Hey all!
I feel i may be over capitalising on the following deal:
Brick veneer house, with a second ‘illegal’ dwelling behind it purchased for $320k (all costs inclusive).So my options as i see it:
1. $335k incl. renos, rent building as 1 for $400/week;
2. $350k renos and make building legal as a granny flat, rent for $500-$550/week;
3. $430k renos, combine first two dwellings as one, add granny flat to the back, rents for $680,;
4. Same as point 3., rent all 3 separate for $800/week.All costs and returns have been pretty well fleshed out and include contingency. Rents are very realistic for the ‘product’. Resale value at this stage for 3rd option would be less than expenses unless sold to an investor as a close to positive geared property.Thoughts, ideas?
Leaning towards option 2 for now, possibly allowing increase in equity to fund option 3 in the future and using money I would have spent on granny flat to purchase another property (it’s the land that goes up right?).
Thanks peeps!
NHG
Hi NHG,
It sounds like option 2 is the way to go, although there is not much information there so hard to say.
I am under the impression that typically the bank will not take into account the granny flat when valuing the property (or only increase the value slightly to take it into account). This is because owner occupiers buy houses and so they wont pay much extra for a granny flat.
Depending on what stage you are at with your investing would also affect your decision. It sounds like you are expanding your portfolio and growing your asset base, so you would probably be better off looking at the option that increases the value of the property by the most amount and allows you to borrow against the added equity to purchase more property.
Cheers,
LukeHi NHG,
Option 2 is best if option 3 means you have overspent relative to value. Depends on how long you want to keep the property as well.
If capital to fund option 4 is available and you are going to hold this property long term, then I would be looking at that option and twisting it a little. This does depend on the resale value you mentioned being below costs. How much so?
Either way from the suggestion below you will see I've combined options 2, 3 and 4 which may get an even better result.
a) by joining the 2nd dwelling to the first and renovating both you will most likely add the most value to the project. A simple design tweak will allow access to dwelling 2 as if it were separate from the main house, but to the valuer a door from the main residence into this area is all that's needed to value it as one and in reality the new design suits both purposes. This way you can maximise rent as in option 4
b) you can add the 2nd separate (legal) dwelling as stage 2 and maximise rent when you wish to. I would look at this as soon as I could to realise the nearly 10% gross return.
c) revisit your costs and see if there are any ways, via design, materials, granny flat purchase price, installation, connection etc that you can reduce your costs.Ian
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Luke: Yes, I am building another granny flat and it is only being valued at about $1000/m2 well below the cost of construction. (found a much cheaper option, tho just funding it on my own now). I believe worst case scenario would have the property value being $30k under cost to complete option 3 and 4.
Ian: Option 2 does seem to be the way to go, what do you mean by valuer just needs a door to consider them one house?
Currently it is obviously 2 buildings, tho 2m apart. I’m thinking to brick around the second building and connect to first, 1 brick wide, install sliding door, tile floor in between and add material sunroof over existing wooden beams connecting both buildings. Thoughts?Thanks for the advice so far!
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