Minimum return you'd do a Granny Flat for?

C

Coconutwheels

G'day All,

One of my goals this year is to increase my cash flow to $xyz which is about another $20k p.a. The RBA has done some of the heavy lifting already :)

The other low hanging fruit I'm considering is a granny flat on my Raymond Terrace property.

The block is suitable for it, but it is in one of the rougher areas of RT (though I've never had any dramas there).

Best case figures I think would be :
$90k build, rent $270/w = $7,704net (15.6%gross)

If I'm way out, worst case :
$90k build, rent $230 = $5,807net (13.3%gross)

Somewhere in between, shoot for a cheaper/smaller build 40m2:
$80k build, rent worst case $230 = $6,307net (15%gross)

So what are your thoughts, who'd be onto it like "white on rice" and who'd be like "I don't get out of bed for less than $10k" ;)
Cheers,
 
My 2 cents;

Make sure you don't overcapitalise. The cost to build a 2 bed granny flat is relatively similar in Raymond Terrace or Point Piper - which do you think would be worth more and bring more rent in the end? Are you adding at least $90k value to your property? Ok, those are extremes but you get the picture.

Ask yourself if you really need the cashflow as it will take you 14 years to make up the roughly $100k build assuming you get $7k net rent alone (assuming also nothing goes wrong within that timeframe). Bear in mind the value of the main property, and rent, will also decrease

Can your $90k be spent better elsewhere?
 
Best and worse cases don't allow for a variation in build price. I recently built a granny flat for $180k, but there were large excavation costs, and I went for quality to go with the area.
 
I think it's important to think about opportunity cost of buying elsewhere and/or if it's a property that you are going to hang onto..

We've got a house that I've been talking about putting a GF on for a long time now, but we haven't done it. Why? Well, first we needed to work out which properties we'll keep & which ones we'll sell.

So now, we've done that, we are again looking at a GF on this property. This is attractive as it's one we will keep long term, and the extra cashflow will be great for us in retirement.

But...if it was a property that we had earmarked to sell, we wouldn't bother with a GF at all, as there is no guarantee that we'd recover the funds spent on it in a sale situation.
 
Fair question.

I put one in a few years ago in w sydney. If I had my time again I prob wouldnt, but instead do a duplex. Having said that, cashflow is great, depreciation helps too. I was prepared to lose a bit of equity also, hard to tell if I did.

as someone said remember you will prob have to decrease the main house rent
 
I have a property in RT purchased one year ago. Rental and yield has been good

I am not sure you can get cheaper than $100k build out that way. I would think GF builder would need to come from Newcastle way.

I recently came pass a shop in Heathbrae (next suburb) to RT. They basically just responsible for the 'shell' like a bid shed on concrete slab for a $25k. Then you need to do you own approval, certification etc, and find your own builder to do the internal plastering, partition , kitchen, bathroom, electricity, plumbing. The guy thinks around $50-60k...

Somewhere down the track I will enquire more, when there is more demand for GF in RT. At the moment, the agent said not than many that many demand.

But the cheapest rental for a detached house in RT is around the $275-300/week, so i would think backyard 60m2 new GF would be rented out easily for around $250 mark.
 
Coconutwheels said:
G'day All,

One of my goals this year is to increase my cash flow to $xyz which is about another $20k p.a. The RBA has done some of the heavy lifting already :)

The other low hanging fruit I'm considering is a granny flat on my Raymond Terrace property.


Hey mate

where a bouts is your IP in the terrace ?

I have one in Alma st i picked up in march , I tend to agree with the REA that their would not be a lot of demand for GF yet !

Raymond terrace BTW is having a great Quarter !
a lot of REA i talk too tell me that their has been a few purchases site unseen from sydney investors chasing yield .
Click to expand...
 
Simon L said:
My 2 cents;

Make sure you don't overcapitalise. The cost to build a 2 bed granny flat is relatively similar in Raymond Terrace or Point Piper - which do you think would be worth more and bring more rent in the end? Are you adding at least $90k value to your property? Ok, those are extremes but you get the picture.

Ask yourself if you really need the cashflow as it will take you 14 years to make up the roughly $100k build assuming you get $7k net rent alone (assuming also nothing goes wrong within that timeframe). Bear in mind the value of the main property, and rent, will also decrease

Can your $90k be spent better elsewhere?
Click to expand...

