Western Sydney - Dual Income Properties - House + Granny

Is purchasing a dual income property such as a stand alone house and a granny flat in Western Sydney on a large block of land (say >450m2) a good investment strategy to accumulate wealth?

Examples:

1) 115 & 115a Victoria Street, Cambridge Park NSW 2747 | Domain
2) 29 Hatherton Rd, Tregear NSW 2770 | Domain
3) 2 Jeanette Street, Seven Hills NSW 2147 | Domain
4) 43 & 43a Great Western Highway, Oxley Park NSW 2760 | Domain
5) 36 Rudd Road, Leumeah NSW 2560 | Domain
6) 56 Gabo Crescent, Sadleir NSW 2168 | Domain

I have thought about some of the Pros and Cons.

Pros:

1) Higher rental yield - biggest Pro. Generally, close to 5% than 3% yield with single income properties. Property might be a positive cashflow proeprty from Day 1 too.
With the higher rental yield, servicing is not as severaly hampered by the purchase of a property, so might be able to purchase another one soon.
2) Still being able to purchase large blocks of land (>450m2). In a few years' time, either demolish and construct 2 x new dwellings which can maximise capital growth, or sell it to developers who want to build duplexes or multiple dwellings. Depends on zoning and council restrictions too.
3) Can claim depreciation on 2 x properties.

Cons:

1) As a prcenatge split, you might end up paying more for the property than for the land. Generally, it is suggested to have a higher land:dwelling percentage split.
2) Will have to pay a higher purchase price because you are paying for the purchase of the granny flat too.
3) Maybe hard to get 2 x sets of tenants occupying the properties all the time. I see this as a minor issue though.
4) More tenants to manage. Again, this is a minor issue only.

Expected Budget for IP1: $850k ($720k borrowing plus about $130k in savings)
Most of the above examples fit within this price range.

Queries:

1) Is there more potential growth for dual income properties (house + granny) or single income properties (just house)?
2) Is it better to buy stand alone properties and then build a granny flat as oppsoed to buiding it with a granny flat already on it? I am not too keen on dealing with the council at this stage and trying to building a granny flat, but I will if there is more potential growth.
3) Which areas are better to buy these properties:

• East and South of M7 (Blacktown, Doonside, Marayong, Seven Hills, etc.)
• West of M7 (Mt Duitt, St Marys, Colyton, Whalan, Tregear, Kingswood, Cambridge Park, etc.)
• South of M4 (Chester Hill, Guilford, Bankstown, Fairfield, etc.)
• South West (Liverpool, Prestons, Sadlier, Ingleburn, etc.)

 

Nice sized lot. what will it cost to buy? what will it generate in rent? Is it individually metered? who gets the carport? How does the GF tenant access parking for the GF if the house is using the carport ? Also, factor in that you wont get full value depreciation even though the 2 bedder GF is relatively new ..... you arent the first owner .

29 Hatherton Rd, Tregear NSW 2770 | Domain

Same Q's as above.. this lot is smallish... Location will possibly attract very very low income/centrelink type tenants??? Its a question, not a statement

and so on, and so forth.......

 

Or con.

You will only get the uplift if you put the GF on the block (ie development), if buying existing the yield has already been reflected in the price paid.

 

Answers to your questions for the Cambridge Park property:
1) What will it cost to buy? Guide is about $820 to $850k.
2) What will it generate in rent? $700 roughly (about 4.5% yield).
3) Is it individually metered?
4) Who gets the carport?
5) How does the GF tenant access parking for the GF if the house is using the carport?

"Also, factor in that you wont get full value depreciation even though the 2 bedder GF is relatively new ..... you arent the first owner ."

So is the rule that you can't claim depreciation if you aren't the first owner?


