Granny Flats in Perth

[Singo]

if the GF costs 100k and the valuation goes up by 80k only, the 20k is lost. So someone with 80% LVR needs 20k+(20% of 80k) = 36k for the GF.

Say someone builds 2 GFs, that is 72k. Interest payable on 128 k loan @ 5.2%= 128 per week. And you get 275*2=550/week. 422 per week positive cash flow. (There will be some other costs, say the depriciation covers it)

For 72k you can buy a 300k house at 80% LVR and buying costs. Interest payable on 240k loan = 240 per week. And you get 400/week. After paying rates you can get less than 100 per week.

Instead of buying a house, provided you already have 2 houses where GFs can be built, if you build the 2 GFs you get 300 extra cash flow per week.

GREAT, isn't it? Not exactly. The house may double in value in 7 or 10 or 15 years. The GFs won't. So it just depends what you are after. CF or CG...

 

[MTR]

well for example the house i purchased in south lake i could have put a granny flat on it if it was a little bit smaller and not subdividable.

brought the house for 425,000 potential rent - 450 = 5.5% yield.
cost to put a granny flat on, lets say 110,000 rent - 320 = 15% yield

say i lose a bit on rent for the front property with a granny flat on it so goes down to 410

410+320 = 730
425,000 + 110,000 + 535,000.

730*52/535000 = 7% yield

and i think a 7% yield on a 500k property is worth a lot more than one valued at 100K-200k, less maintenance etc.

what do you mean by you can't use the equity. i understand that if a granny flat costs 100k to build it might only add 80k value to the property but it becomes part of the property value and if you have a low LVR and want to borrow from this there shouldn't be a problem.

only reason i have been looking into this is because I'm struggling to find good development properties in perth.

My understanding is that the value of the property will be dependent on comparable sales of similar properties in the area. From my experience properties with g/flat do not necessarily come in much higher approved/not approved. The issue is that it will be difficult to find comparable sales and I don't believe they calculate 80% of the build, damn it. I know this from my recent values and also my broker advised the same. Also, with 7% yield IMO I don't believe this is attractive enough for an investor to buy at a premium.

I think I would want around 10% if building new, especially for all the effort and sacrificing the equity and to attract a premium price from an investor.

I will give you the figures on my Syd property

Purchased $315,000

Front rented at $395 pw
Rear $220 pw
Total: $615 pw - 10.15%

This property will be snapped up at a premium due to yield, however the bank value will be below the expected sale price.

It is difficult to find development blocks but I still believe this is a far superior option. Keep looking

Cheers MTR

 

[thatbum]

I'm actually hoping to get $400 to $450 a week for my 2x2 GFs, and they are on lots which I can't otherwise do anything else with realistically. (Heritage area means I can't demolish the existing properties)

 

[MTR]

if the GF costs 100k and the valuation goes up by 80k only, the 20k is lost. So someone with 80% LVR needs 20k+(20% of 80k) = 36k for the GF.

Say someone builds 2 GFs, that is 72k. Interest payable on 128 k loan @ 5.2%= 128 per week. And you get 275*2=550/week. 422 per week positive cash flow. (There will be some other costs, say the depriciation covers it)

For 72k you can buy a 300k house at 80% LVR and buying costs. Interest payable on 240k loan = 240 per week. And you get 400/week. After paying rates you can get less than 100 per week.

Instead of buying a house, provided you already have 2 houses where GFs can be built, if you build the 2 GFs you get 300 extra cash flow per week.

GREAT, isn't it? Not exactly. The house may double in value in 7 or 10 or 15 years. The GFs won't. So it just depends what you are after. CF or CG...

Or just find a 3 unit site.

 

[Aaron Sice]

if the GF costs 100k and the valuation goes up by 80k only, the 20k is lost. So someone with 80% LVR needs 20k+(20% of 80k) = 36k for the GF.

Say someone builds 2 GFs, that is 72k. Interest payable on 128 k loan @ 5.2%= 128 per week. And you get 275*2=550/week. 422 per week positive cash flow. (There will be some other costs, say the depriciation covers it)

For 72k you can buy a 300k house at 80% LVR and buying costs. Interest payable on 240k loan = 240 per week. And you get 400/week. After paying rates you can get less than 100 per week.

