Adding a granny flat to property

virgo said:

Hiya

Best to check; someone mentioned once to me that a battleaxe block is already a dual occ as it is already subdivided?

would be glad to be proven otherwise tho

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Yes, a battle-axe block can indeeed have a granny flat built on it. Just remember the driveway must be minimum 3m wide.

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Now, Ive watched this thread and have until now made no comments because it's what I design/approve/build for a living.

So let's look at this intelligently.

Lets say you spend 90k on a granny flat and your real Rental Income (after you deduct $50/week off the main dwelling + rental fees etc)= $300

You will net $15,600 income per annum
In order to recoup your investment you'll need 6 years to pay it off.
After that date, you'll earn $300 per week... FOREVER.

AND this is assuming the granny flat itself doesn't add a single cent of actual real value (sell price) to your IP; which is meterially impossible.

So, a granny flat (in reality) can NEVER lose you money.

How Nathan can view $156,000 net income every 10 years alone (cash in your back pocket) as a bad investment is totally innane to me. Sorry.

Andrew_A said:

There's a review due for Brisbane in 2012 about this type of housing.. fingers crossed somebody has some common sense and we get some sensible granny flat rules.

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Wow this will make a big differance to my little world, I have all my fingers and toes crossed!!!

Brazen i agree with you 100%. Im new to this idea of granny flat having just bought my 2nd IP, but i have the same view. Would be interested for u to critique my views from my posts above. Im leaning towards a expanda van.... No crane needed, no concrete footing, can be towed out should i wish to have my yard back and get money back from on selling for whatever reason. Ur views?

According to my rough calculations it would take about 11 years to get pure profit. Excel sheet is attached.

I only included 40 weeks of rent to take care of vacancy period + agent fees + other costs.
Applied inflation of 3% on rents.
Assumed the bank interest to be 7%


Assumptions
Rented weeks - 40
Inflation 3%
Bank interest 7%
Initial rent $300.00

Not saying its a "bad" investment.

Just simply saying why do you need to rely on a granny flat for a better yield?

Companies are promoting granny flats at present because they make money in selling them, they also promote your property will go from 6% yields to 9% yields etc.. Reality of it is, why don't people just buy 9% yielding properties off the shelf without the need to spruik a granny flat....

The other point to note is that granny flats don't add value always to properties. Like anything you want to see a capital appreciation. Adding $100,000 granny flat your not going increase your capital of the property in most circumstances by more then say $100,000. For many investors who get stuck in the areas I invest in they are ending up in negative equity and not being able to leverage their capital because they have been "sold" dud investments which cannot leverage.

If you are creating equity along with cash-flow from adding the granny flat then this can work, but if your simply making a poor retuning investment a cash-flow neutral by the exercise then you should consider your purchases more closely.

There is a reason behind my madness because I constantly see investors come to me at either events or email or into my office mention the hurdles and positions they get into and ask for help.

If anyone wants a granny flat then my building company can personally build these off the ground from scratch quicker and at a substantial discount to retail however its just something financially I always feel people should weigh up their options on.

Not against it, just need to know your numbers and it is not as simple as calculating one set of outcomes on the back of an envelope. If you look at equations from other angles, opportunity costs etc you could see a whole other picture evolve.

Good luck.

Nathan said:

If you are creating equity along with cash-flow from adding the granny flat then this can work, but if your simply making a poor retuning investment a cash-flow neutral by the exercise then you should consider your purchases more closely.

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That can be true but there is also a flip-side to this argument.

Many of the high CG areas have low(er) rental yields - typically 4-5%. Since, many investors can only afford to hold 2-3 negatively geared properties at a time, this means that they must wait for rents to increase over time (which they do) until these properrties start to go cash flow neutral / positive.

