Dual income is becoming a popular investment strategy. Here’s the ins and outs of investing in dual income properties in Queensland.
A new investment strategy that a lot of people are doing or looking at doing is actually dual income properties. And so, today, I have with me Ben Everingham from Pumped on Property, my buyers agent of choice, who has done a lot of dual income properties both for himself and for his clients to talk about the ins and outs of dual income property in Queensland. So we’re going to be looking at the different types of dual income property.
We’re going to be giving you guys some advise on them if you’re interested in them and just so you’ll walk away from this knowing a lot more about what dual incoming properties are and whether or not it’s an investment strategy that’s going to help you move towards your goals.
Ryan: Hey, Ben, thanks for coming on today.
Ben: Good day, Ryan. Thanks for having me.
Ryan: Okay. So, in this video, we want to focus more on existing properties rather than new build properties that are out there. I guess, I just want to kind of give that disclaimer at the start. Most of the “dual income properties” that are being marketed, they’re marketed as packages and you need to be really careful with that when you’re buying house and land packages because often, they are over inflated and they are way overpriced for what they’re worth and they give you rental guarantees that make it seem like you can rent them for way more.
So, we want you guys to be really careful of that. It is possible to make money on new builds. I know, Ben, how do you do it? Do you want to quickly overview if people are really considering new build, what they need to do and then we’ll go into existing.
Ben: Yeah. Obviously, I have a preference for new build product some of the time, in the right market at the right time. Only because, one, coming from a background working for a builder that in the year that I left turned over or developed over $1 billion worth of product globally. Mainly houses on residential land.
I kind of understand how to negotiate a discount on land and then how to work with a builder to create a product that the market likes, but at a significant discount in terms of the construction cost. So, I suppose from that perspective for me, it’s just a skillset that I have that the average investor doesn’t have. Which is why I gravitate towards new builds. But, again, it’s part of a strategy at the right time in the right market as opposed to just the only way to go at creating a dual income product.
Ryan: Yeah. So would you say that if someone doesn’t have your skills of being able to find the right land, buy that at the right price as well as the relationships that you have with builders and the ability that you have to get construction done at a much lower cost than the average person, it’s a lot more difficult for people to make money using the strategy if they’re just your average Joe?
Ben: The average Joe, basically, is the 80% of people in Australia who – because 80% of all brand new product in Australia in the last 10 years has been sold through what they call a property marketer. Which could come in a form of an accountant, a financial planner or just somebody selling brand new product as their primary strategy. And so, not only are you paying market value, but generally, there’s some sort of undisclosed commission in there, which means you’re paying above market value. So, if 80% of all the new build product has been sold through that channel, I suppose that answers your question.
Not many people are doing new build right now. Which means, a lot of people are missing out on big opportunities there. But, like yourself, I don’t believe in just buying for one reason. Like, if I’m buying or building brand new, I still need to make sure I’m getting great cash flow. I also want capital growth and I always want to be making money on the way in. New build or existing, it doesn’t matter, it’s about making sure the property ticks those boxes anyway.
Ryan: Yeah. So, I guess, we just want to let you guys know that the new build packages that are out there that sound too good to be true, often, they are. So, just be careful.
There is a lot of research you can do to check whether, like, it is at market value, whether you’re actually going to get those rents. So, always make sure you go out and do that if you are seriously considering it. But now that we’ve kind of said that, we want to talk about what we think is a really good opportunity in the market and that is looking at existing properties and the ability to turn them into dual income properties. So, this is something that your average person can do easier, more consistently and actually make money. There’s less difficulties in terms of being ripped off and stuff like that.
Ben: Let me just say something, because I sent out an email last week to some of the people in my community and I got absolutely served up by this dude. Like, he just ripped a new one, basically. He smashed me so hard. And it was an email about how to get a 7%+ return within a 1-hour drive of Sydney CBD at the moment. You might have seen the email.
Ryan: Yeah, I read it.
Ben: This guy comes back to me and he’s like, “Granny flats are the worse thing in the world and no one should be doing them.” and all of this stuff. And I was like, taken a bit back by it because he got super personal in the email. He’d been following me for years as well.
