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  1. #1

    Default Buying more expensive house with separate granny as opposed to mediocre house without

    The houses in the $400,000 to $500,000 range in the area I am looking at in (Papamoa, Tauranga) are pretty grim.

    I have an opportunity to buy a high spec property for $735,000 which has a granny flat attached with kitchen, laundry, bathroom, garage and sep power (thru meter), consented (seen this consent from Council) in a nicer suburb. Got approval for loan.

    Now the calcs.

    I have $300,000 deposit. If I bought say a $500,000 house then mortgage would be $200,000. I don't want a mortgage for longer than 20 years from this year (paid off 2037 at the latest).

    If I bought $735,000 house, mortgage would be $435,000 which is very scary for me! Income from flat would be $310pw. I have placed it in middle of real estate estimation.

    Is it worth it as a single person to then take an extra $310 coming in per week to pay the extra $235,000 debt I would be taking on?

    Does that make financial sense to go that way? Yes I know the flat may not be tenanted all the time but at this time rentals are very much in demand. If it really became financially hard for me I would move into the granny and rent the house.

  2. #2

    Default

    My reality check is always as follow, if I don't have rental coming in, would i be able to afford all of the expenses myself? If yes, then you can consider your personal circumstances.

    In general I would say better area will increase it's value faster than not so good area. And during down turn, better area is holding it's price better than the not so good area.

    In the end it's depends on your personal circumstances, whats your future goal, and importantly enough cash in the bank to hanging on in a worst case scenario (no job, no tenant)

  3. #3

    Default

    "In general I would say better area will increase it's value faster than not so good area. And during down turn, better area is holding it's price better than the not so good area." - Yes, I agree 100%. Also there are more tenants and tenants are better eg. professionals.

    "Yes I know the flat may not be tenanted all the time but at this time rentals are very much in demand. If it really became financially hard for me I would move into the granny and rent the house." - You basically answered your question.

    Cheaper houses in lower socio-demographic areas are cheaper but capital growth is lower and tenants you will have mostly beneficiaries or pensioners who cannot afford higher rent. More expensive houses in good areas are indeed expensive but are better in the long run for both owner occupied and rental purposes.

    That is what I understood from my own experience and heard from others too.

  4. #4
    Join Date
    Mar 2009
    Posts
    155

    Default

    For me the numbers stack towards the larger house.

    Interest on smaller house : $200x 5% = 10k
    Interest on larger house : $435k x 5% = $22k
    Income on larger house flat : $16k
    Interest you will be paying for your house : $22k-$16k = $6k

    Also I ve found coucil rates are much cheaper for home and income rather 2 houses. You are winning there too.

    If things didn't work out as you planned (say loss of job), you could always moved to the flat and the rent from main house will cover the mortgage.

  5. #5
    Join Date
    Oct 2008
    Location
    Auckland/Melbourne/ whereever the money is
    Posts
    1,402

    Default

    also remember that the banks will use 7.5% to calculate your potential interest and only allow 70% of the rent to be considered as income, so while the deal with the granny flat looks better for you, it may depend what your current income is as to whether the bank will finance it.


 

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