The addition of a granny flat, if appropriate, can turn these kinds of investment properties cash flow neutral / positive almost instantly. Therefore, they can grow their portfolio more quickly, because their serviceability is not so much of an issue going forward. They will still need to wait for some period of time to be able to access their equity for more cash deposits if relying on organic CG, but this too can be accelarated by manufacturing CG through renovations, for example.

Propertunity said:

That can be true but there is also a flip-side to this argument.

Many of the high CG areas have low(er) rental yields - typically 4-5%. Since, many investors can only afford to hold 2-3 negatively geared properties at a time, this means that they must wait for rents to increase over time (which they do) until these properrties start to go cash flow neutral / positive.

The addition of a granny flat, if appropriate, can turn these kinds of investment properties cash flow neutral / positive almost instantly. Therefore, they can grow their portfolio more quickly, because their serviceability is not so much of an issue going forward. They will still need to wait for some period of time to be able to access their equity for more cash deposits if relying on organic CG, but this too can be accelarated by manufacturing CG through renovations, for example.

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This is what I want to do. I bought in a holiday area in a really good spot, with good holiday rental potential, however i want the ease of dealing with one tenant so have my house on permanent rental, but substantially lower yield. I want to artificially make this 2nd IP cash flow neutral within 1 or 2 years of purchase. Also having a gf as a permanent flow of income, i could be more entreprenerial and do the front holiday rental and get sporadic high rent for it on and off.

No one seems to be telling me the downside of an expanda van (see www.expandavan.com.au)...... anyone have experience with these? As i could much easier save $60/$70k and buy these. I wouldnt even be considered for borrowing further money to buy a proper house as ive maxed myself out borrowing etc.

Expanda

Yaks i hate the look of it!

BUT may work in a holiday spot...i wouldn't put it on any of my IPs though in Sydney...for a little extra, i get a nicer more "permanent" feel with a constructed one, whether on piers or slab...doing one on slab atm behind my PPOR but will do one on piers in one of my IPs as i may move it to develop later down the track...

BestInvest said:

No one seems to be telling me the downside of an expanda van (

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May be no one has any experience.

Here are few dumb questions
1. Can it handle small floods or wild wind? Especially if it is located near a beach!
2. How would banks treat a movable asset? What stops you from getting the loan, then move to another spot and get a new loan?

BestInvest said:

No one seems to be telling me the downside of an expanda van (see www.expandavan.com.au)...... anyone have experience with these? As i could much easier save $60/$70k and buy these. I wouldnt even be considered for borrowing further money to buy a proper house as ive maxed myself out borrowing etc.

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These things are $70k (2 bedroom) before sitng and connection to services (add 15k). You can build a new, approved, quality granny flat for that.
They unfortunately also breach the Building Code of Australia for minimum wall height (needs to be 2.4m)...the insulation would fail BASIX and they're just flimsy metal-framed portable buildings with foam packing as walls.

They cant be approved in any fashion except as portable and temporary buildings (for workers etc). Transportable buildings cant be approved as granny flats under the SEPP either. So they're OK in the bush or for mining sites etc but they're not approvable for residential use.

Nathan said:

Not saying its a "bad" investment.
Just simply saying why do you need to rely on a granny flat for a better yield?.

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I agree and thanks for clarifying this.This is obvious and quite fundamental. Of course not ALL properties are suitable for further development.

Companies are promoting granny flats at present because they make money in selling them.

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How dare they!
So companies that sell anything shouldn't advertise?

If anyone wants a granny flat then my building company can personally build these off the ground from scratch quicker and at a substantial discount.

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And now who's advertising?

I run a co-op for builders and investors. I make no money from the builds whatsoever so I have a unique perspective here. Ive seen various builders who under-quote and then can't deliver because they dont factor in BASIX, Approvals, Section 94 Levies etc. But you certainly have every right to advertise your building company, and you just did.

Not against it, just need to know your numbers and it is not as simple as calculating one set of outcomes on the back of an envelope.

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I couldn't agree more. People should always see advice from QUALIFIED people before they make these decisions.