Good points Simon, looking at it with the rose coloured glasses removed ;)
 
skater said:
I think it's important to think about opportunity cost of buying elsewhere and/or if it's a property that you are going to hang onto..

We've got a house that I've been talking about putting a GF on for a long time now, but we haven't done it. Why? Well, first we needed to work out which properties we'll keep & which ones we'll sell.

So now, we've done that, we are again looking at a GF on this property. This is attractive as it's one we will keep long term, and the extra cashflow will be great for us in retirement.

But...if it was a property that we had earmarked to sell, we wouldn't bother with a GF at all, as there is no guarantee that we'd recover the funds spent on it in a sale situation.
Click to expand...

As always very practical advice Skater.

I've been very similar with this one, last year was thinking of it but instead bought another unit in Cairns for the same cost. Now I too am looking at it again.

Plan to keep this one long term as I like the cash flow we already get from it and growth will be there long term too.
 
S1mon said:
Fair question.

I put one in a few years ago in w sydney. If I had my time again I prob wouldnt, but instead do a duplex. Having said that, cashflow is great, depreciation helps too. I was prepared to lose a bit of equity also, hard to tell if I did.

as someone said remember you will prob have to decrease the main house rent
Click to expand...

Ah! Duplex, that's somthing I hadn't thought of yet, for down the track. I looked at subdivision but not if its suitable for a duplex.
Cheers
 
RetireRich101 said:
I have a property in RT purchased one year ago. Rental and yield has been good

I am not sure you can get cheaper than $100k build out that way. I would think GF builder would need to come from Newcastle way.

I recently came pass a shop in Heathbrae (next suburb) to RT. They basically just responsible for the 'shell' like a bid shed on concrete slab for a $25k. Then you need to do you own approval, certification etc, and find your own builder to do the internal plastering, partition , kitchen, bathroom, electricity, plumbing. The guy thinks around $50-60k...

Somewhere down the track I will enquire more, when there is more demand for GF in RT. At the moment, the agent said not than many that many demand.

But the cheapest rental for a detached house in RT is around the $275-300/week, so i would think backyard 60m2 new GF would be rented out easily for around $250 mark.
Click to expand...

Hey RetireRich, Another fellow terrace investor :cool:

I'm in early stages of pricing atm but as a comparison I had a small GF built for $72k in Lake Macquarie, the builder came from about 3hrs North of newcastle.

This was three years ago though, and I went super cheaper and small as I knew I'd get a reasonable rent in the area anyway.

Your agents concerns are the thoughts holding me off I guess. I wonder though, if when asking them you use the words "dual occupancy" instead of GF, if that would make a difference?

Decent GF aren't that common around there yet. I had the similar response before I built one 3years ago at Lake Mac, the agents went straight to there 60yr old basement type GF for comparables, now there pretty common.

I'm with you though $250 easily for a decent one, is that enough return though:confused:
 
Theodore said:
Coconutwheels said:
G'day All,

One of my goals this year is to increase my cash flow to $xyz which is about another $20k p.a. The RBA has done some of the heavy lifting already :)

The other low hanging fruit I'm considering is a granny flat on my Raymond Terrace property.


Hey mate

where a bouts is your IP in the terrace ?

I have one in Alma st i picked up in march , I tend to agree with the REA that their would not be a lot of demand for GF yet !

Raymond terrace BTW is having a great Quarter !
a lot of REA i talk too tell me that their has been a few purchases site unseen from sydney investors chasing yield .
Click to expand...

Mine is on Phillip rd. So pretty old commission area.

I reckon atm if you did it it, would need to be done well, so own driveway access, bit of yard and reasonable size (not like my last 38m2 jobbie).

Interesting comment about investors chasing yeild. My theory regarding the overall outlay if I built it, if I was to sell and needed to, the market I'd be chasing would be investors so:

At a combined weekly rent of $535- I could market and sell as a 10% rental yeild which would return me the cost of the GF plus the profit I currently hold.

If I was able to market and sell as an 8% yielding investment, I'd put an extra $50k in my pocket.

Ok....rose coloured glasses off;)....thoughts?
Click to expand...
 
Same here.. I have a property in Raymond Terrace which I thought about building a granny flat but at this stage I agree I don't think there is much demand and return is on the low side... Possibly thinking of doing one in 12 months time... hoping rents go up a bit in that time
 
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