I was just kind of like, it made me think about this concept of granny flats. What I do when I say as a disclosure is depending on your stage of your actual property investment journey, this conversation today isn’t whether granny flats are right for you or your situation or where you are right now or even long term. But for some people, myself included, because I’ve got 2 existing properties that I’m preparing to do granny flats on this year and I’ve got a number of new build properties which also are dual income or granny flats under a roof line on them. For me, it works because I like cash flow.
I don’t want to be the dude that’s 50 with $2 million worth of equity in the bank and no cash flow and still having to go to work. I want to be the guy that is able to walk away from work sooner. From where I’m coming from, a 7% cash flow return makes a lot more sense than a 3% one. But, that’s just my personal preference and that’s why I like this product.
Ryan: Well, that’s the thing. Everyone invests differently. Everyone has different goals in what they want to see. My goal with On Property is to help people confidently invest in positive cash flow property and achieve financial freedom so they can do what they want. I’m guessing most people listening to this are kind of in the same boat as us. They want the cash flow, they want the lifestyle that comes with it so that they can do what I do.
I’m in a camper van right now because me and my family are traveling the East Coast of Australia for the next 6 months because we can. I want people to have the freedom to do that. And I think cash flow is a great tool for that and just gives people flexibility.
If you don’t like cash flow for some odd reason, then just tune out of this one and go on to the next one. But, I’m guessing if they’re reading something or watching something about dual income, they’re probably interested in cash flow.
Anyway, let’s talk about existing properties and creating dual incomes or building granny flats. First, let’s discuss the area-specific sort of things. Because I know in some areas, this is easier than others. So, can you kind of explain this?
Ben: Sure. When we talk about Queensland, ultimately, we’re talking about Southeast Queensland where I personally see the biggest potential, long term, for some capital growth as well. Because population is increasing and because you’ve got great infrastructure and good access to higher-paying jobs. So we’re talking about the metro parts of Southeast Queensland.
The problem with Southeast Queensland is they haven’t got this blanket granny flat state-wide rule like New South Wales does, like WA does, like parts of South Australia kind of does, Northern Territory does. It’s kind of local councils and each of their ideas around granny flats are different. But, what I do know, coming up from the Gold Coast towards the Sunshine Coast, is that you can legally build them in the Gold Coast and Brisbane City Councils, but you can’t legally rent them out right now.
Now, this video is being filmed in 2017 and things might change. But, right now, you can’t legally rent them out so it kind of wipes those 2 markets straight out of the equation. The markets or council areas where you can legally do them as of the time of shooting this is the Logan or South Brisbane council area.
The Ipswich, which is the Western area of Brisbane. Then you’ve got Moreton Bay, which is North Brisbane. And then, you’ve got the Sunshine Coast, which is 100K North of the City. So, in those 4 markets, you can legally do this. Again, they’ve all got different intricacies around land size and frontages and what types of areas you can do it. But, you know the town plan, which is very easy to find online or talk to a town planner, you’ll figure it out very quickly.
Ryan: Well, that’s the thing. Do you advise that most people, before trying to do this, because we’re kind of talking about it from you’re out looking for these properties that you can do this to. Would you advise that they talk to a town planner before they decide to buy something?
Ben: Yeah, I mean, before you decide to buy, obviously, you’ve got to identify the market. Now, you can say. “My market is Southeast Queensland.” But, that’s like saying, “My market is between New Castle and Wollongong.” It’s a pretty bloody big area. And so, you should’ve identified it down to, “I’m targeting Queensland, Southeast Queensland, Logan.” for example.
I don’t buy in Logan, I’m just using it as an example. You need to have drilled it down to that level and then you probably need to get on the phone to a town planner, unless you’re really good at interpreting those plans because they’re very subjective.
Ryan: Who is? You know?
Ben: Yeah. Just pay them for 15 minutes and just get them to tell you exactly what you need to be looking for to make it work in that Logan area.
Ryan: Yeah. You can also contact town planners when you’re looking to make an offer on a property and get them to assess the property to see whether it fits the criteria for doing what we’re going to be talking about.
