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Could granny flats be the answer to softer property growth?
As investors turn to commercial assets amid softer housing growth, granny flats could offer a different way to boost cash flow and generate stronger returns from residential property.
As growth in residential properties softens nationwide, investors have been encouraged to find new ways to strengthen their portfolios.
While investors’ interest in commercial property has grown, Acquisition House founder Bobby Haeri said second dwellings were an overlooked strategy for increasing cash flow.
On The Smart Property Investment Show, he said that despite investors’ rising appetite for commercial property, residential assets with the potential to add a granny flat or additional accommodation could be a strong cash flow play.
“We’re actively recommending clients put granny flats in there, and with any new clients, we’re recommending active strategies,” Haeri said.
He said adding a granny flat could be a faster way for investors to become positively geared, while giving them a point of difference in the current market.
“I wouldn’t say that property investing is dead in Australia, but in this current climate, you have to be active. You want to get your property neutral as fast as possible.”
“You can’t just sit and wait for the market to do its own growth.”
Not all properties
Haeri said investors needed to make sure a property was suitable for a granny flat before buying it.
While some issues, such as overhead power lines, may be obvious, he said investors should ensure their conveyancers were conducting proper due diligence.
He said issues such as easements, overhead power lines and stormwater pipes could prevent a second dwelling from being built.
Additionally, He said investors needed to understand local council and state requirements before building a granny flat, particularly where these could affect the property’s long-term yield.
“These are the sorts of things that you would want to be careful of,” he said.
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Despite declining property values, Haeri said investors should only sell when forced to.
“I don’t think you should ever sell unless you can’t afford to hold onto it, or if you are capped out in terms of serviceability and it is not performing,” he said.
“If you’ve got the cash flow and you’ve got the buffers, then hold on.”
An investor’s dream in Tassie
Haeri said Tasmania had shaped up as a strong candidate for investors looking to manufacture more yields, where properties and construction were significantly cheaper.
He said building a granny flat would cost buyers around $300,000, with rent of around $500,000 p/w, resulting in a double-digit yield.
“Off the top of my head, that’s probably an 11 or 12 per cent yield. There aren’t many assets that will give you that yield.”
While markets across the nation were in broad decline, Haeri said Tasmania had continued to attract strong interest from investors and owner-occupiers.
Haeri said being beaten on purchasing several properties in Tasmania recently signified the strength of its property market.
“We’re missing out on multiple properties now to owner-occupiers, and that tells us about the health of the market.”
With affordability a major concern for investors, Haeri said that townhouses and apartments had seen a significant uptick in interest.
“When town houses and apartments start doing really well in the market, it’s because people have been priced out of the housing market.”
Listen to the full episode here
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