Value added by Granny Flat Addition

Transportables and owner built kit homes have a different lending criteria.

A framed home on a conc slab doesn't qualify as either.

 

Thanks for the input everyone, I honestly was thinking along the same lines. The strange strange thing is I have spoken to 2 credible real estate agents for the area and from what they are saying the granny flat addition should add dollar for dollar value to the property. They did say i was over capitalising and it's not a short term investment but I was aware of this anyway. Thoughts?

 

I think the GF decision is quite a complex one - probably more than most people realise. As well as the location issues like I mentioned earlier, I think you have to think carefully about what the opportunity cost is for you as an investor in that point in time.

 

Hello neK, I am currently planning to build a GF in Sydney, adding all cost including council contribution the quote I am getting is around $150K, pretty expensive. Maybe under $100K is not longer possible? You have great experience in building 3 GFs, do you have any company that you would recommend?

 

$150k is about right for everything including basic landscaping.
Under $100k you'll get very basic stuff.

 

Thank you, so that I know I am not being ripped off.

 

10 Years ago you could build granny flats (crappy square boxes using the cheapest vinyl boards for as little as $80k - and the internals were just terrible, not to mention there was no separation of electrical, phone line, gas line, water line etc)

Upgrading it to nicer weatherboard, higher ceilings, better kitchen, better fittings, better layout and separated services was going to set you back around $110k.

So if that was 10 years ago, factor in the increase cost of labour and materials, it works at $147k at an inflation rate of 3% per year.

 

Thanks for the details! Do you think putting a $150K granny flat can increase the value of the property by $150K?

 

Agreed GF is a cashflow strategy, but a $150K GF would probably take 7-10 years to recover the costs spent, so the real cashflow only comes in after that. So if GF adds no value to the property then I don't think it's a good idea of putting one in, we can use that money in other better investment. But adding 75% to the property value maybe is acceptable, as long as we are holding the property for the longer term.

 

Borrow $150,000 @ 3% = $4,500
Additional Bin Cost per year = $500
Additional insurance = $500
Total Cost $5,500.

Rent of $500 Per week = $26,000
Less Agent Fee of 10% = $2,600
Total Income = $23,400

Net Income = $17,900

17,900 / 150,000 = 11.9%

 

so a $1m house in St Marys will be worth 1.7m with GF is that interpretation correct?

 

Granny Flats need to be well thought out in order to add CG to your property.

The best ones I've seen have the following :
1. Separate Driveways or entrances
2. No common windows (ie : Granny Flat does not have to walk past your bedroom window to get to their granny flat)
3. Does not compromise the main house parking space / & backyard too much

The best ones I've seen have been on 800 sqm corner blocks or 900 sqm rectangular blocks.

I've also seen some hexagonal shaped blocks carry it out well. (You can place a second driveway all done the left or right hand side of the house and place it a separate fence around the main house - think battle axe driveway kinda layout)

Where you can make it feel like a completely different house - you'll generate significantly more cashflow.

 

I believe what he is saying that in St Marys say a $150k granny flat would effectively add $105K to the value. Making it worth 1.105 at a cost of 1.15

 

I am seeing different.
In Western Sydney atm houses with legal council approved gfs are selling for more than the sum of their parts.
E.g. houses selling in a suburb I am monitoring go for $950. House with granny flat $1.2-1.3m. Because of the yield. 2 bedroom granny flats are not renting for much less than the front houses as they are often newer so the extra rent is quite significant.
Also I think putting in a granny flat, keeping tenants during construction, separately fencing it etc is quite a headache and people are prepared to pay for an already made product ready to go.

For unapproved granny flats though, even if they are well done, this is not so much the case. Investors need to know that the valuation will come through and they can get insurance.

@skater what is your experience with houses plus seperate (legal) granny flats. Are you seeing a premium on the basis that the rent can be almost doubled (with two leases in place)? Or is this not what happens in your experience?

 

Here is an example. I could be wrong but I do not think this house would be worth $1.2m without the granny flat.
https://www.realestate.com.au/sold/property-house-nsw-yagoona-136258894

 

I don't think GF can get $500/wk rent, maybe except for the expensive suburbs. Most new GF in western Sydney are probably renting for $350/wk only. If GF only adds 70% of its cost to the property value, then I see the 30% being the immediate unrealised capital loss. However when the property is held for long term, then it doesn't matter, as you pointed out the rental yield is good.

 

I bought a place in South West Sydney where the granny flat was getting 500wk rent for quite a long time. Was nicely fitted out but nothing amazing.
But then the rent recently dropped to 460. Might drop again but if it does it won't be much it seems. Certainly not under 400

 

That's very good return. Well done! Whereas I have seen a few granny flats in open homes are only returning about $350-$380/week, and they are -2 years new, look similar to your photo. And I saw many properties with granny flats for sale on domain.com.au, on the ad the agent says the rent for the granny flat is $3xx.

 

What suburbs are you looking at? This could be a risk for me.