Ben: I’ve heard a really good town planner in Southeast Queensland and I pay him $270 during my due diligence period after I found a property to tell me that I can legally put a granny flat on it before I even go unconditional on the property. Meaning, if it’s not legal, I walk away from the property. If it’s legal, it’s him telling me it’s legal as opposed to me making an assumption based on the town plan that I don’t understand.
Ryan: Yup. That’s totally money well spent. Now that we’ve kind of covered that sort of thing and looking at the areas where people need to be specific. Let’s say they’re happy with those areas. What are the different types of dual income properties that people can create?
Ben: Cool. From the existing property perspective and we’re just talking granny flats today. We’re not really talking much more than that. Basically, you’ve got an existing house where you’ve got a detached granny flat, which means you’ve got a house and a granny flat basically built in the backyard.
There’s probably people that are rolling their eyes at that right now. But, the way we do it in Queensland, because we learnt from the way the people did it in Sydney is a lot nicer. It’s more of like a battle-axe block. If you can think of that, where you’ve got the house at the front, you’ve got your driveway down the side of the house with the fence around the backyard and then another dwelling at the backyard. Is that visual? I don’t know.
Ryan: Yeah. Well, it’s kind of, like, it’s not just like a little granny flat plopped in the backyard. It’s like you’re creating private access for these people. You’re creating a private yard for these people as well. And so, it’s almost like two, well, it is. It’s two separate dwellings with two separate living areas. Basically, the front house and the granny flat, they might never see each other, ever.
Ben: In an ideal world, they never see each other. It’s not like in Sydney where you’re sharing one clothesline in between two houses and your kids play with each other. Everyone’s evolved from that time when you’re just putting crappy product in the back of the backyard.
Ryan: Yup, totally.
Ben: So that’s one option, I suppose. Another option, which you can legally do in some of these town plans is what they call an attached version. Which is kind of either generally, you buy a big home and you convert underneath that existing roof line to a house and a granny flat. Or, you alternatively extend the existing roofline and you build a granny flat under the same roof line. So it looks like one dwelling, effectively, when you do it that way.
Ryan: Could this be the same as a 2-bedroom house where you’ve got steps to upstairs so upstair is completely separate and downstairs is completely separate? You got like two kitchens and that sort of thing?
Ben: It’s exactly that in theory, except it’s basically illegal to do it at the moment, upstairs and downstairs. Only because of all of the fire-related issues. You’ll see a lot of dual income properties for sale online and they’ll be up and downstairs rented out. Like, 19 out of 20 existing properties that you’d buy that are already dual income would be completely illegal. So just be careful of that sort of stuff. But, it’s mainly because they can’t – it costs a lot of money to fireproof an existing house properly.
They like seeing it on a singular level, like one at the front and one at the back or side-by-side more than they like seeing it up and down. That’s just in Southeast Queensland.
Ryan: Yup. So, what opportunities do you find, like, what do you tend to look for yourself or for your clients? Are you looking for one where you just build a detached granny flat out the back or do you prefer one where you can actually convert within the existing roofline into two separate dwellings, or do you like extending the roofline, like doing it an extension out the back and making that a granny flat?
Ben: The cheapest way to do it is underneath the existing roofline. The second cheapest way would probably be the extension and the most expensive is the granny flat. But, in terms of, obviously, I own a property management company as well and physically renting out all three of those options to different people. The most preferred option, by far, is the detached granny flat and that’s the one that, I suppose from a capital perspective long term, is going to be the most desirable to the market as well.
Ryan: Yeah, it’s so much more desirable because granny flats can work against you in markets where people don’t want to rent them out, they just want to buy their own home. But if you’ve completely separated them, so it’s like people get their own home plus they get this little add-on bonus, you can still appeal to the homeowners.
Ben: That’s a really important point because our recent important point. I recently recruited a girl from the top performing Northern beaches real estate agency in Sydney. And she said that people about 5 years ago went to town on these granny flats.
It was the thing to do. Everyone was putting these granny flats on their properties and hoping to get $500 a week rent. But, everyone has $1.4 to $2 million properties in the market that she was targeting on the beaches. There’s no market for the product and that’s something to be careful about in Southeast Queensland. Just because you can doesn’t mean you should.
