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The investors have recently started building or started investing in properties with granny
flats as a way of getting a higher rental yield, and thus a better return on investment
for their property portfolio. Today I want to talk about whether or not granny flats
are a good investment strategy. Soon I'm hoping to do an interview or a couple of interviews
with a guy by the name of Wally who's from granny-flats-solutions.com.au who build granny
flats for people and we can talk in more detail about how much it costs to build a granny
flat, we can talk about the development process and getting it approved and all of that sort
of stuff. But today I just want to talk about granny flats from a financial standpoint and
some things that you can think about if you are considering investing using granny flats
and you can work whether or it's going to be a good investment strategy for your specific
situation or not. This is not to be considered a financial advice, this is just me giving
general education. Some counselors are allowing granny flats
to be built more easily to help with affordable housing, so that there are more properties
are available at affordable prices to people in those areas. From what I read generally
you need to have a block that's over 450 meters squared, and that granny flat can be no greater
than 60 meters squared. So, you can get roughly a 2 bedroom granny flat into a 60 m2. Costs
are about $100 000 give or take, but it obviously depends which company you go with. With granny
flats it's very unlikely that you're going to be able to subdivide that property. There
is warrant in New South Wales, if you build a granny flat and you go ahead and do this,
you're not allowed to subdivide. Whether that says you'll be allowed to subdivide in the
future or not, I'm not sure but it will restrict you in being able of subdivide your block
if that's an investment strategy that you are looking at.
Granny flat is very likely to increase your rental yield. Obviously depending on the are
you're renting it and depending on how much you spend on the build would depend on how
much your yield is. I hear about people getting 8, 9, 10, 11 % yields from their granny flat
when they're looking at the cost to build a flat and then what they're getting in return.
Obviously, building a granny flat in high demand, high cost area like somewhere in Sydney
is probably going to generate you a higher rental income than building a granny flat
somewhere in the middle of the country where rents for 4 bedroom houses are extremely low
anyway. So depending on the area and the cost to build would depend whether or not the granny
flat will increase you yield, But in a lot of cases and for a lot of investors it is
increasing their yield both for the granny flat itself (obviously, they're getting a
new income) but when you look at the investment property overall it pushes the yield up and
may even turn a negatively geared property into a positive cash flow investment property.
A lot of you watching this, or listening to this or reading this will be very interested
in positive cash flow properties and so one thing that you may want to look is the potential
of buying a property with a granny flat or maybe building one yourself. But obviously
always go ahead and make financial advice before you go and make any decisions.
Will granny flats increase the value of your property above the cost of the granny flat.
Now, I don't have data on this so I couldn't say whether or not it is going to increase
the value of the property. I guess it really does depend on the market that you're in and
who is searching the properties. For some young families - they might like a granny
flat as a way to generate income, to help pay off their mortgage; for some older people
like baby boomers who have their kids leaving - they might like granny flats because if
the kids need to move back in they can just move into the granny flat and they can still
have their personal space. But some people might be turned away by granny flats because
maybe they don't want that separate space or maybe they don't want to be paying to have
that separate space, or maybe they don't want someone else renting it. It really depends
on your market, depends on who is in your market and what kind of properties they're
looking for. If you want to find out whether it's going to be good for your area, I do
suggest speaking to one of your local real estate agents - they will know a great deal
about the target market, about whether or not they're going to like granny flats and
they can estimate for you, give you a rough valuation on if you had one versus if didn't
have one, and then you can assess that valuation - look at the cost of the granny flat and
assess whether it's actually going to increase your value and you're going to get equity
from it. You also need to consider bank valuations, and whether they're going to increase the
value of your property with the granny flat because maybe you've spent about 100 grand
on a granny flat, you get a revaluation done and then they value it as adding $80 000 in
equity. That will actually put you $20 000 behind. But obviously, every evaluation is
going to be different, every area is going to be different. So I can't say anything definitive
because you need to assess it for your situation and your area. You can speak to real estate
agents, to people who do valuations, to your bank, you can talk to a lot of different people.
If you want to do some rough research yourself on demographics and so forth, then I have
a whole module dedicated to that over at positive-cashflow-academy.com. So it's unclear at this stage whether granny
flat will increase the value of your property above what you spend on it, or even up to
what you spend on it, it's going to depend on the area. So don't just assume granny flats
increase the value of properties because it's not necessarily going to be the case.
And lastly I just want to ask will granny flats lead to an oversupply? And that's only**
to consider with these granny flats now being able to be improved so easily, in some cases
in just 10 days. Will that lead to more and more people building them and oversupply so
your returns might be as great. I don't know, that's something that you need to speak to
an advisor about or speak to a real estate agent about, but it is something to consider
if there's loads of people doing it in your area. Obviously there's going to be loads
more properties available for rent, and that may effect supply and demand and thus effect
your vacancy rents and your rental yield and all these sorts of things. But for you - do
your own figures, talk to a professional, financial advisor and get advice from them
to decide whether or not granny flats are going to be a good investment strategy for
you, because some people might want great investment strategy - exactly what they want,
they've want that high rental yield, they've want that positive cash flow. For some people
- they might want to spend that money somewhere else. They might want that $100 000 that they
would have spent on a granny flat build on something else and they might generate a better
return for them. So you really need to assess your own situation and work it out for yourself.
For more videos, articles and podcasts just like this one, head over to positive-cashflow-australia.com.au
or pca.im which is a short link which will redirect you there. And on the 1st March,
2014 I am opening the doors to positive cash flow tools, which is a membership website
which gives you access to property calculators and spreadsheets and checklists to help you
make smarter investment decisions, to help you understand more about the property and
the area that you're going to be investing in. So you can check that out at PositiveCashflowtools.com
- extremely affordable and you can access it from anywhere. You can access it on your
desktop, it's also fully mobile responsive so you can use it on the go as well. Until
tomorrow, stay positive.