Granny flats risky?

Shanhin can you comment more on that statement about oversupply of granny flats in western sydney?

Great points.

I am also thinking about resale value. I would dare say that the resale market may be smaller than for the 'regular' property. The only buyers I could see wanting a GF would be investors, those with teenage/older children or older parents, or those looking to let out the GF for some cash on the side. There are many who just want one building on the property (i.e. they are a family and want the big backyard rather than another swelling).

ChrisA1 wrote:

The only buyers I could see wanting a GF would be investors, those with teenage/older children or older parents, or those looking to let out the GF for some cash on the side. There are many who just want one building on the property (i.e. they are a family and want the big backyard rather than another swelling).

I’m not sure I agree with this Richard.
I do around 250 granny flat approvals annually. I always stay in touch with my clients post-construction and they pretty much all get re-valuations. I’m yet to see an investor cry that the valuation fell short of the construction cost. Since 2009, the major banks are seeing granny flats (especially the NAB I’ve noticed) as a verifiable addition and separate income-earner for properties across NSW.

There is absolute merit in designing and siting granny flats so they they can be interchanged as either an investment earner but also as a family’s backyard cabin, teenage retreat or guest accommodation. It pains me when an investor buys a property which simply has bad separation and bad geometry. This I must agree is the destruction of a rear yard. It makes me cry- I simply refuse to do approvals on blocks which aren’t spatially ‘right’.

Most of my clients boast revaluations above the initial injection. yes, some of this is probably the growth of capital across NSW but it goes beyond that. My own case-study is a Panania NSW purchase in April 2013 for $580k, granny flat completed in August (cost was $105,000 incl. landscaping, fencing etc). Valuation in March, 2014 was $874,000. The suburb has grown in value by about $60,000 so the added bonus was around $110,000. I’ve actually had an offer for $870k recently but I rejected it. I don’t want to sell. In fact I want to do 3 more before I retire. I’m 46.

Point is, people aren’t complaining about valuations or resale. The fact is granny flats are effectively free <moderator: delete advertising>, and with an eternity of rental returns after it’s paid off (by the tenants) why on would you want to sell the property? I’ve got clients building their 7th granny flat in 5 years. It’s a bit of a frenzy out there, especially in Western Sydney.

Brazen.

• This reply was modified 10 years, 5 months ago by  Brazen.

Yep will come down to the area….

Northwest, South and inner west generally ok – like Dundas etc..
Some western areas- like penrith, Wilmot etc..average increase is around 60% of the total cost to build…and we are talking about re-value 1 week after build not 12-18 month later etc..

• This reply was modified 10 years, 5 months ago by  Mick C.

Well said^^.
It’s absolutely essential that you plan for adequate separation and privacy! Check out this guide on the importance of this: http://www.grannyflatapprovals.com.au/granny-flats-privacy-separation

Brazen

There is absolute merit in designing and siting granny flats so they they can be interchanged as either an investment earner but also as a family’s backyard cabin, teenage retreat or guest accommodation. It pains me when an investor buys a property which simply has bad separation and bad geometry. This I must agree is the destruction of a rear yard. It makes me cry- I simply refuse to do approvals on blocks which aren’t spatially ‘right’.

Have to agree that design is the key. If you are looking at a refinance of your granny flat loan after completion it is important to ask are you using the right bank – who is doing the valuation and remember that the valuation (whether favourable to you or not) is entirely and completely separate to the true market value. Valuations are based on historical comps (as mnentioned) and when you sit your property on the market to sell you need to see what the market will pay for it. If you have done a good job (great job really) then the market will respond as you have added equity and cash flow. Now in most peoples language that is a good outcome. But if you haven’t – well you haven’t and the market will tell you that at sale time. Valuations are just a finance tool. Another one of the tools we use as investors to get things done that we need done. Probably a good idea to respect them but not get to hung up on. Robert Schiller says that finance is the technology of getting things done. Nothing more and definitely not rocket surgery. Often times, what people are doing with a granny flat strategy is converting properties that leak cash into properties that add cash. Now I have been banging on about this since I joined the forums and been in a couple of heated stouches over that back in the day. If something is leaking then plug the leak.

As for the Northern Sydney versus Western Sydney debate. Well I look at it this way. Some things are generally more saleable than others before we throw the grannys into the mix. As a starting point its good to ask a due diligence question, “Is the property whether it be out west or some other place a good idea before the granny flat. If yes proceed. Is the granny flat is the key to making the deal a good idea – avoid! A great property that has had a value add strategy applied to it will be great plus have some income. A dog property will be a dog property with or without the GF on it. When I am investing for myself I always ask the question, “If I am not around can this property support itself.” If it can’t then the exit strategy has to be pretty good to justify a purchase.

• This reply was modified 10 years, 3 months ago by  Don Nicolussi.