I don’t know if I’d buy a place within 10 kilometers of the city knowing that in 20 years’ time, everything within 10K is going to be worth a million dollars if the market goes up by 4% per year over that time. Does someone with a million dollar property want an extra $400 a week rent or do they want a big backyard for their kids to play in? Do you know what I mean?
Ryan: Yup. You’ve got to weigh the options and do the finances to say, “Okay, if I don’t build a granny flat, would I expect a capital appreciation and whether or not it’s worth it?” Because if I add a granny flat, there’s cost associated with that. You’re going to get extra cash flow, which could help, but is it going to be worth it and is it going to hold your property back from selling it in the future? So, yeah, you just really – you want to pick the best area and you want to pick it for the best properties.
Ben: Yeah. And you’ve got to ask some questions. If there’s heaps of units in a suburb, like, 40% of the housing market’s units, your granny flat is going to be competing against all of those units. And sometimes, those units are the same price, but they have views and they’re in better locations. So, you’ve really got to – it’s not just buy a place, put a granny flat on it and suck it and see if it works out. You want to be buying in a market with a vacancy rate below 2%.
You want to know that there’s an appetite for that type of product. You might be able to jump on Gumtree and test the need for a granny flat to see or ring a couple of real estate agents and see if they’re renting these types of things out. I know Moreton Bay, for example, some of the suburbs up there as well as some of the ones in Logan, some of the ones on the Sunshine Coast, are accepting these products extremely well.
We’ve completed the construction of a bunch of them now and in some suburbs, they’re renting out first weekend for a lot more than I set the client’s expectations at. So we know there’s an appetite for it, but it’s very suburb-specific.
Ryan: Yup, totally. So, definitely work out your suburb and go into details to find out whether or not people are going to want a granny flat there, whether it’s going to rent for what you want it to rent for and whether or not it’s going to affect when it comes time to sell it, which, eventually, a lot of us will need to sell our property at some point or life changes, so we want to sell it. So, you want to make sure that it’s not going to hold you back when it comes time to sell your property.
Ben: I don’t think you should be seriously considering building a granny flat if you’re holding the property for anything less than the next 10-15 years, absolute minimum.
So let’s say that you could build a granny flat in Southeast Queensland now, like a really nice one for $115,000. And this is like a quality granny flat. Like, it’s like a little house, basically. In your average market where a house sells for $400,000, that granny flat will rent out for $300 a week. That’s about a 14% gross return on an investment. You don’t have to be a mathematician to go, “If I sell it in 7 years, I’m never actually going to get a return on that money.” Before it even breaks even on the total value of the property.
Ryan: At this stage, it’s not conclusive that granny flats are actually going to add value over and above what they cost to create. So, it’s not really a capital growth strategy that people use to improve the value of their property, is it?
Ben: Absolutely not. And don’t pretend that it is. I’ve seen granny flats where you build them for $110,000 be valued at $110,000. In the same suburb, I’ve seen the granny flat being valued at $50,000 below what it’s worth. And then in the same suburb, I’ve seen the same granny flat be valued at $50,000 more than the cost of construction was.
The problem with Southeast Queensland at the moment is the products – like, it’s only been 3 years in all of those areas that you could legally do this and it was a strategy. So, there just hasn’t been enough houses plus granny flat sold for the value was to actually do it off market value. So, generally, they default back to – well, you’ve got a house that’s 3-bed, 1-bath. You’ve got a granny flat which is 2-bed, 1-bath. We’re just going to value the whole product as a 5-bedroom, 2-bathroom home.
The market obviously knows what it is, but the valuers can’t justify to the banks what it is right now. So, it’s not a capital growth strategy. It’s a great cash flow opportunity for those people who are at that stage where they’re looking to reduce debt or create cash flow.
Ryan: Yeah. We did a great video about the 3 different phases on investing and there’s the accumulation phase and there’s the accumulation phase. So this is more for people that are ready to consolidate, ready to improve their cash flow situation and they want that cash coming in. Not necessarily for people who are chasing big growth quite quickly.
