Granny Flats or Dual Occupancy Australia:Which Is Better for Property Investors?

Julius

Hi Julius, how are you? I'm good, Parag. How are you? Going very well. Thank you very much. How are things? Things are good. Going well.

Parag Dixit

Things are going well. That's nice. That's good. Now welcome, welcome back. And today we are going to actually discuss something which all of us always hear. Okay, if I'm looking at investing or if I'm looking at buying something, why don't you get a house and a granny, or you get a dual key, or a dual occupancy, or you're going to buy a house and the agent says STCA, you know, subject to council approval, you know, all of these, and just need to know. We just want to understand. Really, really worth it? Is it does it make sense to get into something like this? Does it make sense for us to buy something like this? Let's understand the differences between all of them. Let's understand the nuances, the pluses, the minuses. Whether we should invest into something like this, and if it's working for us, what will it make it work for you in your circumstances, or what will it not make work? Will it not work out for you? So all of these things we'll understand, and we'll understand the traps you can get into. We'll understand how you can find out whether there'll be a capital growth in that, or it's just a cash flow product, or what is it going to be. Because you know, it you know we we always think that we'll have two investments. We'll have you know one property. You'll have two households staying in that, and it'll be a good investment. Two rents are going to come; it'll be a good investment. But that doesn't work out like that. It it actually is not like that because you know it it brings a lot of things into into play. I understand if you are looking in this market, if you're looking to invest, and you say okay, it's borrowing capacity is tight and cash flow is tight, and double rents and rental yields will be great. You know, you're seeing all these promotions coming through. If you're buying a newer property, you see all these rental incomes coming through, and you say, "Okay, I don't have to buy another property and spend another half a million or six, 700,000, 800,000 property. Why don't I have a one with a double income, a granny or a duplex or something, and out of that, I have pressures. I have rental pressures. I have cash flow pressures. So okay, it looks like okay. Why don't I get a double income property and I can have two rental incomes coming from that one single property? But when I look at all of these things, when I think of all of these things, it's critical to understand how it's going to impact this double income is not the only thing which you have to look at. This is not the only one which is going to make sure that you are going to invest well, and that investment is going to be a great investment. Let me ask you a question, Julius. We can start with our discussion from there. Why have granny flats or dual income properties, dual key properties-all of these have suddenly become such a big conversation among investors.

Julius

Yeah, because of the current economical condition, there was a time when the interest rate were around three, 4% Your yields are around 5% It's all hunky-dory. Property price is also moderate. Yeah. At this stage, a lot of people are running out of affordability. That is number one.

Parag Dixit

Yeah,

Julius

interest rates are touching around mid six, so like six and a half percent, so close to 7% Where, if your property's yields are at around four and a half to 5% still there is a huge gap because property prices have gone up so much. So basically, that delta is extremely higher. Yeah. Plus, when you look at the bigger portfolio investors,

Parag Dixit

yeah.

Julius

And when you buy multiple properties, then you need to have a high cash flow asset to give you enough cash flows to maintain your proper portfolio. Yeah. Yeah. So that's why, because of the current economical indicators to enhance the borrowing capacity to match those yields, a lot of investors are looking for high cash flow assets, so like dual income, 1000 granny or dual key, they are the byproduct of it. Okay, okay, I understand that. I understand. I understand what

Parag Dixit

you're saying. So they are a byproduct. They are not the one which is which is the driver, which is the main one. Correctly, okay,

Julius

exactly. So I would like to ask you one more question on on which is connected to that. Yeah. So when you're buying house and sorry, house and grannies of the dual income property, are you actually manufacturing a genuine liquid or you're buying an additional maintenance headache?

