Property Investing Made Pure
There have been plenty agents over the past 5 years wanting to sell property investors properties with the potential for an ancillary dwelling (granny flat). Because of this, there is no shortage of property investors looking to buy existing council approved granny flat/house/dual income properties...
But this beckons the question, 'are these dual income properties the holy grail cash cow they are made out to be?' The answer is, 'it depends'. But from my personal experience and my clients experience, if you get in early and do your checks and balances, there is a very tidy passive income and tremendous equity that can be generated for a relatively small outlay.
Below is a case study of a personal property I bought in Campbelltown in 2012.
I purchased a small fibro 3 bedroom house on a corner block of around 550sqm with the intent of adding a 2 bedroom granny flat to the property. The house needed some TLC and it took some vision to see where the granny flat would go given there were large trees and a garage where the granny flat was to be built. Nevertheless, I persevered and engaged a builder to cost it up and proceed with the build.
Whilst building this granny flat, the local council had only just changed the LEP (local environment plan) to allow these constructions on such small blocks. As such, I was out on my own a bit with no comparable market rentals or sales to truly see what rent and capital I would achieve. This was a calculated risk!
Upon completion of the 4 month build of the granny flat, it took no time at all to find a suitable tenant. On top of that, the existing tenant in the house had agreed to signing onto a fixed lease before the construction of the granny flat, (knowing the construction was going to take place). This was important to ensure that I had cash flow during the build.
So with both properties rented at a combined yield of around 9% I was happy as Larry right?
Wrong!
The main consideration I did not factor in was how do I now get a valuation that will reflect the great yield. The problem was that there were no comparable sales in the area so when I asked the bank to value the property, I was left with a valuation number that was less than what I had put into the property! My silver lining was the fact that I had generated instant cashflow.
Fast forward 3 years and I have now recently had the same property revalued and have gained close to a staggering 100% capital gain on the property valuation. Granted the Sydney market has performed very well in that time so this was partly due to the land value rising in that time but it was also largely due to the local area seeing more comparable house/ granny flat sales to value my property against.
The secret? Patience. The market needed time to turn over these types of properties before I could realise the equity in this project.
The break downs for the total project are below:
Purchase price: $250,000
Granny flat build: $100,000
Current rent break down:
House: $360 pw
Granny flat: $315 pw
Total gross yield on outlay: 10%+
Current valuation (May 2015): $650,000
Total equity on initial outlay: $300,000
There are several markets with similar hallmarks that Pure Property Investment are targeting for its clients with the goal of achieving both strong rental yields and medium term capital growth.
Contact us to find out more.
enquiry@purepropertyinvestment.com
1300 98 54 28
Disclaimer - Contents of this site are of general nature only and should not be relied upon solely when making an investment decision. Pure Property Investment nor any of its directors, associates, staff, or associated companies bear any liability from any actions derived from the contents of this website. One should always seek third party investment information from relevant parties such as legal, finance, and accountancy enquiries.