Sydney investors building granny flats to increase rental yields
The prospect of extra income from adding granny flats to the rear of properties has prompted a wave of property investors in Sydney's western suburbs seeking to secure higher total returns, according to the valuation firm Herron Todd White.
They have been seeking out the older 1960s and 1970s three-bedroom homes on 600 square metres to 700 square metres of land and subsequently obtaining council approval to construct large, purpose-built granny flats in the backyard, the report says.
Penrith and St Marys were at the forefront of the trend, with the average cost of a property $330,000.
The investors were then seeking to improve their rental income through building granny flats.
The cost of adding a granny flat was about $70,000 plus about $30,000 for a basic renovation of the existing dwelling.
"So after spending $430,000 on average, three-bedroom houses in these locations secure rental rates around $330 a week, with granny flats achieving rental rates around $200 a week, taking the total weekly income to $530 a week or $27,560 per annum,” the HTW report says.
"Based on these preliminary calculations, a rental return of 6% to 6.5% may be possible."
HTW warned there are a few points that any astute investor should check out before diving in.
"Many of these strategies are being spruiked by specialised investment firms.
"Secondly, this a recent trend and is yet to be tested from a re-sale point of view, we do not yet know if the $100,000 spent on capital improvements will translated to a $100,000 increase in the properties’ value.
"Thirdly, there may be various tax implications for the investor," it notes.