Parag Dixit

Good question. No, very good question. Now that's a very good point, and I think that's something which everyone has to really weigh when they are getting into an investment, because when you look at when you look at adding another dwelling into your property, and the easiest is if you've got a house standing, you get a granny build at the back. Obviously STCA, but but yeah, if you are able to get a granny build at your back, or you're able to convert, you know, add a bedroom or two and make it a dual key or something. If you do all of that, you it's good. You add some value to the property, but then you make the property kind of you know. There's nothing much can happen after that. Yeah. So all of these come in, and then when when this comes in, you also get two houses. So two. Different families stay there, different rates come there. So there is there's a combination of issues which come through. So one issue which I have seen which comes through is such kind of properties which are not properly divided. You will find they've got one electricity meter, and now there's an issue with the tenant or the real estate agent. Somebody has to manage dividing the rentals between the two-that's an issue. If you have water, how do you divide between the two? So the property manager, poor guy, would be worried about how do I ensure that this is happening? Then you have issues of privacy which pop up, and if the two families are not in good talking terms with each other, then we into a problem. I'll give you an example in this, I had a particular, I had a family which was which had a house and a granny. I know of someone who had one, and there was family at the back, family at the front. Now suddenly, one fine day, the property manager had some frantic calls coming to them, and those calls were okay, kept on coming, kept on coming, and this guy he picked it up and he said, "Okay, what's happened? The front guy was calling up and saying the bad guy he popped he was peeping through my window and this is an issue and now what a police complaint as police came in and and all that thing happened eventually the only way they could resolve it was within a month or so they had to release the back 10 earlier from the bond and let them go and these these are this is a headache which comes to yeah, that's you have to weigh in whether you're really going into a good situation or you are going into a situation which is not beneficial. Because if you're going to take all of this headache, yeah, then you should really get something out of it. So when when we get into this, obviously there are different nuances, and there are three types of these properties which, besides the HTCA, which come in, is your key, is your dual income, which is your duplex or your double occupancy, or the house and granny. So Chileus, maybe you do so much about properties, and you've got such such brilliant mind behind all this. This can you just differentiate for all of us about what's the difference between a granny flat, a dual occupancy, or

Julius

a duplex, or a dual key kind of a property. Yeah. Okay. So you have main house and you have ancillary dwelling, which is a self-contained home, like two bedroom, one bathroom, or three bedroom, two bathroom. Yeah. It's not subdivided on the single title, but still you have a separate access, separate fenced, two separate meter. Yeah. The size is in between 60 to 100 meter, that's house and granny. Yeah. Where okay, you have two separate tenants, two separate accesses. Everything is separate. Everything on the same on the same side. Second

Parag Dixit

one will be smaller. The main one will be a bit larger.

Julius

Yeah. So you can avail rental both sides, and then good investment grade product. Yeah. As well as there are few owner occupiers would like to have the granny flat on their home as well to support them for the repayments. Yeah. Then we'll look for the dual duplexes, right? Duplexes are like okay, you have a single roof. Yeah. One common wall, and each side can be around four bedroom, two bathroom, three bedroom, two bathroom, or two bedroom, two bathroom. They can be either on the single title, or you all often have. I've I've seen lot where they have a subdivision.

Julius

So basically, you can keep one, sell one. Everything is separate. Yeah. But they have a attached wall in between, and then they have a common roof.

Julius

that's a dual occupancy. We actually see them most towards the high density suburb. Yeah. Third, which is the dual key property? Where okay, it's mostly a degraded investigate product. Where what we see is basically you have a four bedroom, two bathroom, yeah, and on one side and in this under the same roof there is another two bedroom, one bathroom or two bedroom two bathroom, but most of the time it's a four bed two bath versus two bed one bath, yeah, two separate accesses, but the front, the back house doesn't have access to the garage, so there is a separate entry to it, and then they all share the same roof. So it's the same home, divided in between, and then four two configuration versus two bed to one bathroom configuration.

Parag Dixit

All right, so so if if I were to say the dual key would be more of one house with some kind somewhere they divided into two dwellings where you can put fit in two families in some way or the other. Yes. So that's why when you look at it, when you say that it's a degraded investor product, it's more because of the way it's built out. It doesn't really give you a an independent feeling. Whereas the other two ones, which is your duplexes and your house in a granny still separate out two families, and still you can have a bit more freedom between yourself, and you can have some backyard for yourself and some front yard for yourself in each of each of those scenarios, right? Exactly,

Julius

and then your tenant pool is also compromised because they are like very small content units where you have a limited tenant pool, or the quality of tenant which you get either students or some degraded tenants because they are transients. They are transients. They are transients.

