ARE GRANNY FLATS A GOOD INVESTMENT
A lot of people think granny flats are a good investment, but is this really the case? Depending on your portfolio position and what you hope to achieve, says Nathan, investing in a granny flat may be selling yourself short. Here are three reasons why they don’t make a good property investment.
1) YOU RISK OVERCAPITALIZING ON GRANNY FLATS
According to Nathan, properties with granny flat potential usually go for more than they are worth. This makes it extremely difficult to purchase them under market value. By paying market value or more, you will be overcapitalizing on your investment.
2) YOU GET CASH FLOW, BUT NOT MUCH POTENTIAL FOR CAPITAL GROWTH
This may be okay if you already have a well-established foundation portfolio, and you are in a consolidation phase. If, however, you only have one or two properties, and you need to accumulate 20 more in order to consolidate and live life on your terms – then what? The $150 a week you make from a granny flat will bring in $7,500 a year, but granny flat itself has limited potential for capital growth.
Nathan says, granny flats can make your property less sellable. He says, valuers don’t think much of them and buyers such as families wanting a large backyard aren’t willing to pay a premium for them – so is it really worth the extra $100,000 or so required to build one? Would that $100,000 be better spent elsewhere?
3) YOU WILL BE DELEVERAGING YOURSELF
If you could spend $100,000 on a granny flat, an investment that makes less that $8,000 a year, has limited potential for capital growth and makes your property less sellable; or $100,000 on a deposit for two properties, that are below market value, offer good growth prospects and have neutral cash flows, which would you choose?
Investing in two such properties will give you equity that you can use to increase your net worth position and leverage your investing to accumulate more. The greater your portfolio, the greater your chance of retiring early.
Nathan says, he would prefer to invest in properties that offer good growth potential, have a neutral cash flow, and that he can purchase under market value. They offer greater potential for building equity and growing your asset base. Granny flats may make you a bit of cash each week, but aside from that, they don’t have much else going for them.
Have you invested in a granny flat? Did it prove to be a good investment, or was it more trouble that it was worth? Please share your experiences in the comments section below.