Multiple Tenants on one property.

[sashatheman]

Hi guys

I am having mixed feeling about a house we found as an investment. The house it self is divided into two sections, both rented out. Then there are two "granny flats" at the back also rented out. So the previous owner was getting a lot of rent. I did some quick calculations and the rent return is HUGE.

However I am still very hesitant about such a property. Both granny flats are not approved by the council. The agent said that the previous owner had this property for 10 years and never had a problem with the council. But my thinking is that the council might take more interest when the property exchanges hands. How serious is it not to have pre-approved granny flats?

I would think that such a property would attract not the best of tenants. As an example while we were inspecting the place one of the tenants had defaulted on payments and the real estate agent was taking him to court.

I read that financing may the an issue with the bank. But i am not sure exactly what that means. Would they want more than 10% deposit?

My final hesitation is that the agent said the owner paid for electricity as there isn't a way to divide it between four separate parties living at the property. I would think when people have no incentive to be save on electricity they would run the aircon/heater etc 24/7. This could potentially be 1-2k bills per quarter.

Has anyone dealt with such properties, what are your thoughts? I see it as a huge opportunity to make money but with lots of risk. There is also an opportunity to do a quick paint job and carpet replacement in the main house which i would think can improve rent.

Your thoughts?

 

[JacM]

You can always give each dwelling its own electricity meter and water meter, so speak to your sparky and plumber about the process.

Yes, the bank likely will want you to pitch in a bigger deposit.

The council can order you to take down unapproved structures. There would be costs associated with taking a granny flat down both in terms of demolition permits and the deconstruction itself. If you had to do this, you would have paid a big price for what will end up as just the original dwelling rather than a multi-dwelling site.

I'd be wanting the vendor to get permits for the additional dwellings. I suppose you could instead try and buy the place for a really low price which factors in the likely cost of any problems down the track, but it is really hard to forecast the price of such problems. Have the vendor get permits and then readdress it would be my thoughts.

 

[SYD2013]

I have found these are generally factored into the price and you will no doubt see from the amount of interest in these types of properties.... There will generally only be a number of people willing to buy these types and take on the risk.

It is a commercial decision for you to make - are you willing to take on the risk for the huge return? Would the council actually ask you to take structure down or would they rather request works done to bring into line with regulations. I know you hear of these requests from council but I have not seen it (in syd) but not sure if others have

 

[wylie]

I wouldn't want to take the risk of having people living in an unapproved secondary dwelling in the event of a fire or similar disaster. Your insurance will wipe you and you'll end up in jail.

Plenty of people take the risk, just like plenty of people drive without licences... but I wouldn't.

 

[Colin Rice]

Always best to consider the worst case scenario unfolding and what mitigants you will have in place.

It could never happen but if it did what effect would it have on you both personally and financially?

PS. I am an optimist who considers the worst case scenarios which help keeps me optimistic

 

[Tim86]

Probably too much risk for me.

You aren't talking about one unapproved granny flat. Or a simple case of dual living. You are talking about MULTIPLE granny flats, plus dual living in the house. That becomes a bit harder to ignore. It will be obvious to neighbours, they may make a noise complaint because you essentially have 4 households on the one block, or the people at the property might park 10 cars out the front of the property causing more complaints, etc...

Dual living you might get away with. One un-approved granny flat you might get away with. But I wouldn't be surprised if the owner is selling because he hasn't gotten away with it and the council has already contacted him.

Remember also that if a tenant knows you are renting out the property illegally, you become his *****. It's hard to bring the hammer down on a tenant when they can threaten you with going to the council and reporting you.

Personally I would do dual living, or rent out an unapproved granny flat, provided they cost me almost nothing extra to set up, so that if the council shuts them down it wouldn't bother me.

The insurance situation may be worrying. But the problem is that sometimes the only way to make a profit out of a property is to not do things by the book. But with that said I would never set up a property that had potential fire hazards due to the illegal way the property was set up.

As for the electricity, you just put their rent up $10 per week to include electricity costs.

 

[MelbGal]

Mitigate your risk, get an expert in to advise you on what would be involved (cost) to get it approved then factor this into your pricing negotiations and add a bigger discount.

Most vendors want to move on and wont want to get a permit so will usually significantly reduce the price. We have bought and negotiated the price down on several properties with 'unapproved' structures.

 

[Pianissimo]

Probably too much risk for me.

You aren't talking about one unapproved granny flat. Or a simple case of dual living. You are talking about MULTIPLE granny flats, plus dual living in the house. That becomes a bit harder to ignore. It will be obvious to neighbours, they may make a noise complaint because you essentially have 4 households on the one block, or the people at the property might park 10 cars out the front of the property causing more complaints, etc...

Dual living you might get away with. One un-approved granny flat you might get away with. But I wouldn't be surprised if the owner is selling because he hasn't gotten away with it and the council has already

I am thinking of the same too.