Building a house at the back of an existing house

Hi there, been reading up on property and stumbled across this forum. Im sure what im about to ask isnt new to you guys here, so i was hoping i could get some advice on what to do.

So a little background on my situation, Ive got a property in Parramatta region that I bought back in 2003 (pretty much the height of the boom for that area cos its still worth roughly the same amount).

Property is a 3 bedder house on a corner block with 650sqm, currently rented out at 430pw.

My intention has always been to do something to it, mainly knock it down and rebuild as 3 houses on it, live in one and rent out the other two. 6.5 years on, nothing has been done.

Anyway, the land is 15.24 x 42.65, so the ideally i want to build a house that isnt very deep so that i can maximise the street frontage, this way it becomes two free standing houses, each with their own street frontage.

I found something on Masterton's website (Accent Mk2) where the width is 12.16 and the depth is 10.365.

Off memory, i think the distance I must have between the fence and the house must be 1.5m, with the side facing the street having a gap of 3m. Based on that i think the depth of this house just fits within the council requirements.

My main reasons for doing this are:
1. I believe the rent i can achieve based on the market is $500+ (im renting out a crappy 3 bedder house built in the 1950's for $430 pw).
2. The rental income should cover the interest on the loan (provided i spend less than $300k)
3. If i spend less than $250k, this will make the overall property positively geared as the property is currently neutrally geared.

My concerns are:
1. Will my existing tenant get upset and move out?
2. Do I need to reduce their rent (i assume so as Im taking away their garage
3. Will my rental income on the existing property be substantially reduced as the land size is halved and there wont be a garage anymore.
4. How long does this building normally take?
5. Do I have to subdivide? I dont like the idea of paying Sydney Water twice and Parramatta Council rates twice.
6. Ive got a massive tree (6m tall) that ideally I would like to remove in this process.

Any hints and tips or reasons to why my idea is stupid are welcome :)
 
My concerns are:
1. Will my existing tenant get upset and move out?
Maybe?? who knows. Maybe they will stay if you reduce the rent a bit to allow for some construction noise.

2. Do I need to reduce their rent (i assume so as Im taking away their garage
Take off $15pw for the loss of a garage and maybe $10 per week for the disruption. Then add back a bit for a rental increase :)

3. Will my rental income on the existing property be substantially reduced as the land size is halved and there wont be a garage anymore.
No. That is the beauty of subdivisions. No loss of rent and good manufactured CG. You are making a "free" (to you) block of land.

4. How long does this building normally take?
4 months but allow 6 months.

5. Do I have to subdivide? I dont like the idea of paying Sydney Water twice and Parramatta Council rates twice.
Probably - or strata title. Either way, there is no "free" lunch my friend :). You have to pay your dues.
 
Thanks for the replies and suggestions.

I thought about granny flats, but how many granny flats am I allowed to build?

A quick look at that thread seems to indicate building for $50k and renting out at $150 ~ $200 which is pretty good yield, but if all im allowed is 1 granny flat, it does not seem to make the best use of the land. Either way, it would involve knocking down the existing garage and putting something in its place.

Also is it worthwhile going with builders like Masterton? Or would i be better off trying to go down the owner builder path?
 
I thought about granny flats, but how many granny flats am I allowed to build?
One

A quick look at that thread seems to indicate building for $50k and renting out at $150 ~ $200 which is pretty good yield, but if all im allowed is 1 granny flat, it does not seem to make the best use of the land.
Correct. Not the highest and best use of the land.

Also is it worthwhile going with builders like Masterton?
Yes

Or would i be better off trying to go down the owner builder path?
You can only do one owner builder every 6-7 years in NSW and it has to be (or intend it to be) your PPOR.

Additionally, subbies load up their quotes for novice owner builders who stuff them around and get the trades out of sequence.....and then do not pay well or on time.

Then they get regular work out of the volume builders and you only do it once. You cannot hope to compete with the discounts volume builders get on materials either.
 
Another thought...

Am i better off buying something for $200-$300k instead because seeing i own this piece of land I can always build later right?
 
I was reading through another thread and noticed that another member was saying that 5% is nothing and 7% is "easy" to find. Personally I've never seen such high yields in Sydney property, then again I've never looked that deeply.

So i guess what im trying to say is that if i was to spend $250~$300k in building, i could look to receive around $500+ pw in rent.

