Hi
I’m building a Granny Flat in a few months to create a dual dwelling cashflow positive investment. I’m trying to find find numbers on what valuation I’m likely to receive on the following.
Purchase Price: $270,000 (slightly below market value)
Granny Flat Construction: $106,500 (hard cost not including council contributions)
Post Construction Valuation: ???I have a few banks saying they expect that they would see 100% value created from the $s invested to build a granny flat not including “non value” items like council contributions.
My lender is steering me towards a 70%-80% post construction valuation. This means there is a lot more cash required to get into the deal so I’m hesitant and trying to find investors that have gone through this already. Has anyone seen any examples or worked on these deals?
Thanks,
ClintIf you are in NSW, your lenders numbers are spot on. You are far better to be cautious and safe, rather than being caught short and having to find additional funds or pay LMI to keep the Bank happy. You really need to know what the number is going to be before you start construction, can I suggest that look for comparable sales, so you can proceed with confidence.
If you are in WA, they do not value up at all well. Our most recent granny added $50,000 for a $120,000 build cost. This will change in 2-3 years time, when their is a solid sales history, however bank valuers get paid so little, and they are unwilling to take the risk.
Regards
David Hall
Hi Clint
For GF deals I order an on completion valuation before doing anything. That gives me an idea of how much (if any) funds my client has to put towards the deal.
Generally speaking – that 80% figure probably seems about right.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
IN NSW, we just completed a GF project.
Purchase price of existing 3 bed brick house = $500k
60sqm granny flat and landscaping and driveway incl. council contirbution etc. = $130k8 months later, end value by REA just the other day $750k.
Bank is sending their own valuation people now coz we want to refinance that to get onto another project. My bank manger confirmed they loan up to 70% LVR for dual-occ. But she’s checking if they’ll push it to 80% for us. *fingers crossed*It seems there’s no equity to take out right now.
HOWEVER, we funded the granny flat build from refinancing another investment property. so Actually, we can take out about $100k to put into the next project straightaway.
ALTERNATIVELY, if you just sit tight on this dual-occ for a year or two (positive cash flow anyway) you’ll be able to take more equity out. It’s important you seek capital growth as well so time will give you more $$ to invest again and again. Best of both worlds.Goodluck!
Generally you’re lucky to see a 80% return on capital spent on the GF – they certainly aren’t a capital growth tool.
Be very careful to as I’ve seen a number of approved granny flats valued as too low spec to be considered a seperate dwelling so have been attributed as a $0 value add and any rental income ignored for loan servicing purposes in the future.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
We’ve done a few and they have always valued at house purchase price + 100% of construction costs.
The first one we put together was in Umina Beach about 3 years ago – $305,000 + $105,000. The rent is $680.00 per week. The clients have just been offered close to $550,000 for it. Super funds are a strong 2nd hand buyer of these dual income properties as well as extended families + obviously investors.
The key is to do these projects in a rising market so you get the best of both worlds – we not doing anymore in Sydney and surrounds.
Chris White | Pillar Property
http://www.pillarproperty.com.au/
Email Me | Phone MeThe Property Investment Specialists
The valuation question is fairly easy to answer. We do them upfront to determine the on completion valuation. I regularly see these value up. In some cases it will be difficult for a valuer if there a few comparable sales but if there are they will have no trouble at all.
There are so many variables. The projects are really just micro property developments. Some are done well and some are done very poorly and value accordingly.
The strategy is very sound.
The granny flat strategy is a tool to balance cash flow across your portfolio so that you can continue to invest.
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
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