Monthly Archives: May 2016
You may be one of many around the world who are considering buying a property with a home and income or granny flat.
If so, it could be for a host of purposes, and despite the name, it could be for a reason other than accommodating an elderly parent. You may have one or more “boomerang children” in tow – adult children who have returned temporarily to enjoy the multiple benefits of living at home. Or, you may be seeking additional income from renting your granny flat or need an office for your home business. Whatever your reason, the advantages of owning a property with a second living space on the same block of land are obvious and many.
With residential space in cities becoming rarer and properties owners looking for creative ways to maximise their income, granny flats are becoming the new black in real estate. Granny flats can either be attached or unattached to the main residence, but in all cases, smaller. They are often self-contained with kitchen, bathroom and living areas. In many countries – if the self contained unit is bigger than 60 square metres they cease to be a granny flat, and are then classified as another primary dwelling. Buyers need to be aware that when it comes to granny flats (or secondary dwellings as they are commonly called in the legal sense), there are different laws for each country and local councils applying to their building and renting. Different laws apply to the size of a block of land where a secondary dwelling can be built, the type of access, and in some cases, even the legality of collecting rent. So when buying a property with a granny flat, besides familiarising yourself with the appropriate laws at a local level, your first priority should be finding out if the dwelling is legal with all appropriate compliance paperwork in place. Should I buy a house with a granny flat? So what are the benefits and risks of buying a property with a granny flat?
The benefits of a Home and Income
Accommodating family members There is no doubt that part of the reason behind the exploding popularity of granny flats is the win-win solutions they provide for extended families. An elderly parent can live affordably onsite, while fulfilling the role of a handy babysitter. By paying mates-rates rent, an adult child can quickly save up for a deposit for their own house or an overseas odyssey. Extra rental income With new accommodation websites such as Airbnb or flatmates.com the possibilities of marketing an additional living space are now limitless. Granny flats can become handy earners.
Spreading your risk If you have only one investment property, an extended vacancy can be cruel, but with the addition of a granny flat, you immediately have another rental income. The likelihood of two vacancies at the same time is highly unlikely. More tax depreciation If the granny flat is new, and is being rented, then the owner has the opportunity to claim depreciation. Before making a decision based on depreciation, you should first talk with a professional who can advise you on depreciation schedules.
The risks involved with a Home and Income or Granny Flat
Increased property management costs An extra dwelling brings extra responsibilities and maintenance costs, particularly if there’s plumbing. It may be vacant The original purpose for your buying a property with a granny flat may change. The boomerang child may move out or you may no longer need a home office. If the granny flat is vacant for an extended period, maintenance will still be needed. Often, a vacant dwelling deteriorates more quickly than one that is occupied, and the last thing you need is a backyard eyesore. You may reduce your rental market or resale potential
When it comes to reselling, the presence of a granny flat will reduce the size of your pool of potential buyers, and therefore may lead to a lower price than otherwise possible in a tight market. Subdividing possibility on a bigger block, the granny flat could effectively stop you from subdividing into two titles.
Granny flats have outgrown their name. Multipurpose, adaptable, young and hip, these little dwellings can add a valuable punch to any property if handled wisely.
In order to have yourself prepared for auction day Harcourts New Zealand CEO, Chris Kennedy believes there are three types of figures to consider before the day:
- Your happy price – The figure you’d be very happy to accept.
- Your ok price – The figure you’d be ok with based on the feedback you’ve received, you don’t see a win but you don’t see a loss.
- Your grumpy figure – This last figure is basically the one you wouldn’t be thrilled with, but given market conditions, you’re prepared to unhappily sell at that price.
Remember, at all times during an auction, you’re in control. If a bid is high enough take it. If not, don’t. But the reason for not taking the offer needs to be greater than the reason the home is on the market in the first place.
What happens when the property sells at auction?
