Forums / Property Investing / Creative Investing / How to invest in positively geared property using infil laws

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  • Profile photo of SeanWilsonSeanWilson
    Participant
    @seanwilson
    Join Date: 2013
    Post Count: 26

    Hi everyone,

    I haven't posted much here but I sometimes see people wanting to invest in positively geared properties but don't know where to start.

    One of the tactics my family has used over this long while is to use existing infil laws in order to build two dwelling units on one block of land. This is a buy and hold strategy, since we have NEVER sold one of our properties in Australia. If you are still interested I will be detailing below some information:

    In NSW we all know there is something going on called the 'granny flat revolution'. This is where the state government has mandated that there be an allowance made in the planning code of each local council (the lowest form of government) for granny flats to be rented out. This is an example of state wide infil brought on by housing affordability issues.

    One of the main drivers of this demand is our changing demographics. Houses with 'granny flats' are popular because:

    1. Aging population

    2. Children moving out of home later – children have their partners but live with parents. They want independence whilst saving for their first home.

    3. Adults students or professional singles.

    People typically are being married later, moving out later and living longer. All of this means that a single professional or adult student typically won't want to 'flat' with others as they want to be independent. So we know there is strong demand.

    Now, that is all very well and good for NSW, but in other states there is no statewide mandate on councils to change their town plans. So the issue here now is to find town plans that actually allow infil using granny flats. One of these town plans belongs to the Logan City Council in south east queensland.

    Now, aside from what you may hear in the news about Logan (much of it bad) there are only two suburbs that draw bad attention. The truth is the range of property prices and thus demographics is huge. If you look at this map of the subrbs that LCC covers, the geographic area is huge.

    http://www.logan.qld.gov.au/__data/assets/pdf_file/0009/8847/Logan_Map_Updated_May_2012.pdf

    Now, the reason the Logan City Council town plan is different is because unlike Brisbane City Council, Logan City Council allows annexed units (this is the technical name for 'granny flats' to be rented by related or unrelated persons. This is because the annexed unit must form one household with the house. And a household can be made up of either related or unrelated persons.

    You can find the definition of a household here: http://www.logan.qld.gov.au/__data/assets/pdf_file/0019/9406/schedule1.pdf

    The LCC town plan actually has no upper limit on the size of the annexed units either. So we currently personally own:

    1 house and annexed unit in Cornubia, purpose built upstairs and downstairs. Property value: 700k. Positively geared/week: 280

    1 house and annexed unit in Tanah Merah, separate from each other. Property value 680k. Positviely geared every week: 300 once complete

    1 house and annexed unit in Marsden. Property vaue 700k (landbanking). Neutrally geared.

    So the simplest way to use the existing infil laws is to find a block of land above 600m2, and either build a house and annexed unit or find a block in woodridge or so, which is a low socio-economic area. Build an annexed unit with 3 bedrooms a bit smaller than the existing house and you have effectively doubled your incoming rent.

    This bring in another thing worth mentioning. In the LCC area, the annexed unit is limited to the size of the existing house. So if you have a 3 bedroom 120m2 house, you can build a 3 bedroom, 119m2 annexed unit.

    You can find some costings below:

    Buy an Existing House:                                                                                                $220,000.00

    Renovation/Tidy Up Allowance on existing house:                                                            $15,000.00

    Build Annexed Unit out the back:                                                                                    $118,000.00

    Stamp Duty & Legal Fees for existing house:                                                                        $6,700.00___

    Total Outlay:                                                                                                                        $359,700.00

     

    You put up 20% Deposit:                                                                                                $71,940.00

     

    Bank Finances 80%:                                                                                                            $287,760.00

     

    Annualized Income

    Existing Home Rent:                                                            $350/week                                    $18,200.00

    Annexed Unit Rent:                                                            $350/week                                    $18,200.00

    Depreciation on Annexed Unit:                                                                                                $2,000.00

    Total Income per Year:                                                                                                            $38,400.00

     

     

    Annualized Expenses

    5.6% interest on Bank financed 80%:                        (could get lower rate)                                    $16,115.00

    Water costs and Rates:                                                                                                            $2,000.00

    House Insurance:                                                                                                            $750.00

    Property Management:                                                                                                            $2,100.00

    Total Expenses per Year:                                                                                                $20,965.00

     

    Profit per Year:                                                                                                            $17,435.00

     

    Positively geared every week:                                                                                                $335.00

     

    The above profit per week is based off a deposit of $65,940.

    Sorry for the out-of-whack alignment ect. If you have any questions, let me know. I am sure any astute investor will be able to work out that by lending 100% hypothetically you will still be $250 or so a week positively geared.

    Let me know what you guys think. Again, this is for a buy and hold strategy. We have some clients who are looking at strata titles ect but that is over my head for the time being.

    Profile photo of jmsracheljmsrachel
    Participant
    @jmsrachel
    Join Date: 2012
    Post Count: 711

    That's a very good post. I have the same strategy and find it beats the "buy and hold" strategy and waiting for CG. It's a good way to manufacture your own own CG. 