Ben: That’s a really good point because I’m going back to a couple of properties this year that I’ve owned for a long time. I could have done a granny flat then, but I was accumulating. You know, it’s not the best use of my funds at the time to build a granny flat, so I didn’t. But now, I’m in consolidation, debt reduction phase, it seems like a good use of my funds to increase the yield and smash down the debt faster. Especially while interest rates are so low.
Ryan: Well, that’s the thing. You spend $100,000 on a granny flat or something and if they can rent out for $300 or $400 a week, you’re getting a huge return compared to if you took that money and purchased another property where you might get, like, a 5% or a 7% yield. You’re getting massive yields. But, yeah, again, as we already said, it’s not necessarily for the same capital growth benefits as buying a separate property. But, can be great for paying down debt, increasing your cash flow situation, especially if you’re negatively geared and you want to get into a positive situation.
Ben: Yeah. I’ve got a bunch of people coming up from Sydney at the moment that are kind of looking at these things and going, “Well, mine is $300 a week on my unit in Liverpool in Sydney.” An example, not a real one, because there’s nothing in Liverpool. I know the Liverpool unit market and they’re not $300 negative, but you know, let’s just pretend you paid $700 a week for it and it’s renting for $300 or $400 a week. A losing money that are good in capital growth on it.
They still want to get good capital growth, which is why they want to buy in the Southeast Queensland market. But, they also need cash flow to help offset that now. You know, for some of those people, it could represent an opportunity. For other people that are more like me that have done the hard yards that want to go out and start actively repaying and know that they’re never going to sell the houses with granny flats.
They’re going to sell the units or the houses that aren’t secondary dwellings, but are growing faster. Then, I’d be selling the house in Sydney to pay for the house plus granny flat up here. Because the cash flow is so much better.
Ryan: I think we might have scared people off a bit. Making granny flats sound terrible for capital growth. That’s not necessarily the situation at all. We don’t want to scare you guys off. We just wanted to be clear that granny flats, they might be valued at the same price you paid for them. They’re not necessarily going to double the value of your property or something for doing it. We just wanted to get clear with that.
Anyway, we’ve talked about the different options. We’ve talked about all this sort of stuff. What about the process of actually making this happen?
Ben: Of course. So, I suppose the process starts before you actually go unconditional. And “unconditional” just means you legally have to buy the property almost. So, you found the property. The first step, from my perspective, is to get that town planning report. Different town planners charge different amounts for it. But, ring up the town planner and get the planning report and go, “Can I legally do it here?” And then after you know you can legally do it, you go through the settlement of the property.
And if the timing is right to build a granny flat now, then you can go out and talk to the 7 or 8 different granny flat providers in Southeast Queensland now. Or, you can just use the person that I’ve worked with because I have worked with all 7 of them and there’s only, in my mind, a couple that are very good from a price and a quality perspective plus do what they say they’re going to do.
So you basically get the owner of the business or their site supervisor to go out, look at the site with you, with your RP, with your property manager if you’re not, go out assess the site. Provide some options in terms of different designs that would work on that site.
Generally, in Southeast Queensland, 2-bedroom, 55 sqm granny flat, if you’re going through a reputable builder, that’s quality is going to be around about $115,000 to $135,000 mark. They’re not as cheap as you would expect them to be because the smaller the dwelling, the more expensive the construction cost. Again, I target quality product as opposed to a demandable on the back of the house.
So you go through that process, they go and have a look at the site. They give you some designs. You thrash about with the design until you get the design you’d like. Then you choose what you’d like to include in it. You know, what types of quality of product, carpets, tiles, and all that stuff, colors. And then you get up to a fixed price point, which, again, should be around about $115,000-ish mark for a decent one.
Once you’re at that point, effectively, probably during that period of time, some of our clients chuck a tenant in for 6 months, for 12 months. Some of them I heard planning on chucking them in there for 10 years and in the future, coming back and adding the granny flat. But, you need to legally give the tenant 3 months notice to vacate the property. So during that period of time, you plan the granny flat and then you schedule to start as soon as they’ve moved out.
