In today’s show Jo Chivers, from Property Bloom, tells us what to look for in assessing if an investment property is suitable for a granny flat. There are some that suit and some that don’t. We find out which is which.
Kevin: My guest this time is Jo Chivers. Jo is from Property Bloom. They are property development project managers.
Jo, welcome to the show. How are you?
Jo: Hi, Kevin. I’m great, thanks. How you going?
Kevin: Good, thank you. I know you’re written a lot about granny flats, and that’s what I want to talk to you about. What makes a good granny flat site? What are the attributes you look for?
Jo: We run a lot of granny flat projects for our clients. The benefit of a granny flat project is a high yield strategy. What we’re looking for in a property is a house on a large piece of land with plenty of room to build a granny flat.
Specifically, with the house itself, we always look for a three- or four-bedroom home, or a home that we can add a bedroom to. It’s important to get the most rental return from that initial dwelling that is on the land.
Form the land’s perspective, we obviously look at location first. We do a lot of research on the suburbs we work in. We focus just in the Hunter region of New South Wales, as you know. We’re experts in that area. We look for location, firstly, and once we find a good property in that suburb we will drill down and look at various other factors. The factors are large block size.
Kevin: How large, Jo?
Jo: We’re looking from 800 square meters plus. I know that in a lot of the capital cities, people are putting a granny flat on smaller block of land, which is fine as long as it works. But up in the bigger regional cities where we work, we don’t want to cram our tenants. We want to make sure there is enough private outdoor living space for the house tenant and also for the granny flat tenant.
There’s nothing worse than trying to put a granny flat onto a piece of land if it’s just not big enough. I know some people are doing that in Sydney on 400 or 500 square meters of land, but I just think that in the future, when the rental market may not be so strong, they’re going to get in trouble and the demand might drop on those types of dwellings.
Kevin: How important is it to have separate access, as well?
Jo: Yes. Separate access for the tenants is fantastic, and that’s one of the things that we must have in a site for our Property Bloom clients. We always look for land that has either a rear lane access, or is a corner site, or it’s a two-road frontage. That way, the granny flat tenants can access their dwelling from the back, and they don’t have to walk down the side of the existing house.
We also make sure there’s enough off street parking space, as well. You don’t have to put off street parking for the granny flat as part of the requirements, however we find tenants do want to park as close as they can. They don’t want to be parking too far away.
Kevin: What’s the cost of putting on a granny flat?
Jo: The cost for us at the moment, with the builder we’re using, is around $109,000. There are some additional costs such as the service connection and the upgrade if the electrical system of the existing home is not adequate to support the granny flat. That’s an area that some people forget to check. If there’s an upgrade required, we always budget that in.
Also, the council section 94 contribution. That’s at the discretion of the local councils in New South Wales to charge. Most of them are charging it now, so you have to make sure that you allow for that, as well.
Kevin: What are you finding? Is this mostly a strategy being used by people who want to get more income out of an existing rental property, or is this a good option for people who want to buy something, add to it, and then sell it on?
Jo: I believe it’s more of a medium-term hold strategy. When you have got a good decent yield – we’re seeing around 7% to 8% gross yield, and if you’re borrowing at 4% or 4.5%, that’s a really nice yield at the moment – I think it’s a long-term hold.
It’s really not a strategy that you can use to flip – what some people refer to as flipping, which is to build and then sell. I don’t think you’re going to make enough equity out of that, purely because you can’t subdivide off that granny flat. When you do sell it, you obviously have to stay on the same title as the house, so it’s not really what we would call an equity creation strategy; it’s more a high-yield strategy.
I think it’s a medium- to long-term hold strategy, where you can sit on it, get it tenanted, and then the rent is really going to cover your outgoing in most cases.
Kevin: If you want to know a little more and you want to contact Jo, you can do that through the website PropertyBloom.com.au
Jo Chivers from Property Bloom, thank you so much for your time.
Jo: You’re welcome, Kevin. Thank you.