Land Leasing for Granny Flat

[lwright]

What do people think about this idea.

I live in Ryde, an inner west suburb of Sydney. A 1 br granny flat was on offer the other day for $400pw. The location wasn't even that good. I don't know if they got it but I would think so. This week there's a pretty nice 2br up for $480pw. Anyway the point is they seem to be renting for decent prices.

I know you can get a pretty nice 60sq 2br transportable granny approved & installed for about $100K.

The demographics of Ryde are such that there's quite a few old age pensioners that are living in houses with 600-700 sqm blocks. They love their homes & don't want to move. They're cash poor (especially since the budget) but they're probably not that attached to their big back yards. For some it's probably even a drama having to maintain a large back yard anyway.

There are quite a few blocks that have rear lane access or corner block access.

So my idea would be to approach someone with a suitable block and ask to long term lease (say 5 years) their back yard for say $100pw. I'd fence it off then install a granny flat & rent it for say $400pw. So the numbers would be:
Rent $400pw
Interest + principal 20 years @ 7% $178pw
Depreciation @ 5% $96pw
profit $126pw
gross yield after land lease 15.6%

I know there's a whole lot questions to consider like:
-Does the lease increase or decreases the value of the land.
-What if the owner terminates after 5 years
-Removal costs etc.

Anyway just like to know people's thoughts.

 

[neK]

I don't think you can put up a "transportable" granny flat. Even if you could, transportable ones look crap and in my opinion devalue the area.

Also, why would I agree to having you pay me $100 per week when i can do it myself?

Even if the elderly person agrees, i doubt their children would.

 

[nhg]

Variations of this have been brought up before.

I've had several brain storming sessions with friends trying to nut out how to make it work.

If you can find a way you'll make a mint. I am yet to do it considering all the legal/financial hurdles.

Keep playing with the idea, perhaps you'll be the one to make it work.


One that kind of started making some sense was to build it and lease it back for x years. Then they had the option to renew or keep it at the end of the term. It required having a builders licence cause a lot of your money would be made from the construction itself. And some really amazing tightly worded contracts to boot.

 

[Scott No Mates]

If you're keen, check out the seminar to be hosted by Ryde council.

 

[lwright]

If you're keen, check out the seminar to be hosted by Ryde council.

Thanks Scott. I've booked in for it. Very timely. It's on Tuesday.

 

[lwright]

I don't think you can put up a "transportable" granny flat. Even if you could, transportable ones look crap and in my opinion devalue the area.

Thanks neK,
Yes transportables don't look quite as nice but some are pretty good.

Also, why would I agree to having you pay me $100 per week when i can do it myself?

Same reason people with big blocks don't get DA's for duplexes or units before they sell. Expertise, time, finance.

Even if the elderly person agrees, i doubt their children would.

Yes good point but it may increase the value to an investor if they had the option of purchasing the granny flat too. For example, they can buy the house without the GF & rent it for say $600 or pay another $100K & rent it for $1,000.

 

[lwright]

Variations of this have been brought up before.

I've had several brain storming sessions with friends trying to nut out how to make it work.

If you can find a way you'll make a mint. I am yet to do it considering all the legal/financial hurdles.

Keep playing with the idea, perhaps you'll be the one to make it work.


One that kind of started making some sense was to build it and lease it back for x years. Then they had the option to renew or keep it at the end of the term. It required having a builders licence cause a lot of your money would be made from the construction itself. And some really amazing tightly worded contracts to boot.

Hi NHG. Thanks for the encouragement. Nice to know I'm not the only one thinking this way.

 

[pierso]

I had a look at this a while back - similar thoughts as yours.
IIRC you will be restricted to getting a 5 years max lease (including any options) as any longer is defined as a subdivision.
Therefore the only way this works is with a transportable so that you can take the unit away at the end of the 5 years if you cannot get a new lease, then put it elsewhere or sell it.
My understanding is the various councils or the granny flat legislation (cant remember which) specifically excluded the use of transportables. So that kinda stopped me dead in my tracks. However - keep looking into it and let us know if you find a way to make it work.

 

[nhg]

Keep looking into it and let us know if you find a way to make it work.

As above.

