Granny Flats - worth the cost ?

[Hobieyak]

There's no doubt that adding a granny flat to an IP will significantly increase the rental return (small decrease in house rental but well and truly offset by additional rental from granny flat).

However, what about the overall value of the property - does it increase by the cost of the granny flat ?

I have a NSW IP which appears to have the potential for a granny flat (stand alone garage in backyard which has access to street at rear) but am wondering if it's really worth the effort and cost as I may need to sell in 5 years time. It's all very well getting a good rent increase - but if I don't regain at least the cost of building the granny flat when selling the IP then overall I may end up with a significant loss.

Anyone had any experience with this sort of dilemma ?

 

[Shahin_Afarin]

Depends on the area in Sydney and the construction type. I have seen them add as little as 40% of the construction cost to the total end value and I have seen as much as 100%.

Which suburbs is it? Also are we talk about side by side or back and front GF?

Regards

Shahin

 

[Hobieyak]

Suburb is Albion Park (South of Wollongong) and it would be a granny flat at the rear of the property. The back yard has access to a street at the rear of the property and it would be possible to fence off a portion of the yard so the GF has a small yard space of its own. Overall land size is too small for a subdivision thought.

 

[Shahin_Afarin]

I honestly don't know the area well enough to comment but if you are serious about why not order an upfront val 'to be erected'. Grab yourself some house plans and a building tender.

Regards

Shahin

 

[Rolf Latham]

The average capital increase we are seeing for grannies being built is 70 c per dollar for a max sized 60 sqm granny.

Some much less,some at $ 2 increase per $ 1 spent.

An average rule of thumb is that the higher the median price of the suburb, the greater the rtn.

So..........Lethbridge park on average 70 c in the dollar

Willmot, Hebersham,etc 40 to 60 c

Blacktown region 90 to 100 c

Northern beaches 150 c to 200 c

Eastern Burbs and LNS 150 to 200

ta

rolf

 

[devank]

Suburb is Albion Park (South of Wollongong)

In my view the main house should at least rented for $400.00 now. Otherwise it is not worth the trouble and the lost equity. Also it is not suitable for short term. I would say you keep it for about 20 years!

 

[Hobieyak]

Thanks for responses

why not order an upfront val 'to be erected' - not familiar with the 'to be erected' val - is this something you arrange through a local estate agent or something more formal that you pay someone to do ?

An average rule of thumb is that the higher the median price of the suburb, the greater the rtn. Albion Park appears to have a higher median price than Lethbridge park or Hebersham but is lower than Blacktown so I guess that puts the capital return around 80c. However, if I went ahead I would be converting an existing garage and the size would only be around 30 - 35 sqm.

Rent for main house is estimated at $390. PM says if I exclude the stand alone garage then rent would need to drop by $10 to $15 (main house also has a separate carport). Estimated rental for GF would be $150 - $170

I guess another option would be to get the plans approved then use that as an added attraction when I do sell.

 

[Edmond Dantes]

... However, if I went ahead I would be converting an existing garage and the size would only be around 30 - 35 sqm.

You mean a 35sqm granny flat ?(!) Do you have samples to share? That sounds really small.

 

[Shahin_Afarin]

Thanks for responses

why not order an upfront val 'to be erected' - not familiar with the 'to be erected' val - is this something you arrange through a local estate agent or something more formal that you pay someone to do ?

An average rule of thumb is that the higher the median price of the suburb, the greater the rtn. Albion Park appears to have a higher median price than Lethbridge park or Hebersham but is lower than Blacktown so I guess that puts the capital return around 80c. However, if I went ahead I would be converting an existing garage and the size would only be around 30 - 35 sqm.

Rent for main house is estimated at $390. PM says if I exclude the stand alone garage then rent would need to drop by $10 to $15 (main house also has a separate carport). Estimated rental for GF would be $150 - $170

I guess another option would be to get the plans approved then use that as an added attraction when I do sell.

Via a bank. Most lenders offer free upfront vals. Get your banker or broker to do this.