After the sale, it’s time to focus on the buyer. Your auctioneer should take them aside to start looking at the paperwork and get the contract signed straight-away. It’s also time to look at how the deposit is going to be paid. As the current owner, you’ll then sign the paperwork, and the sale has concluded.
What if no one registers for/turns up to the auction?
Harcourts Auctioneer, Andrew North says, in reality, this isn’t something that happens very often. It varies from country to country, but in Australia and New Zealand, an auction requires a minimum of six people to attend for an auction to legally be called.
What if nobody bids at auction?
It’s understandable that buyers might be nervous during the excitement and pressure of an auction. This is why, it’s not uncommon for an auctioneer to be met with silence when asking for an opening bid. Most people are waiting to see what others at the auction might bid. So to get the auction rolling, the auctioneer will nominate a starting bid – this is called a vendor bid, it basically indicates what price a seller is not prepared to sell for.
What if the reserve price is not reached?
In this event, your auctioneer can pause the auction and come and speak to you, the seller. They will go back to the current highest bidder, and ask if they’re prepared to increase their offer to a price at which you’re prepared to sell. If the bidder is not prepared to do that, your auctioneer will then see if you’re prepared to lower your reserve price. That’s why it’s important for you to have a price in mind that whilst you wouldn’t be entirely happy with, you are prepared to sell at. If neither of these scenarios happen, then a sale cannot occur, and your home will be, what is called ‘passed in’.
If your home has been passed in at auction because the bidding hasn’t reached your reserve price, there is no need to panic – 90 percent of the time, your property will sell within hours of the auction!
It is generally fairly easy to negotiate your way to a sale either on the day of the auction or shortly afterwards, and your Harcourts agent will usually manage the negotiation process for you!
When a property fails to sell at auction, nine out of 10 times it is sold within half an hour to the buyers who have made the highest bid. Your agent should negotiate the sale with the highest bidder until a mutually agreeable price is reached. If a mutually agreeable price cannot be reached or if the bidding was low during the auction, it may be a sign that your property is priced too high.
However if the price of the property is reasonable and it still didn’t sell on auction day, your agent will generally receive a significant amount of follow-up calls and requests for inspections early in the following week. Although you didn’t receive any worthy bids at the auction, you may receive multiple offers in the days after the auction and could end up with a significantly higher sale price than you originally expected!
Of course there are times when the market is flat and buyers aren’t out in full force, but generally if your property is priced fairly and there are buyers out there, your property will sell at auction or very soon after.
Just be calm, patient and, most importantly, relax.
Adrian McFedries has been appointed Chief Strategy Officer for Harcourts International.
It’s a role he takes over from Gilbert Enoka, who has left to work full time as All Blacks Manager – Leadership.
Born in Christchurch, New Zealand – Mr McFedries says he grew up with “all things blue” as Harcourts is the largest and most popular real estate group operating in the city.
His new role as Chief Strategy Officer means he will be part of the drive to further Harcourts’ global expansion and focus on growth and support for the existing Harcourts markets.
The real estate group, which was founded in Wellington in 1888, is now operating in ten countries: New Zealand, Australia, Fiji, South Africa, Indonesia, China/ Hong Kong, the United States, Canada, the United Arab Emirates.
Mr McFedries brings a wealth of experience to the role. He most recently invested in, and worked as Managing Director of Jetts Fitness and was instrumental in overseeing the transition of the company from fast-start Australian company to a successful international fitness chain operating in five countries and growing.
He has also been an active investor, board member and advisor to many leading brands, including Flight Centre, Pandora Jewellery, Eagle Boys, Grill’d, OPSM, BUPA, ANZ, Telstra and Hoyts.
This leadership and vision saw him be invited to join the Harcourts International Board seven years ago, a position he has held ever since.
Managing Director of Harcourts International, Mike Green, says that as Harcourts continues to expand in both existing and new markets, the appointment of Mr McFedries will ensure current initiatives around the Harcourts brand, technology, operations and systems will continue to support the wider team around the globe.