Parag Dixit

Okay, let's talk of dual key now. This is an interesting concept, and it has come up in last few years, maybe a decade or something. Now, when we look at this, so I understand this is, and I and I've seen this popping up for I think it. Started off, or maybe my knowledge started off when they popped up in Queensland, where a lot of these home inland developers were selling this, and this was like, oh my god! And the people who were selling the the people who were these investment advisors when they were selling, they were paid heavy commission for a 600 or $700,000 house. They would get 50 grand, 60 grand, 70 grand as commission to sell that property. Now they were all outer ring, bro. Outer ring, you know, just outside of the city, just on the fringes of the city, and they will talk of cash flow positive from day one. It's a beautiful attraction, but such a big mirage which is there because it's coming from those property speakers. Then those who are not speakers. Are they? They're just throwing it across to to you guys. But in the end, it's there is an there is an issue of isolation. There is an issue of privacy which comes through. And if you look at just pure safety, you know this this no. If there's unluckily there's a fire somewhere or there's something which happens, both properties are gone. Noise, you know, there are no great acoustics out there. So both of these apartments can smell the food which is getting cooked in the other one, I suppose, or whatever is happening. And I've seen that there are, and I used to remember, I distinctly remember, I still know, I see sometimes that people have bought those properties, but the bank valuations are a shocker. They don't come there because eventually it was a four-bedroom or a five-bedroom house which was divided into two. I've seen a four-bedroom house, four-bedroom, two-bathroom made into a three-plus one and a one-plus-one or something, and all those crazy combinations which come through. But then it's purely, as you rightly said, it's pure, pure, pure investor. There is hardly any owner-occupier which will come up through that, right? So, and there are more issues which come along with this, correct?

Julius

Yeah. So there are a lot of council regulation issues because when you look at the dual key products, right? There is a requirement because you have two kitchens, two bathrooms. So basically, for the kitchen, there should be a firewall in between that has to be mandatory. So a lot of councils are enforcing that, and then other is basically if suppose if you have you don't have a separate meters,

Parag Dixit

yeah,

Julius

then it's a lot of headache between sharing the your utilities between both the trainers. So rental demand is not great. Your title structure is bit funny because it's still on the single title. You still have A and B, but still in the single title. Then, if you don't have separate meters, then sharing those utilities, big headache. Property management is expensive, and then when you want to resell, so because when you buy a property, right, you have exit in mind.

Parag Dixit

Yeah, yeah.

Julius

So either you, so the best sellable asset is basically a great product which has been fantastic for owner occupier as well as investors in a good suburb independent house, where okay, when the market is pretty good, owner occupiers are interested, investors also interested. But when an exit from property, suppose the market is occasion, there is only owner occupier interest, so those products are not sellable.

Parag Dixit

Yeah, yes, it's

Julius

purely investigated product where okay, you bought it for a higher price. Yeah. In that suburb, where you're buying the dual key properties, they will be around 100, 150,000 above median prices. Yeah. So when you say actually you want to make a capital growth, you want to exit that product. You can't achieve that price.