Answers to your questions for the Treagear property:
1) What will it cost to buy? Guide is about $700 to $750k.
2) What will it generate in rent? $650 ($280 at the back and $370 at the front - about 4.7% yield)
3) Is it individually metered? Separate.
4) Who gets the carport? Person at the back GF doesn't need a carport.
5) How does the GF tenant access parking for the GF if the house is using the carport? NA.

"Location will possibly attract very very low income/centrelink type tenants??? Its a question, not a statement "
Yes, that is true. I actually went to open home inspections, and the guys sitting there seemed like they were receiving CL payments. I wasn't talking particularly about this property, but in general, tenants in these areas are like that.

 

I would generally say that buying into a dual income property is a bad idea unless the dual income kicker is "free" and not already priced in.

For example, a land value purchase.

 

Almost all of these dual income properties have the GF priced in them. But I don't see the issue here. What if I build the GF, the price would still be hiked up then (value of property has increased, but so has my loan amount). Isn't it the same then - buying with GF vs buying standalone and then paying to build GF?

 

I know the area very well and I'd avoid granny flats. Stick to a large block you could develop on later and stick with the single income.

Rents are quite strong for houses whilst grannyflats are struggling at the moment. The quality of GF tenant will be low to average. You'll get a good tenant in the front house and a bad tenant in the back which means your good tenant at the front will leave.

Good choice of areas though

 

For most of the open inspections of the dual income properties I have been to, the person in the GF has been alright, but that's only a couple of seconds of spending time with them. One was a musician and took real good care of his garden and did not want to leave the GF at all, another one was a young pregnant mom, another was a boy gamer, and another a same-sex couple. They seemed alright, but I only spent a couple of mins with them. Most GF looked brand new and were in better state than the older front house.

You weren't being sarcastic, were you? Haha...if not, then just asking - what's the reason you think these areas are a good choice?

 

In 2017, I bought only house and built GF Rooty hill. Its a bit of effort to get quotes, chase builder etc but you can easily save around 20-30 k plus depreciation benefit. In my experience, house with GF comes with 20-30 k premium than you build yourself .

I bought for 620k plus 130k brick GF plus landscaping so total 750k and just after build, I received $750 rent on total.

Today, I am getting $770.

I am not sure about your situation but if its me, I buy second property than building GF. So can enjoy CG. Understand the yield issue but if you are high income earner, that will take care of some the loss and opt for IO loan so repayments will be low .

 

Yes but paying for a property with a GF is not necessarily a good strategy all the time. A property with a GF will almost certainly have less growth than a 'normal' property of the same price for example.

I'm someone that has gone deep with the GF strats and even I would say you need to be very selective with how and where you build a GF.

 

Isn't buying it with a GF better though? This way, you get instant high yields instead of waiting for the GF to be built. Now I know, you have to pay a higher price for this, but the overall costs for buying an existing (i.e., without a GF) and then building a GF, comes to roughly the same cost as buying it with a GF already on it.

Let's look at 2 examples:
1) Option 1: Buy a house + GF at $750k
Total Cost = $750k.
Rent = $600pw ($350 for front and $250 for back - 4.2% yield). Get instant yields.

2) Option 2: Buy only house for $600k
Building GF for $150k.
Total Cost = $750k.
Rent = $600pw ($350 for front and $250 for back - 4.2% yield). Get delayed yields (only after building GF). Yield before GF will be 3.0%.

Or has the above has the numbers made up to suit my point? Would Option 2 be more like this instead:

2) Option 2B: Buy only house for $600k
Building GF for $120k (not $150k)
Total Cost = $720k.
Rent = $600pw ($350 for front and $250 for back - 4.2% yield). Get delayed yields (only after building GF). Yield before GF will be 3.0%.
Instant Profit after Building GF = $30k

Are you saying that the costs of the GF while buying an existing would be higher than if constructing it? Am I already buying the margins of the GF? But does the building depreciate, so doesn't the GF cost less to buy than build it?