I found leads for financial backing. Come up with a solid plan and I'd be interested to get involved as a partner.

 

[neK]

http://www.grannyflatapprovals.com.au/relocatable-granny-flats

 

[grow]

I agree this is a great idea, i though about it in darwin with the tight rental conditions here.
The benefits for pensioners is extra cash each week, no risk of capital (pensioners get an income for no money down).

Bunnings have a smartspace building in Darwin on display, (3 of them all different sizes) they look awesome and reasonably affordable! kit form on 4 pallets from memory. double glazed etc, can get the appliances etc from bunning to fit it all out.

The one they had here was 84k with kitchen and bathroom floor coverings for a 2x1 and aircon, hot water system appliances etc.

 

[grow]

also with bunning i guess you would have good support for warranty claims etc.

 

[lwright]

I agree this is a great idea, i though about it in darwin with the tight rental conditions here.
The benefits for pensioners is extra cash each week, no risk of capital (pensioners get an income for no money down).

Bunnings have a smartspace building in Darwin on display, (3 of them all different sizes) they look awesome and reasonably affordable! kit form on 4 pallets from memory. double glazed etc, can get the appliances etc from bunning to fit it all out.

The one they had here was 84k with kitchen and bathroom floor coverings for a 2x1 and aircon, hot water system appliances etc.

Wow they look really good & one could feel comfortable buying from Bunnings. Awkward sizes though for AHSEPP.

Choose from three Core Unit sizes

Walled Area / Covered Area
SmartSpace 1
22.5m / 35.1m

SmartSpace 2
43.8m / 53.7m

SmartSpace 3
65.1m / 94.6m

http://www.smartspacehomes.com.au/wp-content/uploads/2014/05/SmartSpace-Buyers-Guide.pdf

 

[lwright]

http://www.grannyflatapprovals.com.au/relocatable-granny-flats

Very enlightening. It seems you can't do relocatables under AHSEPP but you might be able to do it under an ordinary DA but that's not much fun.

 

[lwright]

I had a look at this a while back - similar thoughts as yours.
IIRC you will be restricted to getting a 5 years max lease (including any options) as any longer is defined as a subdivision.
Therefore the only way this works is with a transportable so that you can take the unit away at the end of the 5 years if you cannot get a new lease, then put it elsewhere or sell it.
My understanding is the various councils or the granny flat legislation (cant remember which) specifically excluded the use of transportables. So that kinda stopped me dead in my tracks. However - keep looking into it and let us know if you find a way to make it work.

I didn't know that about the 5 year limit being treated as a subdivision. That kills off another idea I had about a 99 year lease. It does seem though that the 5 year limit doesn't apply to leasing of premises.

 

[pierso]

Yeah, I liked the idea of a 99 year lease too......
http://rgdirections.lpi.nsw.gov.au/deposited_plans/lease_plans/lease_land

 

[grow]

Insurance and power and water billing was also a concern of mine with the idea. I am not sure how you would insure it if it was on someone elses land? and a separate meter would probably be to expensive.

 

[nhg]

Insurance and power and water billing was also a concern of mine with the idea. I am not sure how you would insure it if it was on someone elses land? and a separate meter would probably be to expensive.

Contract for shared water or make it part of your lease cost.

Roughly.

$1200 insurance home + tenant.
$800 for separate electrical metre.
$1200 for standard power upgrade if needed.
$$$ if you need a power pole.
$1000 for site specific drainage drawings and EIS to go with DA/SEPP submission assuming you have stock drawings.
$5000 for basic sewer and stormwater connections.
$2000 private certifier.

Could be part of your land screening process.


Site setup costs including DA/SEPP would be $7-$30k depending on the council fees.

 

[brazen]

What do people think about this idea.

I know you can get a pretty nice 60sq 2br transportable granny approved & installed for about $100K.

1. You can build a decent permanent one for $100k. i.e. not one that is just a 70mm framed caravan park cabin flimsy little thing.

2. Transportable and Portable buildings are not approval under the legislation

Brazen.
Granny Flat Approvals Sydney Pty Ltd

 

[nhg]

2. Transportable and Portable buildings are not approval under the legislation

Not under SEPP. Under section 68 Manufactured Building (or something like that).

I did one.