“There is no doubt that Adrian has been an important and valued influence as a Board Member for Harcourts International for the last several years, and we as a leadership team are very excited to welcome Adrian into this pivotal leadership role,” Mr Green says.
“It’s not every day that you can appoint a key member to your leadership team who is already familiar with your values, systems and the “Harcourts way” of doing business, and we are excited about the future, and continuing to deliver exceptional customer service.”
Mr McFedries has a proven track record of leading rapid, profitable growth, and more often than not “changing the game” in industries, particularly for internationally distributed networks.
“My focus in this role with Harcourts International will be on our group strategy, its relevance to our clients, their changing behaviours and how our office owners, sales agents and teams remain the market leaders for results and client connection,” Mr McFedries says.
“On the world stage, Harcourts is an exceptional business and is on the cusp of moving into its next stage of growth internationally as it reaches beyond 10 countries with a disciplined focus.
“The more I’m in business the more you realise it’s all about people, and after seven years on the Harcourts Board, I’m a big believer in all things Harcourts – its values, its culture and its way of doing business – and genuinely enjoy the people.
“I love franchising and the challenge of growth, even more so if the company was founded in my native New Zealand, so I look forward to working with the broader team in this new journey.”
So how often should you inspect investment property? To ensure your investment property retains its value and marketability, you need to make sure your tenants are fulfilling their end of the bargain and looking after your property. On the flipside, you also have obligations when it comes to upkeep of the property.
There are no guarantees. A tenant with the best references, and who appears to tick all the boxes, can still damage a house or apartment, and cost you the landlord thousands of dollars.
Through neglect a garden can die or a lawn can become overgrown. By accident an oven can be caked for weeks with the remnants of an exploding one-pot wonder, or a pet may be leaving hair and odour in your pet-free unit.
Prevention over cure
When it comes to prevention over cure, there is no substitute for making regular property inspections.
Inspections can sometimes become a point of contention between landlords and tenants. Some tenants see them as an intrusion of their privacy, or feel that inspections are unnecessary.
While landlords cannot control the attitude of tenants to inspections, you can conduct inspections in such a manner so they are more likely to be welcomed.
Remind tenants that inspections are mutually beneficial, presenting landlords and tenants an opportunity to discuss ongoing maintenance issues, or other matters relating to the property. Giving tenants ample notice before an inspection will also build goodwill.
An experienced property manager will know how to conduct an inspection quickly, and with as little intrusion as possible. They will also be systematic in capturing evidence and details of any damage or maintenance that needs attention, and then report back with accuracy.
A five-minute inspection by an experienced property manager can often avert major expenses down the track.
Property inspections should be conducted as regularly as allowed under legislation, and be aware that each state is different – see table below:
DIY or property manager
If you own an investment property a few hours travel (or more) from where you live, you can claim travel expenses as a tax deduction. You are allowed a full deduction where the sole purpose of the trip relates to the rental property, however, in other circumstances you may be able to claim a partial deduction. If you wish to claim tax deductions for the inspection your own investment property, ask your accountant for more information.
The most comprehensive property inspection is only as good as the action that follows
That’s where engaging a local property manager, who has ready access to tried-and-tested tradesman ready to respond, presents a more convenient option.
If you inspect your own property, and do not have these qualified, verified, local contacts, you will probably cost yourself more money in the long run. Also, let’s face it, inspecting a tenant’s property is an uncomfortable experience for everyone – everyone except a specialist property manager who does so every week.
* In Victoria, a landlord can enter a property within 24 hours’ notice if they provide a written application, state the reason for entry and either post or personally deliver the application (allowing two days for postal delivery).
* In New Zealand, a landlord can enter a property within 48 hours’ notice if they provide a written application, state the reason for entry and either post or personally deliver the application (allowing two days for postal delivery). They can also inspect the property as regularly as every four weeks should there be reasons for concern.