Regards

Shahin

 

[Hobieyak]

Do you have samples to share?

Not sure how well this will come out but see attached.............

 

[Rolf Latham]

An average rule of thumb is that the higher the median price of the suburb, the greater the rtn. Albion Park appears to have a higher median price than Lethbridge park or Hebersham but is lower than Blacktown so I guess that puts the capital return around 80c. However, if I went ahead I would be converting an existing garage and the size would only be around 30 - 35 sqm.

what will be the cost of the conversion pls ?

Did a new build recently for a 36 m at 68 k

ta
rolf

 

[Hobieyak]

what will be the cost of the conversion pls ?

Haven't got any costing on the conversion yet but my guess would be $50 to $60K.

If there wasn't a reasonable capital gain then it may not be a good short term (say 5 yrs) proposition. However, I'm hoping that just by showing that a granny flat is feasible for this property would add some value for a future purchaser.

 

[Rolf Latham]

Haven't got any costing on the conversion yet but my guess would be $50 to $60K.

If there wasn't a reasonable capital gain then it may not be a good short term (say 5 yrs) proposition. However, I'm hoping that just by showing that a granny flat is feasible for this property would add some value for a future purchaser.

at that price I would do a demolish and rebuild

ta
rolf

 

[Made_Man]

$50k - $60k would get you a new build.

Also any reason your looking at Albion Park?

Just asking because you can get places closer to Wollongong City and the BHP Steel works for around $250k - $280k

 

[Hobieyak]

If I go ahead it will basically be a rebuild - only showing garage conversion because I thought it may be easier to get it through council.

Bought at Albion Park because I thought the particular property was reasonable value for money and had rear street access. When I was looking I didn't see many houses (other than relocatables) around the 'Gong for under $300K, certainly nothing of the quality of the one I purchased.

 

[Ideo]

If I go ahead it will basically be a rebuild - only showing garage conversion because I thought it may be easier to get it through council.

Bought at Albion Park because I thought the particular property was reasonable value for money and had rear street access. When I was looking I didn't see many houses (other than relocatables) around the 'Gong for under $300K, certainly nothing of the quality of the one I purchased.

Council? Who needs Council?

Go through the affordable rental housing SEPP for secondary dwellings and you can do it as complying development with a 10 day approval.

 

[tcocaro]

Fundamentally the reason behind building a "Granny Flat" is either for rental return or personal reasons (ageing parents etc).

Capital growth is not one of them. One would not typically build a Granny Flat thinking it will help grow sale prices however your question seems to query if it does the opposite.

Granny Flats have come a long way and their introduction is on the back of "demand" and "supply" reasons i.e. affordability. This means there is an inherent demand for such property in the marketplace which translates price support at a bare minimum if not price growth.

Granny Flats are also versatile i.e. used as an additional income stream via rent or as a home office, teenage retreat etc etc.

All this means is that there are enough people in the market place who "value" a granny flat and prepared to pay extra for it.

However I think the question has to be a little more holistic. For instance, if you own a property in an upper market area and the construction of a granny flat consumes the vast part of the backyard, access is restricted, driveway is shared then this may negatively affect the overall value as less people are prepared to pay the amount needed to afford the main house and be left with no backyard or live close quarters with someone else.

Like all investment decisions there are pros and cons each exacerbated depending on your individual circumstance but overall I believe Granny Flats have a positive effect on home values to at least the cost of the works.

There's no doubt that adding a granny flat to an IP will significantly increase the rental return (small decrease in house rental but well and truly offset by additional rental from granny flat).

However, what about the overall value of the property - does it increase by the cost of the granny flat ?

I have a NSW IP which appears to have the potential for a granny flat (stand alone garage in backyard which has access to street at rear) but am wondering if it's really worth the effort and cost as I may need to sell in 5 years time. It's all very well getting a good rent increase - but if I don't regain at least the cost of building the granny flat when selling the IP then overall I may end up with a significant loss.

Anyone had any experience with this sort of dilemma ?