How to Double Your Rental Yield

Cherie Barber
May 25, 2018
1 Comment

Dreaming of a dual income property?

You’re not alone! Whether it’s a duplex, granny flat, or dual occupancy new build, having two income streams is a fast way to pay down debt and get to that all-important goal of owning your property outright for a passive income, when you need it later in life.

When I saw this simple red brick family home on a large lot in Sydney’s Western Suburbs 2 years ago, I knew there was great potential for a renovation. I also knew that if I could turn that backyard into a money maker with a granny flat development, I’d be in a cash flow positive position.

A granny flat strategy is not about increasing the value of your property. Due to the high costs associated with building one (from $100K – $150K), you’ll likely break even on the property value front, but it is one of the best strategies to rapidly ramp up your return, or create instant passive income.

So if you’re sick of shelling out on mortgage payments and outgoings and want a passive income from your own home, or you want to turn your investment from negative cash flow – to cash in your pocket every month, check out what I’ve achieved in this project completed in December 2017.

SCOPE OF WORKS

Demolition of old kitchen & installation of a brand new kitchen
Install brand new laundry in its entirety
Cosmetic refurbishment of the existing bathroom
Install new waterproof laminate floorboards
Cement rendering of the whole house
Internal & external painting
Install new lighting throughout including updating all electricals & circuits
Install new window furnishings throughout
Landscaping of front & back yards (new plants, turf, paths, tiling of front & rear porches, fencing, driveways & letterboxes, new drainage throughout)
Installation of new granny flat in the rear backyard of the property

HOUSE RENOVATION & GRANNY FLAT CONSTRUCTION

Property Value (Before Renovation): $630,000.00

Renovation Spend Total: $67,500.00

Renovation Timeframe: 10 days (front house)

Granny Flat Spend: $150,000.00

Property Breakeven Point: $847,500.00

Property Value (On Completion): $835,000.00

Note: On paper here I’ve incurred a slight loss. And my experience tells me that granny flats don’t immediately uplift your property value to the degree that you cover all development costs immediately unless you formally subdivide your block into two lots (which is not possible to do on most average suburban lots).

This is a ‘buy and hold’ strategy for me, and so my goal was not to make a development profit but to substantially increase the property rental returns to make the property cash flow positive. It’s a great little earner in my portfolio now, and I can hold it long-term capital growth without having to shell out on mortgage and holding costs month to month.