me that 'kit homes' had a different lending criteria with a max 60% lvr, I'm not to sure how true this is. I'm not entirely sure in regards to rental value but just about everything here is double brick and being completely honest I do prefer the idea of it and depending on tax implications I might even live in the granny flat and rent out the main residence.
     
  20. Aaron Sice

    Aaron Sice Well-Known Member

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    GFs are definitely a yield play and they have to be done right as @Biz has said.

    If you do it right you can maintain 80-90% of the primary house yield and pick up a great little GF yield in the mix.

    Otherwise you lose yield on the primary house and only get 50% of what you thought you would.