Sometimes, you don’t actually have to lose the tenant. You can continue to rent out the house if you put a fence down the side and in the backyard and you let them know before they move in that you’re going to build a granny flat so there’s no mis-expectations there. You can keep them in during construction, construct the product and your builder should be giving you weekly or fortnightly updates.
It’ll probably take, in Southeast Queensland, around about 2-2.5 months to physically get to the site and to stuff around with the whole quoting, choosing stuff and then getting certification with the local council plus the builder scheduling the job.
Ryan: Do you need a town planner to get the certification or does the granny flat companies and the builders do that for you?
Ben: A granny flat builder should have a certifier that they work with to help you with that. The reason you get the town planning checked isn’t to go, “Yes, you can do the granny flat on the site.” It’s to find out if that site, if you comply with the following criteria, is self-assessed. Which means, no council, no development approval. And so, that’s what you’re looking for with that check.
And then once you’ve got all of those bits and pieces lined up, the construction process can take anywhere between 10 and 14 weeks to complete. And then, you can start advertising it online and get your tenant straight into it.
Ryan: It sounds like a pretty simple process compared to buying a block of land…
Ben: Super simple
Ryan: And then building a house.
Ben: Yeah, it’s a lot easier because you don’t have to identify the piece of land and negotiate the price and go through settlement on the land and then building. It’s a lot simpler. And a town planner or a decent granny flat builder should be able to hold your hand all the way through that process and make it very, very, very simple for you as well.
Ryan: All in all, it sounds like a pretty simple process. It’s really just about identifying the right property in the right area to do this on so that you’re getting the maximum benefit from it.
Ben: Yeah. And then, when you’re building, getting a fixed price contract signed off before you pay them any money and making sure that it’s a reputable enough builder to know that if you’re living interstate, because I suppose most people are going to be, that they can take control of the project for you and deliver for you without you physically having to be there.
You might fly out at the start or you might fly up at the end of construction or there’s amazing companies in the market now like handovers.com.au that will physically go and check out the process and the project for you and check it at the end to fix all the defects for you or your property manager might do that for you as well.
Ryan: Oh, that’s a cool tip. That’s really good. I think that basically covers it, right? Is there anything that you think that we’ve missed that people might need to know about if they’re considering creating a dual income property in Southeast Queensland?
Ben: I think just showing an example, like we discussed before the call, of what this can actually look like in terms of hard numbers right now based on something that’s happened in the last 6 months for a client.
This is an example in the North Brisbane or Moreton Bay regional council area. So they bought the house – I’ll give you two examples, one at the top of the market and one at the bottom of the market. So, one client said they wanted a renovator. So we bought this house for $350,000 and the house was rented at the time through our management company for $300 a week. It was what I would call a full ugly duckling. Like, it wasn’t even livable with reno potential. It was just in a bit of a state, if you know what I mean?
Ben: It hadn’t been cared for in 15 years and it needed some stuff, but that was what she was looking for and that’s why she bought it for $70,000 below market value. Like, “market value” if it was cleaned up. And so, she’s got this house. So, $350,000 for the purchase price. $310 a week rent.
She’s chucked a tenant in, put a fence up and built a granny flat over the last 6 months, which was completed last weekend, and is now renting for $310 a week. So, for $115,000 plus the cost of the fence and the driveway and she put a little deck on it as well to make it like a mini-house because deck is not included in the floor plan so if you do the 55 sqm floor plan and then a nice big deck, it feels like it’s much bigger than it really is. And then, during the last month and a half, she kicked the tenant of the house out and renovated the house and now she’s just leased that back out. She put $35,000 into the house. So, in effect, she’s got $350,000 house; plus a $115,000 granny flat; plus a $35,000 renovation. Are you calculating that?
Ryan: Oh, that’s like $465,000, $490,000, I think, around about there. I’m probably wrong.
Ben: I can’t do the calculation quickly. Maybe you should do it while I keep speaking.
Ryan: Where’s my phone? I can’t be that far off, right? So, $350,000 plus $35,000 plus $115,000. Oh, $500,000.
Ben: $500,000, yup. You were sort of $490,000 – close.
Ryan: Dude, our maths are always so terrible on these videos. We’re always way off.