Parag Dixit

You can't achieve that. Now two things which which I've understood from you. Now when you're looking at a dual key kind of property. A title structure is an important one because, like you rightly said, this is still one property. And I've and I've understood. So, like for example, if it was a house and a granny or a duplex, you still have x number A and x number B or x number and x number A. So, if even if a simple thing as a postman would come, he would have two post boxes to put the letters in. But in this, it's just one. There is no separate address. You can't have a separate address. You don't have actually a separate meter. So it will come into the one post box. And if I don't like you, I don't give it to you. Or maybe I don't. I don't want to say it like this. But it's it's like it's one place, so you have to do your manual collection. It's it's manual stuff. Insurance becomes a bit critical, typical because insurer may insure it like one house, but it's actually two houses. And if somebody does something mischievous, I don't know how you're going to claim it, or all of that bit comes in. But very important, like you rightly said, if I want to sell it, I'm mostly going to sell only to an investor. There is very rare chance I'll be able to sell it to an owner occupier, or if I'm selling to an owner occupier, he's not going to pay or she's not going to pay higher money just because you've divided two walls, and she's going to say, "I want a five-bedroom house. I don't really need it, and so I'm not going to pay higher money. So your capital growth is gone. Or if a second investor is going to come in, then I am again into a different kind of a mindset. I really don't want to get into a property like that, and that's why dual key. When they there was a point I'm when I'm and I don't remember exactly. There's a point where a lot of suburbs in Queensland then they started saying that okay, we are not going to allow more dual key property. Needs to be sold there, and they started saying that okay, this the population density has gone up. You know, the this this is this stress on the resources on the same street. If they're dual key, then the garage is still one car. Then you have two cars being parked in the street or three cars being parked in the street, and it's clogging the streets, and it's doing a lot of damage in terms of how people are living in, and it stresses out the neighborhood, and it stresses out the way people are living in. But this is this is different from when you get into duplexes, right? I've seen duplexes or dual incomes will have two separate garages for everyone, so people live pretty much independently, right? Yeah, in that structure.

Julius

Yeah. So duplexes are mostly built on larger frontages or the corner blocks, where okay, it's actually two houses. Only thing is basically our shared roof and common wall. But duplexes are treated as independent houses. So, when somebody tells me I'm buying duplex or dual occupancy, what should I actually be asking?

Parag Dixit

Yeah, yeah, yeah. That's

Julius

a question.

Parag Dixit

That's a big question. That what exactly have you should be asking? That's a good question, then, Julius. That's rightly put it up. Because when I'm when I'm looking at buying a duplex, then what I will say is, you know, what has been actually approved? Is it a strata duplex or is it torrent's title duplex? Which means are they independent of each other, or there's a strata formed between just the two properties? Then then the two people who are living side by side have to contribute to the insurance together, share costs, all that stuff. So that's become important. Now, what's actually on the title? Can I separate them? Sometimes you know you can have strata title, but you can't separate and you can't sell them individually. You have to subdivide. Can this be subdivided or not? Have I got different electricity meters or not? Have I got you know two garages. That's fine. But if I've got two cars, can I park on the driveway? You park on the driveway. I park on the driveway, or we park on the street. So, what is what's the access and what's the parking arrangements are going to be? If I once I made the house, I made two two houses out of it. Now I'm saying I want to sell one. What's the comparable sale of that half portion? Sometimes one side, and we've seen that as well. There's some one side will be a four bedroom, two bathroom. The other side will be a three bedroom, one bathroom, or three bedroom, two bathroom. Now the comparable sales for a three two is not great. So eventually the total sale may or may not work out for you. Rents, it's same thing. How are the rents for these kind of properties in the market? Who's the eventual buyer when I am going to sell, is it and still an owner occupier product? Is it going to become an owner occupier product, or still an investment product? All of these become very critical when you want to understand different things. But there's a lot of good out there, right? And when you look at duplexes, yeah,

Julius

they are. So it depends on what kind it is. So for an example, if it's on the corner, and then if you have two separate accesses, then yes, most of the time they are subdivided already. And then you separate, you do have still have separate titles, very easy to sell. And then I've seen lot of duplexes in in in high density suburb or high demand suburb. Where okay, that duplex itself is more than two to $3 million, because then there is not lot lot of land, or there are lot of duplexes which I have seen is basically larger frontages fully subdivided.

Parag Dixit

Yeah,

Julius

if these are the cases, they are very good investment. Or probably you take big lot with a big frontage, divide both, and then keep one sell one, or keep one live in one, and then put one another one on the rental. So basically, lot of your mortgage will be covered by the rental income.

Speaker 1

Absolutely, and still

Julius

there is a privacy.

Parag Dixit

And still, there is a privacy. I think this is some of the one kind of best kind of product because here a lot of developers are also in this market. They will they will buy larger land in prestige areas, in high income areas, in high value areas, and they are able to make two beautiful houses out there. And they they actually have a great value in in in terms of what's happening there, and people would want want to buy something like that, invest into something like that, and they are they live into something like that as well. So when duplexes or dual incomes are but are pretty good, but they require a good amount of capital to construct. Yes, it's it's cheaper to construct a dual key. Pretty cheap to construct a dual key. Practically one house, but when you're getting into a good product like duplex, then you're looking at good cost, and then there's a lot of council approvals to come in through, lot of subdivision, lot of pre cost to to construction, and a lot of post cost of construction is also there for subdivision and for doing all of these things, right?