Borrowing $250k that equates to 10.4% gross, on $300k that equates to 8.66% gross.

Now comparing that to buying a property for $250k ~ $300k and getting a 7% yield, am i selling myself short trying to build when I can buy something else now, have potential capital growth and build on both properties later (or even my existing one only, if the $250k~$300k with a 7% yield is a unit).
 
I was reading through another thread and noticed that another member was saying that 5% is nothing and 7% is "easy" to find. Personally I've never seen such high yields in Sydney property, then again I've never looked that deeply.
I would venture to say that it is easy for BAs like Nathan and me to find as we are doing it every day of the week for a living. Even then it is not easy - it is hard work to get it just right. Others can obviously do it too. You are either buying cheap units from a developer in trouble or whatever that will rent well or you are buying dual income properties.

So i guess what im trying to say is that if i was to spend $250~$300k in building, i could look to receive around $500+ pw in rent.
Borrowing $250k that equates to 10.4% gross, on $300k that equates to 8.66% gross.
You are forgetting other costs such as subdivision costs or strata titling costs and the holding & interest costs during construction......but yes, high returns anyway.

Now comparing that to buying a property for $250k ~ $300k and getting a 7% yield, am i selling myself short trying to build when I can buy something else now, have potential capital growth and build on both properties later
Again you are forgetting stamp duty costs, MI, etc etc.

(or even my existing one only, if the $250k~$300k with a 7% yield is a unit).
It would be a unit - yes.

Look at the end of the day it is a coin toss I suspect.

Advantage of buying another in another suburb is you get a bit of diversification. But bear in mind, building costs are only going up over time too.
 
Well the initial property im looking is starting from $175k according to the Masterton site, hence why im bumping the total outlay it to $250k~$300k.

Couple other questions:
1. Whats the rough cost of subdivision, is there a formula that is applied?
2. Whats this Basix thing i hear about. Whats that going to cost?
 
Surveyors are great for telling you subdivision costs. Go ask one :) Costs vary something severe.

We subdivide in 3 weeks and then start building. Fun fun fun. Ours isn't a corner block, we just happened to pick up a 29x43m block with the existing house hard up (ok, sticking over) against the left boundary ... and 20m of empty space to the right. Every other block on the street and adjoining streets is 14m wide or less. Some serious wasted space on our block.
 
SA builder so not really relevant to you - Rivergum Homes. They do very pretty 'country' style weatherboard houses, transportables and on site.
 
ahh ok then.

As the home owner, am I actually allowed to subdivide while the lease is still in place? Its a 6 month lease signed about 3 weeks ago.

Obviously i will reduce the rent as im cutting the land in half, but does the tenant have the right to refuse?
 
These are my numbers . They might help.

1000 sq corner block with house to the front. Quick Reno completed and tennant in place.
Now starting da process to subdivide and build on back.

Council water and sewer $18,000
Sewer encasement. $12,000
Planner+extras. $10,000

House.4x2x2 190 sqm $162,000
Finishes inside and out. $14,000

Total cost of new dwelling. $216,000

Rent on existing property will not be effected according to ra.

Every property is different but this is what I'm looking at
 
These are mine and probably won't help :)

1350 sqm block with house to the left. We were going to renovate and rent it out but it was so nice after we renovated it we moved into it ourselves.

Original purchase price $65,000 + $2500 in fees
Reno $20,000
Council and water $5,500ish
Planner and lands title fees $4,000ish
Sewer adds $2000 extra as it straddled the block boundary.

House 4x2 140 sqm $110,000 all inclusive, give or take - can't get a fixed price quote until after we subdivide, apparently. This irritates me no end. It is probably because our local council doesn't like dual occupancy so we need that separate title first.

Values afterwards - old house $170-180k rent would be $200pw on $85k debt
New house $240,000 rent would be $280pw on $106k debt
If someone can tell me how to get a loan on these figures I will be your friend for life, I am currently banking on selling the old house first to pay for the bulk of the new house but really really really don't want to be forced to sell and move into temporary accommodation during the build as we will be a family of 5 with a newborn at that stage.

Like Davo, rent on the existing house wouldn't be changed at all by dividing, unless we can't get a driveway put on the old house and it gets stuck with no offstreet parking. Having not been able to even talk to the driveway guy despite half a dozen phonecalls and repeated reassurances he will call back same day, I still don't know what a driveway will cost.
 
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