Adding a Granny Flat to Increase Rental Yield

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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