Instead of buying a house, provided you already have 2 houses where GFs can be built, if you build the 2 GFs you get 300 extra cash flow per week.

GREAT, isn't it? Not exactly. The house may double in value in 7 or 10 or 15 years. The GFs won't. So it just depends what you are after. CF or CG...

Classic example of yield vs growth. One outpaces the other until the other outpaces the first.

 

[RetireRich101]

my understanding is you wouldn't gain much even if it was approved?

My recent experiences with 2 bank valuation suggest it does
1st was $360K to $440K, 22% increase
2nd was $465K to $520K, 12% increase

I did nothing to the property but just show the bank valuer the approval documents

 

[Ausprop]

My recent experiences with 2 bank valuation suggest it does
1st was $360K to $440K, 22% increase
2nd was $465K to $520K, 12% increase

I did nothing to the property but just show the bank valuer the approval documents

so you didn't actually build - you got that valuation increase on a planning approval?

 

[RetireRich101]

so you didn't actually build - you got that valuation increase on a planning approval?

In 1st case, there was existing extension that valuer said it wasn't approved, but once I showed them the approved documents they increased the valuation..

The 2nd was similar, an existing GF was approved via private certifier, but valuer didn't have the information. Once I provided they increased.
It just shows valuer will act favorably if you can show the approval documents...

 

[brazen]

Are garage conversions permissible in WA http://www.garageconversion.com.au/ and would this include and en-suite and kitchenette?

I dont know in WA. It all depends on the wording of the legislation. Here in NSW there's wording which allows it- specifically "existing building", which allows a conversion.

 

[brazen]

Hi Brazen what areas/locations have you found have been popular for GF's.Any particular drivers- lifestyle, access to services?

Any area where the the lots are big enough have been good here in NSW. The key is to develop on the right sort of block really. Good separation and privacy between dwellings is vitally important.

Blacktown and Penrith have seen a lot of new granny flat development because the +pve gearing is immediate.

 

[brazen]

the NSW experience has shown that valuers won't give you any reward for them and their yield - whilst good - is not amazing, particularly given potential headaches (and loss of amenity if on PPOR). Many have found that the cash is better utilised as equity for another property.

In some cases you are better off exhausting your borrowing capacity in buying as many properties as possible first, especially in a growing market. Granny flats can vary so much based on how you do it that it's really there for the smart investor who is ready to switch from a straight up equity strategy to a long-term income strategy.

Ive got clients doing their 5th granny flat here in Sydney. By the time they retire in 20 years, they'll be on a rental income of over $4,000 per week. Cost to them? $0

Remember, too, that Granny Flats can be effectively free if you do it smart. I disagree that the equity is completely lost. If you build a quality dwelling you'll get a revaluation between 70% to 120% depending on the area, quality and of course the valuer.

I believe as time goes by, we'll see the valuations go over 100% more often than not, so equity loss will be effectively a moot point.

It's early days. Look at Britain- granny flats are everywhere.

 

[brazen]

Hi Ausprop
I have had a couple of valuations on my property in Sydney which has a separate g/flat at rear, excellent yield, unless it is approved don't expect a higher valuation. In Syd I would say majority of g/flats do not have council approval, certainly from my experience when I purchased about 4 years ago. Council seems to turn a blind eye to this, never had any issues whatsoever.

MTR

Except you have no insurance and if someone is hurt inside (or even outside...or their visitors), you can go to gaol. Happened recently in NSW South Cast where a gas explosion saw 2 men die. The landlord is in court as we speak.

Brazen.

 

[brazen]

if you want to run a low LVR then it's fine, and so long as you want to keep the property and don't want to tap the cash you have injected into it, as effectively it has gone

100% agree with this^^.
If you have no plans to sell and you want to rinse/repeat, you can derive an awesome income. It's all about the cash flow first, equity second. This is not to say you cant get equity growth form improvements and additions, it just shouldn't be your prime goal.

Brazen.

 

[redwing]

Legislation came into effect as at 1st of August 2013 that allows WA residents to lease a granny flat on the open rental market as per our Eastern States friends.

Is this ALL of WA

 

[MTR]

Except you have no insurance and if someone is hurt inside (or even outside...or their visitors), you can go to gaol. Happened recently in NSW South Cast where a gas explosion saw 2 men die. The landlord is in court as we speak.

