Could this strategy be the cash cow you need?

<p>Paul - good to talk to you in the last couple, and glad that we here at Ipswich Granny Flats could be of assistance. Looking forward to doing some work together ...<br>Sonia, Ipswich Granny Flats</p>

<p>As someone who assists investors on a daily basis and almost as often sources granny flat loans I feel well qualified to answer the question, "are granny flats a holy grail cash cow?".<br>Firstly, I must confess a bias. I truly believe that cash flow in a property portfolio is like oxygen. It is essential to survival. So when I say I think that minor dwellings are a good idea then I am sure you will not be surprised.<br>However, at the finance end of things we deal with real numbers rather than projections so the results are real, the rental yields are the actual yields and we are limited by the valuations of the lender in question. <br>What we see is what you would expect. We see mixed results. Some great and some - well below average really. From our experience those investors who spend the correct amount of time of due diligence reap the rewards. Those who had over a little too much of the process seem to be at a disadvantage. Knowledge truly is power.<br>When you build a granny flat you are really becoming a property developer - all be it on a small scale .<br>On that basis those who achieve the best results look first at the product they are creating and what the demand for it is in the open market. Is it saleable in this market and is it saleable at a different stage of the property cycle. <br>It is only when they have satisfied this requirement do they look at other aspect of the proposed project such as yield. <br>What are the facts: On a square meter basis a granny flat is extremely expensive to build when compared to a larger dwelling. There a solid reason for this but the number do not lie. Because of this there is a risk that the value of the property after you build your granny flat will not have increased by the cost of construction. Or explained differently your increase in value for every dollar you spend is less than a dollar.<br>How often does this happen: Not often but is does happen so it is important to get two valuations before even considering construction of a minor dwelling. Firstly, we should get a bank valuation of the site as is with the existing house on it. This is our starting point. Secondly, we need to get an "on completion valuation" or as if complete from our lender to clearly establish the lender opinion of the project. <br>Are granny flats the holy grail? Well I would think not but they ARE a valuable strategy for the right investor buying the right property and creating the right mix of investment products. Results vary significantly as you would imagine. <br>Investors who make the right choice will be able to potentially make significant equity gains as well as stabilize the cash flows of their investment portfolio. Investors who build the wrong granny flats in the wrong location will spend more on construction than they increase the value of their properties by. This is a case of clear YES and NO signals from the market place. YES or NO that the market wants what you have created.<br>Significantly, in recent weeks all major lenders have significantly tightened their serviceability models. This simply means that the way the calculate what and investor can afford has been tightened. Not to exaggerate but these changes will significantly impact investors that have more than a couple of homes. <br>In this environment rental income and cash flows inside your portfolio are more and more important. The granny flat strategy may well solve some of these new income pressures. However. the key will be gaining correctly structured finance with the right lenders. <br>As most of you know I am a huge property nerd and would be happy to chat about property so feel free to contact me.</p>

<p>Big fan of these dual income properties.... We bought one through a buyers agent a few years back and it paying big dividends.... Great read!</p>