Julius

Because you're building two houses.

Parag Dixit

Yes, correct.

Julius

Two separate houses, just a single wall. You'll be saving on one wall and then shared roof. Basically, that's not much of saving, but that's why it's expensive to build. Yeah, and but there are good benefits as well.

Parag Dixit

Yeah, good benefits as well, and that's that's that's a good point. That's a good thing. Moving on, I just want to understand before we really get into a house in a granny kind of a scenario. There is so much when I read when I go onto the market and I want to buy a property. So many times I see this is the house, yeah, and it says STCA. Yeah, what do you see? Where do you see the red when you read the STCA?

Julius

Yeah, it's a common buzzword. To sell the property with the good land size for a lot of real estate agents, but actually most of the it's a trap. STCM is basically subject to council approval. So for an example, if I am selling a property, property will be either run down or probably very old. But if it has more than seven 800 square meter land, then most of the real estate agent will actually say, okay, basically it's HTCA. That means you can subdivide that land and save the additional parcel of the land.

Julius

That is, and then when you say subject to council approval, that will protect them from all the legal liabilities. But rather, there should be a huge due diligence checklist has to be followed.

Parag Dixit

Absolutely correct. No, no, I've, I've, I've had some funny ones. You know, large land, like you say, 700, 800 square meter land, and you say, oh, dual occupancy potential, or you can say, you know, we can get a granny flat potential, and and when you really do a map check, you will find that this this at the backyard, two meter inside, two meter inside from the fence, there's a large, you know, that's for for blast line going in, or you know, all all of these things going through, or there's a council restriction, a council easement out there. Nobody mentions that, you know, or you will say that there is that there's there's conditions out there which are there, the covenants out there on that property which are there which doesn't allow, or you say, okay, you can build a granny in the this thing, but the side driveway access through which you have to go to the back where you can build a granny. That's not wide enough for someone to go through.

Parag Dixit

And then what do you do there?

Julius

Yeah, correct. Because when you build granny on on a lot, where for an example, it's all about the frontage, right? So if you have more than around 17, 18 meter frontage, then you can easily carve out around three to four meter axis for the back development. But I've seen lot of properties where the frontage is around 12 to 13 meter. Yeah, the front of itself is around eight to nine meter. If even if you are 800 square meter, Lord, what are you going to do with

Parag Dixit

it? Yeah, what are you going to do? You

Julius

can't carve out any roads. You can't subdivide it. So basically, these are like these are like a trap. As a STCA is a big trap where okay, you really need to have that kind of due diligence has to be applied. So

Parag Dixit

can you just tell us two or three key due diligence things which you can look at when you're looking at an STCA ad on a paper? Obviously, a lot of them are not trying to make they're not trying to be dodgy. They just but what should you look at when you're reading these things?

Julius

Okay, so first of all, council zoning,

Parag Dixit

yeah,

Julius

and density. So for an example, I'll put it in this way. So in Perth, for an example, if you have 700 square meter land, yeah, if your zoning is around R 17.5, yeah, which is changing now. But for an this is just for an example, you can't do much. So you can't subdivide. Even though you have 700 square meter lot, you can't subdivide. Zoning is very important. So your zoning has to be from R 2030, and 1416, and above. Yeah, that is number one. Number two is basically if you want to subdivision, if you want to do subdivision of that particular property of the land, then yes, when you subdivide, you're gonna do the battle ax because you're gonna create the handle and then you put the another block at the block back, where you have to see where the easements.

Parag Dixit

Yeah,

Julius

the easements can can be at the fence, which is your sewer east wind, or probably it can be little further, your stormwater or the drainage is wind. Then you can't build anything on that. Third thing is whether you have a side bins or not.

Parag Dixit

Yeah, yeah.

