Granny Flat Finance: An Alternative View – Product First
Granny Flat Finance – Product First
It is not uncommon for investors to get seduced by the idea of speed when it comes to minor dwellings. Sure, construction time frames are fast. Some companies able to achieve a finished home in twelves 12 weeks. They calculate this time from the time of “breaking ground” to the time of “handover”.
In addition, granny flats are complying developments. This means that approval times are low, basically as low as they get in the world or property development. So what is the catch? As someone who deals with granny flat finance on almost a daily basis I think the catch is product.
Should I be Considering a Granny Flat in the First Place?
Is there a flaw in the process of how we decide if a granny flat should be built? Consider the following scenario. You have a large back yard which in your opinion would fit a granny flat. You go online and based on the measurements of your site, setbacks and access you decide that a granny flat is a great idea. Out comes the local directory search and away you go. Within days you have a host of appointments from qualified companies who are ready to construct your dream.
You speak to a mortgage broker and it looks like getting the cash should not be a problem so all you have left to do it select your builder. As this stage I think it is important to offer an alternative view. If this were how easy it is then in the world or property development there would be no such thing as a vacant site or vacant block of land. Let me explain this further. When deciding if a property development should go ahead often the actual site it is done on is secondary to many other considerations.
Experienced developers know their costs almost down to the nearest dollar. It is what they do every day and most who are actively building could tell you the cost to add an ensuite or a third toilet to a dwelling without even consulting their designer. They could tell you the cost of increasing a dwelling by 5 square meters and also the savings if any by decreasing the size of a dwelling by the same amount. Suffice to say costs are not an issue for people in the know. In addition finance will be readily available for the right projects lead by experienced teams.
So if it is not the availability of sites, the build cost or the number of lenders willing to offer finance what criteria do developers use to determine if they should be involved in the project. The answer is demand. When we say this we are not referring to demand for housing in general. This is not it at all.
What we are referring to is demand for a particular type of housing. Property developers have their finger on the pulse. They understand what the market has a shortage of, what is selling the fastest and which properties are sticky (not hitting the resale market too soon). However, it is not enough to know or think you know.
When it comes to deciding whether or not to begin construction developers test their knowledge through consultation with sales agents, town planners and real estate marketing professional. They are constantly asking the question, “Are we building the correct product for this market and what is the demand for it at our cost price plus our required profit margin?”
Granny Flats and Product Demand
As you can see from the above argument what we are trying to convey is that granny flat projects are actually property developments. Even though you will be building both dwellings on the same site and you will not be applying for strata titles you are technically developing your site. When you build your granny flat you are a property developer on a micro scale. Given that is what you are doing then it makes sense that you apply similar metrics to your decision making process.
As brokers when it comes to granny flats finance we are not in the game of telling you whether you should or not proceed with your project. Our job is simply to show you how the numbers work and what your options are. However, what we see is that the people who have the most success apply a disciplined approach to their new micro property development. In the next post we will expand further on granny flat finance and due diligence including the steps successful people take to make sure they get it right.