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Adding a Granny Flat to Increase Rental Yield

November 10, 2016

With the recent boom in the Sydney property market, the rental yields are not looking so attractive to investors looking to enter the market. A way to significantly improve your yield is to build a granny flat on the property.

 

Say you purchased a property this month in Western Sydney. To use real figures, an unrenovated property recently sold in Greystanes for $810000. It would rent for approximately $550 per week. That would provide an investor with a 3.5% yield.

 

If a granny flat were built on the same site, for $120,000, it would rent for approximately $400 per week.

 

Combining the purchase price of the house and the construction of the granny flat, the total spend would be $930000. The total rent would equal $950 per week. So the yield would increase to 5.3%.

 

Based on a net rental (after property management fees and rates) of $760 per week and a loan for the full amount of $930,000 at 4% interest only (having weekly repayments of $715), the property would be positively geared by $45 a week, or $2,345 per year. Not bad for the Sydney market!

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