How granny flats can add Value to your rental property

If you have an ageing investment property that was built 3 or 4 decades or longer ago, it’s depreciation value & rental yield is probably quite low; whilst maintenance costs continue to soar and tradies ever harder to source; you may have found yourself caught up in the tension deciding … do I renovate or detonate?

Changes to the R Codes briefly mentioned in my previous blog might well open up the opportunity to make an otherwise unprofitable development profitable.  The laws have changed to allow for development of ancillary dwellings (commonly referred to as a granny flat).

Formerly you needed 450m2 per site - today you can do it on a 350m2 site!!

So it’s a huge game changer for what’s probably the majority of block sizes around Perth being 700 – 900m2.

This sample case study is an example of what can now be achieved.

Original Home built in 1970s on 810m² block, zoned R30; currently rented at $475pw.

Strategy : Subdivide into two 405m² blocks and optimise rental return.

Scenario 1 prior to the 2 July 2021 R-Code changes

Build 4 bed, 2 bathroom dwelling with an anticipated return of $600 per week on each newly created block.

The advantage/benefits of negative gearing through depreciation etc. has been found not to maximise the profitability of the development potential.

Scenario 2 after changes to the R-codes effective 2 July 2021.

Now it is possible to knock over the old house, create a duplex block & build a 3 x 2 with an ancillary dwelling attached to it on each newly created block, increasing your rental yield by at least 50%.

There are 1000’s of properties around Perth which would fall into this category.  The typical 700 – 900m2 up until now could only be subdivided into a duplex block & yield 2 new residences, however today, it is possible to achieve 4 legally rentable accommodation units on the same block of land.

So under the new laws it is now possible to subdivide the same blocks into 400m2 each & build a dwelling of perhaps about 120m2 as a 3 x 2 & a further 70m2 as an ancillary dwelling with either 1 or 2 bedrooms & a bathroom.

For the astute investor/developer, it would be expected that the rental yield on a 3 x 2 vs a 4 x 2 would be approximately 80 – 90% of the rental yield that you would on a 4 x 2.  With this concept, it could be expected that around 60 – 70% on the rental yield could be achieved on the ancillary dwelling also, providing a total return that is substantially more than the return on a single 4 x 2.

Contact us for information on how you can maximise your yield.