Julius

So because if with each easement you need to maintain at least two meters of a gap where you can't build anything, or else you have to encapsulate it. So easements are very important. Third thing is basically street frontages. So if suppose if frontage is not more than 1718, meter, then probably if it is around 20 to two to 24 meter, then probably you can have two straight, lot of 212 meterage. We can have good houses of around you know double garage houses, but if the frontage is around 1415 meter, then front you can retain a first home and then you can still build another at the back, but that is called battlex. Yeah. But when you sell it individually, the battle ax will always retain less value.

Parag Dixit

100% 100% right, 100% right. And I've seen that. In fact, a lot of councils now you nicely put it across, Julius. A lot of councils also have restrictions. If you've got a 15 or a 14 or whatever that council says, then you can't subdivide. You can't make two. You, if you're going to make a garage or and pass through through a garage, you need to have space out there. And then sometimes you know you will have a large land, but the land at the back has some overlays. You know the bushfire overlays, or they can always have too much of a slope out there, or you may have flood overlay out in some part of the house. It's there, and you can't do much there. Yeah,

Julius

correct. Shape of the land is very important as well. Like you have 900 square meter land on the cultic sac. Yeah, where front is very small, and then it's triangle, not useful. For an example here, five meter fall. You need lot of retaining walls. Not useful.

Parag Dixit

Yeah, yeah.

Julius

So like, there's lot of due diligence required. A lot of

Parag Dixit

due diligence required. It's just by reading and some. It's very. It's natural for us to when we are not so well versed with what's happening with in the construction terms and all of these terms. It's pretty attractive. Okay. Large land, 800, 900 square meter of land, and you read, and then the it's a subject to council approval. And if you hire, sometimes you do settlement through settlement agents or through conveyances. They are not, they they don't have the legal knowledge, and they don't require to get into all that kind of due diligence. You don't really talk to an architect, you don't talk to a builder, so you don't really get into what it's happening, and that's where you there is a problem which which which happens. And so many times when the invest start getting wrong, they they so many times they just they just mess it up. And they one of the simple ways I can tell you they mess it up is when you've got a nice house, okay, and you it's the area which is an owner occupier area, and you convert the owner-occupier product to an investor product as soon as you make a granny,

Julius

yeah,

Parag Dixit

or you somehow make it a dual-key property in a nice suburb which is a 70-80% owner-occupied suburb. Then you've messed it up. You've really spoiled the property because in that suburb, owner-occupiers want to live there, and you will find that as soon as you make your product and invest a great product, then the you have to start discounting to sell. You will not achieve the price that street commands because traditionally good families they will not want to share a house with a with with any other family. They will always want to share a house with someone who would always, you know, they want to have their privacy. They want to enjoy themselves. They don't want any other issues to come through when they are looking at a when you're looking at these kind of scenarios, right?

Julius

Yeah, that's correct. Because for for an example, what I've seen is when we say house and granny as a sellable product, rather than investors, if you attract owner occupiers in a particular suburb, then that suburb profile has to be like okay, it's a mid socio economic suburb where okay owner occupier will will get some rental from the granny and it will help them to support the mortgages. But for an example, if suburb like Belavista, if you're looking for house and granny, that house not sellable at all.

Parag Dixit

That house is not sellable at all. You'll have tenant issues coming in between two tenants, as I was just explaining a while ago. We can have vacancy issues which come in there because one tenant is sick of the other one, or the other tenant is not taking out the rubbish bin, and this is not doing that, and that is not doing this. And you have fights, you have disputes, you have issues, and investors don't really understand all of these things. So, if you're looking at setting up some some any kind of a granny or a dual key kind of a property, you really really you really kind of you get into situation or get into a product which is not fit, and that's a big big big issue when you're looking at getting into any of these three. When you're looking at obviously, if you're looking at subdividing, it's completely different product altogether. A dual key, duplex product, sorry, is a very different product altogether. You knock down the old house most of the times. You will build two beautiful houses, very different. But if you're retailing the front house and building something at the back, then you are getting into a similar situation as a house and a granny, maybe you are able to sell the previous, the back one or the front one separately. But if you are not, then it's a house and a granny, and a house and granny, you need to really know what you're doing. But when you look at, when you want to understand why we should make all these, there would be a reason why, right? When do these products really, really fit. So let's say let's say a house, a house and a granny, a granny flat. Yeah. When does it make sense to set up a granny flat in the property?