    Profile photo of samlsaml
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    @saml
    Join Date: 2013
    Post Count: 2

    Thanks for a great informative post, a lot of interesting stuff there.  Out of interest how does the bank go about valuing your final land and buildings with no separate titles?  Also is Logan City Council the only place you have pursued this strategy or are there other councils you have found outside NSW that allow a similar thing to occur?

    Profile photo of SeanWilsonSeanWilson
    Participant
    @seanwilson
    Join Date: 2013
    Post Count: 26

    Hi saml,

    We have only done LCC as it is local to us. We stumbled upon this strategy after receiving an show cause notice from council inspectors after two tenants complained to each other. We went to see the head LCC town planner along with some infrastructure people ect. There were around 4-5 people in that room with a recorded meeting. They explained to us the infil laws and said all we had to do was have annexed units and it would comply with the town plan.

    We don't typically get the banks to re-value the properties since the borrowing power is increased with the positively geared income. As I said, one a year is enough to keep us busy on top of our business. I know some of our clients that we are helping with this process are looking at getting their places revalued, so they will be putting it to the test.

    I saw some people in Brisbane City Council region doing this same thing. However, the issue is that they are very strict and have VERY tight definitions for households ect. i.e. a house can only have one letterbox and water connection, a household is made up of related persons, infirmed or disable persons under care only. Therefore it is very hard to do anything in the BCC without paying the nose through fees. You also have to upgrade everything to dual occupancy which is a total different application with very different building regulations.

    Wit the annexed units you don't even have to apply to council as long as you do not have land where overlays and constraints trigger an application. We due the due diligence ect. on overlays/constraints and zoning as well as council infrastructure and all the other requirements pertaining to a self-assessable applications for our clients before we get into it anyway.

    Profile photo of BrazenBrazen
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    @brazen
    Join Date: 2010
    Post Count: 47

    Well, secondary dwellings (granny flats) are effectively free for investors:

    1. Spend $100,000 to build a quality granny flat

    2. Rent tit out for, say, $400 per week

    3. Tenants take 6 years to pay it off for you – cost =$0

    4. Live off the rental income from front and rear dwellings forever!

    5. Rinse and repeat 4-5 times (depending on LVR) and retire on the rental income.

    Granny flats allow you to positively gear your investment property BUT BEWARE, it's wise to purchase the right 'granny flat friendly property'.

    I've actually written a great guide for new investors looking for suitable properties here: http://www.grannyflatapprovals.com.au/why-granny-flats-are-free 

    Brazen.

    Brazen | Granny Flat Approvals Sydney
    http://www.grannyflatapprovals.com.au
    Email Me | Phone Me

    Granny Flat Approvals Guru

    Profile photo of SeanWilsonSeanWilson
    Participant
    @seanwilson
    Join Date: 2013
    Post Count: 26

    Hi Brazen,

    Unfortunately I cannot see the article as the page is not found. I am talking specifically about the SEQ area, not NSW. I know NSW is limited to 60sqm. In Logan City you can build them up to the size of the existing house.

    Profile photo of Lyndon22Lyndon22
    Member
    @lyndon22
    Join Date: 2013
    Post Count: 4

    Some great information being shared here!

    I have a question for you about the positioning of the annexed unit. Does the block need to have front and rear access for this strategy to be viable or can the annexed unit at the rear of the existing house be accessible by installing a long driveway up the side of the section? If so this would mean that the tenants living in the rear annexed unit would be driving/walking past the front unit to access their unit?

    I have a link here to a property which is a good example of what I mean : http://www.realestate.com.au/property-house-qld-edens+landing-114287151

    Let me know your thoughts.

    Thanks, Lyndon

    Profile photo of SeanWilsonSeanWilson
    Participant
    @seanwilson
    Join Date: 2013
    Post Count: 26

    Hi Lyndon,

    Yes, it is beneficial to have rear access but this is not necessary. Neither is it necessary to have side access but it is desirable.

    A few things needed for an annexed unit:

    Car park (not car port, a car park can be on the 6m of land between the front of the house and boundary. It does not even need to be covered).

    Within 20m of existing house. Either in part or in whole.

    Must be to the rear of the house, or if it is at the side, it must be situated towards the back of the block. If it is in line with the front of the house, the annexed unit and house must be shown to be 'as one' from the street frontage.

    The property shown in the link is great. There are no constraints or overlays on the property. That I can see. If you are serious about it I can check up with council.

    Profile photo of trickeymickeytrickeymickey
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    @trickeymickey
    Join Date: 2012
    Post Count: 19

    How easy is it to find tennants for these annexed units / houses? Since privacy may be a concern, it won’t suit a lot of people, so what is the demand like and who is the demographic?

    Profile photo of SeanWilsonSeanWilson
    Participant
    @seanwilson
    Join Date: 2013
    Post Count: 26

    Actually, the demands is huge believe it or not. We have real estate agents renting our old tenancies out before the new tenants arrive.