Ben: This is the funny thing because you and I are such data geeks in these videos. Like, I never pre-plan what I’m going to talk about.
Ryan: Yeah, think it’s trying to create good content and do maths that are just like two different parts of my brain. They don’t work at the same time.
Ben: Yeah, correct. But, in reality, all we look at is the numbers. So, $500K. The house is now renting for $400 a week. The granny flat is renting for $310. So for $500K, 24 km from Brisbane CBD, in a very good quality marketplace with lots of potential. I won’t talk about the suburb, they’re getting $710 a week rent.
Ryan: Yeah. So that’s like 7.3%
Ben: Which is a pretty decent return in a capital city market that’s got, according to the analyst, not according to me because I don’t have a crystal ball, but good growth potential as well. And, this was an example where the granny flat plus the house plus the renovation actually valued up much, much better than the combined effect of them all as well.
Another example might be very similar. Another client bought for $450,000 in a much more premium position in the suburb with a great house already there. He bought for $450,000 because it was a better quality product. The house rented for $470 a week straightaway. They did the same thing with the granny flat, which is now rented for $300 a week. Again, a bit of a higher purchase price and a bit of a better position in the suburb. Which probably means better long term capital growth by about 1% per year. But, great cash flow and a great property as well.
Ryan: I know we kind of dogged on the granny flats in talking about the capital growth potential and stuff like that in earlier parts of the video. But, for some people, this could be an opportunity for them to buy in a great suburb that will have capital growth, but also get cash flow as well. So they might not be able to afford to buy it if they didn’t get the cash flow from the granny flat. And so, this is a to get into that market, but still get the cash flow and be able to take advantage of the capital growth the market’s going to have.
Ben: There’s so many reasons why I personally like granny flats for me. One is I’m extremely, extremely low-risk as an investor, as you know. Like, probably as low a risk investor that still buys property in Australia as there is in the market. Like, I’m really, really bearish in my projections for my own portfolio in the future and I own good stuff in capital cities. But, it hedges my bets against future interest rate rises.
It helps me reduce my debt right now, which is very important to me personally. It allows me to continue to service more debt in the future because my combined income is better. When I lose a tenant, in the worst case scenario market, at least I’ve got – hopefully – some cash flow from something else. If I have to drop my rents by 20% in a GFC, then I’m dropping it 20% on a 7% yield instead of a 20% on a 4% yield. There’s just so many reasons why I like this type of product for where I’m at personally right now.
Ryan: And even in the uptick of the rental market. Like, if the rental market is going up in value and you’re putting rents up $10 a week every year or something like that, you get to do that twice because you’ve now got the granny flat. So the granny flat goes up and the house goes up. So if rent continues to rise, then your cash flow increases faster and puts you in a better position faster as well.
Ben: Yeah. The worst case scenario long term is pretty nice to have. The ultimate goal should be to own a couple of good properties outright. Like, to get your $100K+ of passive income per year. Doing this sort of activity, buying a couple of really high quality assets plus a couple of houses that you can do granny flats on. You know, in 15 to 20 years’ time from now, regardless if you range just with the market. 4% per annum capital growth is only 1% above inflation rates in an average market.
So, it shouldn’t be too bullish to go that predicted capital growth rate. Like, it should double in 20 years if it’s always doubled in 7-10. “Should” is very different from “will”. But, if it ends up doubling in value and your $700 a week, it’s not going to double in value over 20 years, but it goes up to about $1,000 a week in rent and you own that asset outright. Like, that’s a pretty good property to hold long term.
Ryan: I remember hearing a story about a little old lady. She only owned 2 properties outright, but she was financially free and didn’t need a pension or anything because she had it split into 2. So she had one property with 2 incomes coming from that and then she had the second property.
I think she actually lived in the granny flat and then rented out the house. So she had 3 incomes coming in. I think it was in a capital city somewhere so the rents were pretty high. So those 3 incomes combined, plus, she obviously didn’t have to pay rent, put her in a pretty good financial position to not need a pension or anything like that in her old age. And that was just with 2 properties. So, it’s amazing what you can achieve.