Julius

Okay. So first of all, we when when you look for more granny means we are adding additional house. Yeah. There should be demand for it. Yeah. That is number one. Yeah. So when you are building something or adding additional dwelling in area where there is absolutely high demand with lower supply, like close to hospitals, universities, or transport hubs.

Parag Dixit

Yeah,

Julius

that's the places where okay, you build a granny flat with on your land, and then you'll always have a tenant. The vacancy has no issues. But for an example, you build a granny flat in Melbourne, where 500 more houses available for the rental, that granny flat will be empty because that's just an additional house with the higher vacancy rent. Yeah, so that's what that's where that's where it is suited for. But but when you look for but when you build granny, it comes up with some penalties as well. Like you have a narrow driveway, so basically that guy can't park the car over there, and then you can't attract the good families in that. So basically, both the tenant has to be adjusted with each other, and then you are gonna lose your back at space as well.

Parag Dixit

Yeah, correct. Yeah, yeah, you lose out on that. You you give up a lot when you're making a house on a granny. But again, like you rightly said, if I'm looking at a large block, and if I think that okay, I it's close to somewhere where people really need to stay, and they're close to like you said, hospitals, universities. You're close to place of work where there's a lot of people are working there. Then it makes sense. Okay, people will say okay, I'll give up on something, but I'll be close to where I'm working. So my work to house space. Time is not too much, so I'll go there. But that's good, good fit for a granny to come in. So, what's a good fit for a say a duplex or a dual income property, dual occupancy property?

Julius

Dual occupancies are for an experienced developer. So, like okay, for an example, I'm getting a very good block with two state frontages, and where I know that if I build something as duplex, then I can make X amount of money. That means you need to have that land place where you are buying it cheap. Then you need to know exactly how much you're gonna spend. Yeah. And if you are a developer, that means where you can save money in development. And at the same time, the market has to be pretty good as well. So basically, when you build two both the dwellings because your intention is to sell. If you want to sell that during that time, you have to make some margin. So it's very suited for the good developers who have that experience of building the duplexes. But penalties are like they are very costly to build.

Parag Dixit

Yeah,

Julius

and then you need to go with council. Lot of logistics issues as well.

Parag Dixit

Lot of logics issue there. That's true. That's true. Okay, the dual key. We've spoken about dual key a bit at length. So when when do dual key fit? So why why will I build a dual key property?

Julius

So dual keys are like okay. If the cash flow is only the concern, then probably a lot of people are trying to get into the dual key properties. Rather than that, I don't see any other base suit for the dual key at this stage, but these are just a cash flow product. Just a cash flow product, but offsites are basically they will be outside or somewhere in the fringe areas where there are a lot of home and land packages.

Parag Dixit

Yeah, yeah. That's

Julius

where you see all the dual key options because they are the developer's product.

Parag Dixit

They are the developer product. They are investigate product. Maybe yeah, it they'll be on the outside fringe areas where you know that it's maybe maybe you have where there are a lot of blue collared working environments are there, or there's a lot of high high high density of people with lower socio economy. Then that's where it can be there. So that's these are the kind of areas. But again, like you rightly say, pure investor product, there is very very unlikely that there is an owner occupier product that is going to come in. Okay, another question which always pops up in my mind, Julius. Okay, now when when I'm buying it, when I'm looking to get into a in any of these products, double income products. Now, how does it make sense to buy an existing one, or a lot of people will always think about: Should I buy a house and then construct a granny at the back, or or then you can't make a dual key like that? But at least a house and a granny always comes in as a pops up in our mind. Okay, should I buy something which is already there, a house and a granny, and just buy? I don't going to get into headache of constructing. Or okay, buy one.

