If you’re looking for passive income to cover your living expenses, real estate investing probably isn’t on your mind. Your loan repayments will almost certainly exceed your rental income, which means you will be in negative gear.
While this is the basis of many Australians’ long-term wealth building and tax minimization strategies, it is certainly not the way to pay your bills today. But some Australians are making tens or even thousands of dollars in net profits through this increasingly popular strategy, if they can tolerate the risk.
“Rental” means building a granny apartment attached to your home or investment property (or adding another floor) and renting it out.
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Renovation loans are usually smaller than home loans and cheaper than buying a new home, but they can earn you almost as much rental income as if you were renting out a single-family home, so you can save a lot of money. There is a possibility of earning profits.
Ninus Khanna, a director at mortgage broker Cardinal Finance, said one client who did just that was earning an extra $15,000 a year even after repaying the loan.
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“They paid $150,000 [the granny flat]. They took out a construction loan,” Khanna said. Yahoo Finance.
“And grandma’s apartment was rented out for about $500 a week. They were renting out that house for $600 or $650 a week.”
Not a granny apartment: Rent-friendly renos
Mr Khanna said his clients were able to charge such high rents given the size of modern granny apartments and their good condition compared to most housing.
“It’s a new building, so it’s packed with three bedrooms and two bathrooms,” he said.
However, he also acknowledged that there are shortcomings.
There is usually no garage space available for renting a car. Inflation has also increased construction costs, so it may take longer to recoup upfront construction costs.
Response to government and parliament
Lei Kang, a financial advisor and founder of Daintree Wealth, is more cautious. He also pointed to other costs, both construction and regulatory.
“It’s a physical asset, so maintenance is a given,” Suga said. Yahoo Finance.
“You have to meet DA (development approval) guidelines. There are development risks involved because you have to follow council regulations. You basically become a property developer.”
Kanna is more upfront about initial cost and ease of construction.
He said the regulatory system is “benign” and that the strategy to “densify” existing sites is a challenge to state and federal governments against “urban infill,” where new housing is built on vacant or underutilized land. He said that it meets the requirements of
Working with builders: simple or stressful?
Khanna was also optimistic about the ease of building rent-friendly granny flats.
“There are a lot of builders out there that only focus on granny flats,” says Khanna. “They can provide a turnkey solution.”
But Kang is more cautious. He recalled a client who built a granny apartment on an investment property and discovered it had a leak.
“She ended up having to go through a three to five year court process,” he said.
“[She] It didn’t make much money from the developers, as they kept closing and reopening under different names. And she had to pay another builder to fix it all.stress [is] It is an invisible, non-financial cost. ”
He urged homeowners to consider other personal expenses as well.
“If it’s in your own house, you’re giving up the utility value of your backyard. You’re compromising having to live with someone… you’re sacrificing your privacy.” said Kang.
More affordable than most real estate investments
However, “renting” is at least relatively affordable for those willing to deal with such upfront costs and risks.
Suga said, “This is something the average office worker can think about.”
“Most people in Australia who have owned their home for five years, or even three years, will have some equity in their home…They can go back to their bank or go to their mortgage broker and say, ‘Here we are. It’s my home, me.’” I’m hoping to get a little more income out of it. ”
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