Ben: That’s a really good segue into something I wanted to finish on. Which is, I commonly get asked this question, “Who actually rents granny flats?” Who am I going to tenant these things to? Because it’s a horrible word, “granny flat”.
Ryan: Magical fairies and leprechauns rent them, don’t they?
Ben: Just because you wouldn’t live in it, doesn’t mean in the past you wouldn’t or in the future you wouldn’t or just because you wouldn’t doesn’t mean someone else wouldn’t. So, the types of people from renting out a lot of this type of product for our clients and for other people in the market.
In Southeast Queensland, the average person is either a single mom with a child. Like, a young couple that’s looking to just get out of home and save some money. Someone who’s just sold a property and is in-between properties. A fly-in, fly-out worker. I’ve had young professional guys in there earning $300,000 a year paying me $300 a week rent. I’ve had established or a man and a wife with one child who are just looking to save some money while they save for a property.
It’s not your bum on [inaudible 36:58] or you’re a really struggling person on average rents these things even in average areas. It’s really interesting to kind of see that from seeing the full lifecycle of this type of product up here now. The opportunities that come up and, like, how established some of these people are. In theory, why would someone earning $300,000 a year rent a $300 property in a market where it’s cheaper to buy than it is to rent? Because they still do.
Ryan: Another thing to think is, “Well, who rents 2-bedroom units?” Is anyone ever going to rent a 2-bedroom unit? Yeah, of course. Heaps of people would. And these new granny flats, they’re not the old granny flats of the past, which are just basically a shed. They’re really nice 2-bedroom units with a deck and a small backyard that’s private. So if someone’s going to rent a 2-bedroom unit with a small balcony, chances are, they might prefer to have a nice deck overlooking a little garden and it’s basically a similar product.
Ben: Yup. That’s a really good way of looking at it. If you can make it feel like a little home by having a nice unit. I do a carport on mine. I do a driveway on mine. I do fencing on mine and I create a garden for them. That’s just a small home. That’s a cool little 55 sqm home with a 15 sqm deck. 75 sqm is like your average unit in Australia.
Ryan: Yeah. And it’s huge for me. I mean, I live in a camper van now.
Ben: You’re a small housing dude.
Ryan: Yeah, dude. I got 3 kids. If we could live in a tiny house or a granny flat once we decide to move back into a house, we absolutely will. Because we don’t want more space because we prefer the minimalist sort of thing. So, yeah.
So many people out there. I hope that this has helped you guys understand granny flats in a bit more detail. I hope we really covered the ins and outs of granny flats in Southeast Queensland. From new builds and being wary of them because you’ll often overpay to the opportunities that exist in existing properties where you can build granny flats that are external or build them under the roof. And we also helped talk about some of the costs associated with it, some of the risks or some of the positives that can come about from it.
Do you think there’s anything else we really needed to cover?
Ben: No. I think that’s a very good snapshot for someone that’s seriously considering this. What I would say is that I talk to a lot of people every week with property already up here. If you’ve got property up here, it’s pretty easy to figure out if you can do it or not. A quick town planning check will do the trick.
There’s a lot of people up here that are at that stage of consolidation or just lifestyle stage where adding an extra $300 a week to their cash flow would help. Check it out. Reach out if you feel like an introduction to a good granny flat guy up here. Or, just alternatively, ring around and do it yourself. But, there’s a lot of people that accidentally bought the right properties that didn’t have that as a plan that are now at that stage of life where it would seriously work for you as well as on top of the other people that are considering of doing it as a strategy now.
Ryan: Yeah. And if you are considering doing it as a strategy now and you want some help with it, maybe from Ben, then Ben is offering free strategy sessions to listeners of On Property. So just head over to onproperty.com.au/strategy and you can read more about the strategy session there. But, you can talk with Ben and say, “Here’s where I’m at. I watched your video on the granny flats, it’s something that I’m interested in pursuing.”
He can either introduce you to a good builder or he can actually go through the process with you and help you achieve that so you can have the cash flow in a great area that’s likely to grow.
Ryan: Sweet. So, we’ll leave it there, guys. Thank you so much for watching or listening wherever you are in the world or in Australia. I know people listen all over. Until next time, stay positive.