    When we do our own management, we find our tenants on gumtree. We get around 1 response per hour after 7pm and around double that rate during the day. We have to pull the ads off after around 12 hours of advertising.

    So yes, I would say that there is a fairly untapped market in QLD at the moment.

    Profile photo of acurabotacurabot
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    @acurabot
    Join Date: 2013
    Post Count: 20

    Hi Sean,

    Could you please explain about the zoning required to do this? I.E What is the minimum zoning required? Also, what about power and water connections? Do you use one connection for both dwellings and have the tenants split the bill or do you put in place seperate meters?

    Cheers,

    Donnie

    Profile photo of SeanWilsonSeanWilson
    Participant
    @seanwilson
    Join Date: 2013
    Post Count: 26

    Hi Donnie,

    Ok in regards to zoning:

    No. Zoning is not a deciding factor regarding this. However, land size is. The land MUST be 600m2 or greater. If you have a block of land that is 599m2, this is impossible. Logan City Council is great in regards to zoning however, as they have an R rating. That is, you can 1 dwelling per R value. I.E. a 500m2 in an R250 zone would give you two dwellings. Annexed units are different to dwellings, as they form one household with the house, as previously mentioned.

    In regards to the water and power connections:

    Whatever way you want to run it is feasible. We have all our power in under our name since we have solar panels. To transfer power to the tenants means we lose solar rebates permanently, and we lose the carbon credits. What we do is read the meter every quarter. You can, however, have two bills come in for the house and the annexed unit. You can even have a separate water meter, although this is really unnecessary as water is cheap in comparison to power.

    So there is no short answer to this. As the landlord, you have the power to write your own agreements and find tenants who are willing to abide by those rules, as long as you don't ruin their rights. And that is the whole point of creative investing.

    In regards to TrickeyMickey, try posting an ad on gumtree for a family looking for upstairs/downstairs accommodation. This is the most specific type of annexed unit as they must be related. I.E. Brisbane City Council style.

    Or, look for single professionals or adult students willing to live in a 70m2 granny flat behind an already established family home.

    Profile photo of acurabotacurabot
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    @acurabot
    Join Date: 2013
    Post Count: 20

    Hi Sean,

    What are the restrictions in regards to the maximum number of unrelated tenants allowed to live in the granny flat and main dwelling? Either in part or in whole?

    Cheers,

    Dao

    Profile photo of SeanWilsonSeanWilson
    Participant
    @seanwilson
    Join Date: 2013
    Post Count: 26

    Hi Dao,

    Look, I think the maximum is 8 unrelated persons, I could be wrong on this but I am PRETTY sure that this is the case for the local town plan in LCC. Other LCC rules vary. For example, Ipswich city council ONLY allows related persons. 

    Anything above 8 and you start into boarding house territory, which means you have to comply with different building codes, such as those found in BCA Class 2 – 9 Buildings Volume 1.

    BCA Class 1 & 10 buildings volume 2 is where the annexed units and the majority of 1-3 storey homes reside. That is the key to this strategy. You want low cost building methods such as those found in BCA Class 1 & 10 (homes and annexed units are Class 1, sheds, garages and the like are class 10, aerials, fences ect are class 10a).

    When you get into building duplexes, townhouses, boarding homes ect, you are at the class 2-9 level. Also, another thing to remember is that local city council town plans have different rules for these class 2-9 buildings and what may be a class 2-9 building in some areas may not be in others.

    Yes, its confusing.

     

    Profile photo of waydo77waydo77
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    @waydo77
    Join Date: 2011
    Post Count: 155

    dam this post was interesting, has anyone done any granny flatting as such in the LLC?

    Profile photo of gowidegowide
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    @gowide
    Join Date: 2004
    Post Count: 6

    I have been reading posts for 3 hours and this is the best post so far. I will let my buddy know about it as he already owns a house in woodridge so hopefully it meets the criteria above.

    cheers

    Profile photo of jetajeta
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    @classiceuropa
    Join Date: 2016
    Post Count: 17

    The original post was some time ago.

    Would really need to do some research on the specific area , I do know one area on the Central Coast NSW that
    has recently seen 5 new granny flats go in to an area of approx 1000 homes which has pushed the rental market
    down , There are definitely areas on the Coast becoming flooded , someone might have updates on the Logan area.

    • This reply was modified 2 years, 11 months ago by Profile photo of jeta jeta.
    Profile photo of Corey BattCorey Batt
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    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Agree jeta, granny flats have indeed put downward pressure in markets where they’ve been allowed to be developed easily in planning laws.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of StoreybuilderStoreybuilder
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    @storeybuilder
    Join Date: 2016
    Post Count: 45

    Thanks for bringing this up. Here is a good article with some extra specifics

    http://www.domain.com.au/news/how-much-value-does-a-granny-flat-add-to-a-property-20141028-11czgx/

    Profile photo of StoreybuilderStoreybuilder
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    @storeybuilder
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