I certainly don't advertise yields as a reason to build them but then again I dont pruporte to advertise and sell investment advice at the back end of real-estate booms either.

Good Luck.

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Good luck certainly does have a part to play.
Good luck ,such as in investing from 2000-2005 when property prices were increasing by 30%+ every year is good luck indeed.

Just be aware that any granny flat has to be BCA compliant and can't be a removeable dwelling requiring S.68 approval under the Local Government Act if you go down the complying development route.

As a value add I think they have potential. I'm personally not a fan, but I think they are a good idea.

Ideo said:

Just be aware that any granny flat has to be BCA compliant and can't be a removeable dwelling requiring S.68 approval under the Local Government Act if you go down the complying development route.

As a value add I think they have potential. I'm personally not a fan, but I think they are a good idea.

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I think you can get clever with the design. Say having a seperate granny flat that at a later date can be somewhat joined to the original house via things like a breezway. large doors etc. closed in entertainment area etc etc.

Cheers.

I havent visually checked the quality of the construction of these expanda vans as i want to save up first.

My property is at jervis bay, so i dont think its affected by floods or high winds, and there are plenty of the jayco portable vans all along the australian coast, like at myola and kiama.

I like the fact that they could be towed away, whereas a permanent granny flat (which may be built at a similar or lower price and better quality, would be permanent or costly to demolish and on sell).

So would a relocatable portable van still have to meet BCA and s94 and all these other restrictions? On the website of expanda van it states it can be sited anywhere in NSW backyards where you can put a caravan........

Would it be against the law to rent it out under the above scenario of not requiring approval....?

Ideo said:

Just be aware that any granny flat has to be BCA compliant and can't be a removeable dwelling requiring S.68 approval under the Local Government Act if you go down the complying development route.

As a value add I think they have potential. I'm personally not a fan, but I think they are a good idea.

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So with the expanda van, as its removable, its not a granny flat, its a home on wheels. I dont care what its labelled as long as i can rent it out. So basically it doesnt require approval..

BestInvest said:

So with the expanda van, as its removable, its not a granny flat, its a home on wheels. I dont care what its labelled as long as i can rent it out. So basically it doesnt require approval..

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No. It does require approval.

It requires a S.68 approval under the LG Act. At the very least.

Some councils are a lot more stringent than others.

Ideo said:

No. It does require approval.

It requires a S.68 approval under the LG Act. At the very least.

Some councils are a lot more stringent than others.

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Thanks Ideo. I will speak to Shoalhaven council in the coming year once i have saved a good chunk of the purchase price of the expanda van.

If there are any other sections of laws i should bear in mind and possible costs that i could face id like to be alerted to consider these.

Are there any laws stopping me from renting such sort of expanda vans to permanent renters?

brazen said:

They cant be approved in any fashion except as portable and temporary buildings (for workers etc). Transportable buildings cant be approved as granny flats under the SEPP either.

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Hi Brazen

I thought not, as these home are not "erected", but manufactured and didn't confirm to some standard somewhere. The way around was something silly such as not to have a laundry or something, then it would not fit under the manufactured definition.

Have there been changes to this ?

BestInvest said:

I like the fact that they could be towed away, whereas a permanent granny flat (which may be built at a similar or lower price and better quality, would be permanent or costly to demolish and on sell).

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Why don't get get something on stilts that can be put on a truck later? With everyone and his dog wanting a decent GF these days resale value must be pretty good compared to an expanda van, which look kinda dodgy. You might actually get more for a decent removable version when you sold it on. Also you could get any future purchaser to pay removal costs.

Ideo said:

No. It does require approval.

It requires a S.68 approval under the LG Act. At the very least.

Some councils are a lot more stringent than others.

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Yes you can apply under that act and you thus can avoid a construtcion certificate as well... Unfortunately they usually dont meet the minimum wall height requiremets (2.4m).