Julius

So both the options are viable. It depends on how individual takes it and then do the due diligence. So number one, for an example, if I'm buying a one property in a suburb where okay the property prices are around $600,000, what I've seen is when it comes to housing and granny, right? A lot of investors are paying a premium for that property, but what we need to understand is basically when you're buying a normal house with 800 square meter lot for $600,000 for a house and granny, if you're paying the $300,000 by because it's already been built, then that whether that granny will cost you $300,000 to build or not, that means you are overpaying for that asset. That is, you are getting two tenancies. You are getting existing property. So always we need to understand. Okay, do you really need to spend $300,000 to build a granny? No. In that case, it's better to buy a good property and then plan for a granny later.

Julius

But when you say okay, you are planning for that granny flat later, then there will be another type of due diligence. Okay, they need to find out. Okay, how much I am paying now? I will say if I want to go with the council, how much I have to pay when I am doing assessment for my land, whether granny is even possible. So before that, I have to engage my surveyor to understand. I have to pay him. I need to find. I have to find out all the feasibility studies to understand. Then I have to look for the granny flat builder. I have to start that work. Construction cost delays probably have a variation in the cost. So there are so many things. So in a case, if suppose if I am buying something with the granny, then I have to compare the cost. Okay, if I want to build a granny, whether it is $300,000 or the current granny flat cost is around $200,000, if I'm getting a similar price, get into it. Yeah. Or buy first property cheaper and build a granny at later with all these tutelages.

Parag Dixit

Yeah, absolutely correct. No, this is this is a good way of putting across when should I buy and when should I really just construct it. But sometimes you know the maths. Sometimes the maths may or may not work out, or may we have to really look at the maths in a wholesome way when I'm looking at buying versus building. You know, so for example, if I'm looking at putting 100, 100, $200,000 extra over and above my purchase price, and it's nothing. 150, 200k is pretty much normal when you're looking at a granny flat kind of stuff. If I'm saying, okay, my house was getting. A 650 kind of a rent for say a 750 kind of a 700 kind of a property. Now, if I purchase for a 900,000 the same thing which is already constructed and the rent is getting 300 bucks more, say about 900 950 from there, it looks very nice, right? Yeah. But it it it's just just the rent is not something which I am doing. The maths doesn't work out if I only looking at the rent, and that's not the right maths to look at. Right maths would be when I look at what kind of a premium I have paid there, what kind of an extra stamp duty I have paid onto that, what kind of a maintenance cost I am going to have, which is I am going to incur from there. Capital growth. Where is my capital growth going to go? And I'm going. I'm going to come back to capital growth in a bit about there, the most important bit is when I am looking at my entire picture. When I say okay, just the gross yield, the net gross yield, which is looking very nice, I have to look at the net yield as well because net yield will involve now two incomes, but two property management fees will have two utility bills, maybe rates. My my rates go up. Council picks up the rates, and maybe my land value goes up. If I've got both of them as investments, then I have to start paying a higher land rate on that. There will be more wear and tear. There will be more maintenance costs. There will be things like you know, you have two water systems. You have two two stuffs, two things which can get into a problem. You will have to have two sets of. You need to register with council. You have to have two sets of things as bins. You can. You have all of these come in, and sometimes you find that your net yields are going much lower than what you had thought through, and they don't really take you where they are going to take you. So it has to be. We have to really understand that if I'm spending say $200,000 on a creating a granny, and I am thinking that my value has gone up, but it actually caps my land's utility because in a house, and I've I have never in in maybe last 10 years, I have never ever discussed with any client a scenario where they would have come back and said, "I've got a house and a granny, and I'm going to knock it down and build a bigger house, or I'm going to knock it down and make a duplex out there. It's it's extremely rare and traditional. Technically, you find that the front house, which the main house, is older, so that will be say 2030 year old, and now the granny which has been built is younger, which is maybe just built in. So it's got another 20 years ahead of you, but the main house doesn't have another 20 years ahead of them. So you have to then substantially renovate the main house as well. So you kind of always catching up, and that that really starts hurting you because this one you can say depreciate this one. You cannot depreciate. Eventually, I start thinking: Have I created a monster in front of me? Have I, with this higher yield, which is which maybe not great in net yields, but let's assume it is with the higher gross yield. Have I really hurt my capital growth.