Brazen.

Hi Brazen

This is incorrect I do have insurance cover, GIO insures, 2 separate policies house/gflat you must disclose upfront that the g/flat is not approved.

As you have a vested interest it would be good if you provided us with further info no the valuations you are talking about.

Thanks
MTR

 

[RetireRich101]

The valuation methodology for GF bank valuers adapt are no different to a normal single dwelling. They use the comparable - inferior - superior methodology.

Most interest in GF are from investors and they're unlikely to sell in today's market due good yield, hence there isnt that many dwelling with GF sold in last 6 months etc.

Therefore , it is harder for bank valuer to find a comparable property, ie with a GF. If they cant find one they will adapt using a big house with same amount of bedrooms..

Even they're able to find a comparable GF property, then you have the problem arguing the inferior/superior aspects comparing to your property. This aspect that most broker here are saying you have less than 1% winning the dispute.

 

[brazen]

Hi Brazen

This is incorrect I do have insurance cover, GIO insures, 2 separate policies house/gflat you must disclose upfront that the g/flat is not approved.

As you have a vested interest it would be good if you provided us with further info no the valuations you are talking about.

Thanks
MTR

Hi MTR,

RE: Getting Insurance for an unapproved structure
Getting insurance is an easy thing. An insurance company isnt going to say no to issuing a policy BUT will they honour it when they find out you had an illegal use? You say they know it's an illegal use and are happy to cover you?? Please provide that evidence because that sounds incredible.

RE: Property valuations with granny flat
It's impossible for me to show you my client's individual valuations. I'm just relaying what they tell me. Some of the info also comes from right here at somersoft plus real estate agents (many here) who talk to me all the time. Sorry i cant provide, say, 20 valuations. Im not a real estate agent.

You'll find (if you search threads) that a lot of my advice to people is to NOT build a granny flat depending on their situataion, the property etc. so I'd like to think I have a balanced approach.

Brazen.

 

[RetireRich101]

100% agree with this^^.
If you have no plans to sell and you want to rinse/repeat, you can derive an awesome income. It's all about the cash flow first, equity second. This is not to say you cant get equity growth form improvements and additions, it just shouldn't be your prime goal.

Brazen.

This maybe true for now as valuer can't find enough comparable properties in their report. But as time goes, there are more sales transactions, valuer can't ignore this.

I am seeing a sign in western sydney, investor are chasing hard on the yield. For example, below property in blacktown got sold before an auction for $610K.
I inspected the property myself, I estimate the GF doesn't cost $100k to build, and to buy the main dwelling 560m2 without a GF be $420K... total is $520K
It is rented for $750/wk, on sale price of $610k returning 6.4%

In speaking with the Agent, he advised the bank valuation came in at $560k.

http://www.realestate.com.au/property-house-nsw-blacktown-114339019

 

[RetireRich101]

Blacktown and Penrith have seen a lot of new granny flat development because the +pve gearing is immediate.

When I got my bank valuation recently in Blacktown, we were able to find only 2 properties that are approved secondary/GF in the last 6 months sales.

Blacktown and Penrith supposed to be the most GF build in Sydney, yet we could only find 2 sales in the last 6 months.

So imagine in WA/Perth when you have a GF built, the best a bank valuer could use is a big dwelling for comparison since there arnt any GF currently

 

[MTR]

This maybe true for now as valuer can't find enough comparable properties in their report. But as time goes, there are more sales transactions, valuer can't ignore this.

I am seeing a sign in western sydney, investor are chasing hard on the yield. For example, below property in blacktown got sold before an auction for $610K.
I inspected the property myself, I estimate the GF doesn't cost $100k to build, and to buy the main dwelling 560m2 without a GF be $420K... total is $520K
It is rented for $750/wk, on sale price of $610k returning 6.4%

In speaking with the Agent, he advised the bank valuation came in at $560k.

http://www.realestate.com.au/property-house-nsw-blacktown-114339019

Hopefully this will be the case for those who have built new g/flats, as I mentioned has not been my personal experience my property is in Blacktown, West Syd, perhaps hit and miss at the moment and Perth will be way behind the 8 ball.

Am I missing something.... 6.4% is a very ordinary return, you can do this without purchasing a property with g/flat.

MTR