GF Feasibility

[srini]

Here's our current situation:
3 IPs 1 of which are CF -ve, 2 are neutral.

Total equity sitting at around $160k conservative - $180k

We have had a look at our 10-year plan and realised that if we keep doing what we're doing, we won't get to our goal.

So, we are revising our strategy to focus on either development or GFs in NSW.

With our equity level, we'll be comfortable borrowing 70% max and we can comfortably service it. We also have some savings of approx. $50k sitting in the offset against our PPoR which we don't want to touch.

I have just started throwing some numbers together for a potential GF project. I am looking for feedback on the spreadsheet attached. Here's a quick summary.

Purchase Price $450,000
Purchase Costs @ 7% $31,500
Granny flat $118,500
Total Cost $600,000
Rental Income for house + GF approx. $800

Nett yield would be approx. 7% and the deal would be CF neutral.

The process I am following is to do my numbers and then look for properties/areas where I can get these sort of numbers.

Any feedback on the spreadsheet, strategy or general GF advise is greatly appreciated.

Thanks
Srini

 

[Rolf Latham]

My primary comment would be that if you only need a 70 % Loan to value ratio over your portfolio, that reduces your risk a little in some ways.

In some scenarios, GFs dont value up at the amount of $ spent on the place....., thus often forcing LMI into situations where this doesnt sit at all.

70 % on your numbers allows a little fat on that

t
arolf

 

[srini]

Thanks Rolf. Appreciate your comment.

We are trying to keep our LVR low. Our portfolio currently sits at around 65%.

Releasing the equity to fund the next purchase will see it coming up to 70% over the portfolio. This is what we are comfortable with and don't want to over-stretch ourselves too much with our first development attempt.

We are really looking at this GF experience as a step towards graduating to full development. Ideally 3-4 townhouse developments in Melbourne.

But, we're not comfortable to start that at this stage with our finance position.