 

That's 5.4% yield, which is very impressive!
May I ask how much has the property gone up since your purchase in 2017 which must have been at its peak? Just want to know if constructing a GF actually lowers the GF potential as opposed to have a standalone as suggested in a below post from - "thatbum". I have also heard about this somewhere.

Did you go max size with your GF at 60m2?

Good point about purchasing more properties to maximise the time over which CG can occur. My salary is high as I am doing FIFO right now. Once I head back to the city, my borrowing is going to come down. I thought building GF helps keep my borrowing up so I can continue buying more properties. I am only getting started with my accumulation phase now. I am already on IO payments.

 

Good point, but where did you get this info or where's the data that backs this claim that a property with GF will almost certainly have less growth than a "normal" property of the same price for example?

 

Think about it. Not only will the GF property have a smaller land component, but it will be a housing product with a way smaller pool of potential buyers.

 

There is always an exception to the rule but in general its difficult with the lower socio economic areas like Mount Druitt/Emerton/North St Marys. Just get a good PM and you'll be right but personally I don't think GF's are a good idea unless the block has no future development potential.

No sarcasm at all. I've got multiple IP's in those areas/work in the area and the outlook over the next 10 years is looking very bright $$$

 

Is this (Western Sydney) the only place you invest or have you invested in other parts of Sydney as well?
What do you think about the below 4 regions? Do you reckon the second one has the most potential for growth because of the low entry point and increased infrastructure spending? Just seeking opinions; that's all.

• East and South of M7 (Blacktown, Doonside, Marayong, Seven Hills, etc.)
• West of M7 (Mt Duitt, St Marys, Colyton, Whalan, Tregear, Kingswood, Cambridge Park, etc.)
• South of M4 (Chester Hill, Guilford, Bankstown, Fairfield, etc.)
• South West (Liverpool, Prestons, Sadlier, Ingleburn, etc.)

 

The granny flats we deliver are 6% yields + . The yields you are quoting here are just not good enough in my view ...and the land tax threshold will be tested with one purchase . This strategy works better with regionals - you get lower vacancy rates , better yields and can hold several before land tax is payable .

 

What does the “we” refer to in your post? Is this a company you refer? Looking at your profile and some of your previous posts, it seems that you build Dual Occ Cash properties. Do you build these in Sydney or in regional areas? And in which areas do you achieve these 6% yields - Sydney or Regional?

I also don’t understand why someone in a regional area would want to stay in a GF when it is more affordable to get a free standing house by itself.

 

Yes , regionals. Check vacancy rates and rental prices - you’ll find that it isn’t easy to rent a house in many places , and it definitely isn’t more affordable . Our clients get 490 per week for a 4 bedroom house in Goulburn for example , and 300 per week for the granny flat . And they all rent within days of handover - no exceptions in the last 15 months since we started there . Same thing happened and continues to happen in our previous locations of Orange and Bathurst since 2016 . I have one in my SMSF ( it’s in Orange ) and the granny flat lease renewed last week at $20 per week increase .
We are very confident the same thing will happen in our newest location Dubbo , where there is a 0.4% vacancy rate and yesterday there were only 17 x 4 bedroom houses available for rent in the whole town . We visited and met with several local agents on Wednesday and they are all telling us the houses will rent for at least 470 - 480 and the granny flats will get 320 plus .... certain regionals are roaring with cash flow and solid growth ... there is a significant tree change happening . But they are affordable to invest in and land tax thresholds are not tested until the 3rd or 4th purchase .

#dothemaths
#aheadofthecurve
#cashcowsrule
#paydowndebt

 

If you're looking for yield, which I think you are, what euro73 has said about regionals is right on - and is an avenue I would suggest you explore. I did so, as an academic exercise, and I'm convinced of its value proposition (and that is not even bringing up the issue of granny flats at all). eg. Orange: $300-400k houses can rent for similar dollar amounts as a $700-800k one in western Sydney. Your rental yield is already over 6% and depending on factors you may be cashflow positive from day 1.