Does Investing in Granny Flats Make Sense?

Published: Nov. 13, 2019, 5:28 a.m.

b"https://www.youtube.com/watch?v=vxrfKb94tzs\\n\\n\\n\\n\\n\\n\\n\\n\\nBuilding granny flats on properties you already own to get two incomes is becoming a more popular investment strategy. But does this investment strategy make sense?\\n\\n\\n\\nBook a Free Property Strategy Session\\n\\n\\n\\nRecommended Videos:\\n\\n\\n\\nGranny Flat Walk Through #1\\n\\n\\n\\nGranny Flat Walk Through #2\\n\\n\\n\\nTranscription:\\n\\n\\n\\nRyan 0:00Investing in granny flats or building granny flats on properties that you already own is becoming a more and more popular investment strategy. But does that actually mean it's a good investment strategy? In this episode, I want to talk about whether or not granny flats make sense talking about some of the finances around it. And so you can decide for yourself whether or not this investment strategy makes sense for you. Hey, I'm Ryan from OnProperty, helping you achieve financial freedom. And I work a lot with Pumped on Property buys agency here on the Sunshine Coast. They help a lot of investors invest in southeast Queensland, and build a bunch of different granny flats on their properties. So how exactly does a granny flat work and what are the financials behind it? Well, the first thing to understand is that you can't build a granny flat everywhere, especially up here in Queensland, there's some councils that allow it and some councils that don't. Brisbane City Council, for example, is a council that doesn't allow you to build granny flats. So whether or not it makes financial sense might not matter. If you don't purchase a property that is in an area where you can build granny flats. Same with Victoria, it can be very difficult if not impossible to build and legally rent out granny flats down there, New South Wales in Sydney can be a lot easier as well. So check your local area to see whether you can do it. A big misconception that people have is that granny flats don't add any value to a property. But generally what we're finding with valuations of the granny flats is that when you invest in building a granny flat, which generally costs around maybe 120 to $140,000, you're generally getting that amount of lift in the value of your property. So let's say you purchase a property on the beaches here in North Brisbane for around 400,000, you then spend $120,000, building the granny flat so your total costs into that property is 520,000. What you will find in most cases is that the increase in value of your property will reflect that. So no longer do you have a property that will be valued at 400,000. But often you'll have the valuations come in at around that $520,000 mark. So obviously every situation is different, every property is different. But granny flats tend to add the value what they cost, but you rarely see granny flats actually add extra value. So that same example where you end for 520,000, it's unlikely that unless the markets moved or if you've renovated the front house than the valuation is going to come in at 600,000, or 700,000. So when we talk about granny flats, not necessarily being a capital growth play in terms of adding value to a property, we're talking about adding value above and beyond what it already cost to build that property. So we generally see an increase in value there. So that's something to consider as to whether or not they make financial sense, and that you're generally getting that value back. So you're spending the money to build the property, and you're then getting that value back. So that's something really important to keep in mind. Now to build a granny flat, you generally need to get a construction loan. So you could get around, I think 70 to 80% construction loan depending on the lender that you go with. So speak to a mortgage broker about that. So you don't need to put some money in to building the granny flat. So 120,020% will be $24,000 30%. If you had to put down a 30% deposit, that's $36,000. So you got to think about the money that you're investing into the granny flat,"