May 24, 2019: Public Meeting in Bowral on Friday 31st of May

With apologies to our readers who don’t live in the Southern Highlands, I need to write a bit more about our local council’s proposal to take a lot of money from the Environment Levy and give it to a proposed Regional Art Gallery.

The Environment Levy is something that is charged to all ratepayers in Wingecarribee Shire with the express intention that the money ‘will only be used for environmental works which are additional to Council’s statutory environmental obligations’.

There seems to be a lot of room for interpretation as to exactly what Council’s ‘statutory environmental obligations’ might be but one thing is certain… an art gallery is not an environmental work in any way, shape or form.

So What Do We Do About It?

  1. Sign the petition that is currently being circulated and encourage your associates to do the same. You can click here to download a copy of the petition, get as many concerned citizens to sign it as possible and bring it to the public meeting on Friday (see below).
  2. Make a submission in response to Council’s call for public comments on their Draft Operational Plan and Budget 2019-20 stating that you object to Environment Levy funds being used for anything other than suitable environmental works. Submissions are due by Monday the 27th of May. Click here to access Council’s web-page with information on how to make a submission
  3. Come along and bring your friends to a public meeting to be held at Bowral Memorial Hall on Friday, 31st of May at 6:00pm.

Below is some more information provided by Clive West who is spearheading this community effort to make sure that our Environment Levy is used for environmental works now and in the future.

Friday 31 May is when we’ve booked the Bowral Memorial Hall for our second public meeting on the issue of the use of the Environment Levy funds to pay for the operation of the regional gallery.  This time we have more time to let people know, so please circulate this widely.  Southern Highlands News has been notified and requested to publicise it.

It’s a big hall and we need to fill it !

The petitions can be returned to me at the pubic meeting next Friday, or dropped off at the Berrima Post Office (our postmistress, Bronwyn, is aware of the petition and supports it)

Thanks for supporting this effort and I hope to see you at the meeting on Friday.

Andy

April 26, 2019: Reader Feedback on Granny Flat Economics

Boredom Warning: anyone who does not have a financial interest in real estate may find the following incredibly boring!

In our last Newsletter, I wrote a short article about the financial benefits of Granny Flats versus Single-family houses.

In response I received the following feedback from a reader named Trevor:

‘Reading this article I realise you have not sought financial advice. Your example of the house in Russel Island does not take into account a depreciation schedule which depreciates the building costs each year on your tax and also all the interest on the home loan can be offset against your income. These things along with all costs associated with the property would make the property negatively geared (probably around $20000) and result in a very large tax refund.This would make the overall property returns much higher than you quoted. This would also apply to the granny flat if it was rented. With the right financial advice rental properties can be a great investment and completely cost neutral to the owner with the use of gearing.’

Trevor makes some good points about depreciation and negative gearing that are well worth considering depending on your own goals and financial situation. However, in my own defence, he is incorrect in saying that I have not sought financial advice. I have, but I readily admit that I am no financial expert and I am keen to learn more about the ins and outs of property investment.

Regarding depreciation… as I understand it (and I invite Trevor or any reader to correct me if I’m wrong here), depreciation can be used to increase the amount of deductions an investor can claim against rental income, thereby reducing the short-term profit (and the taxable income) from an investment property. However it will also reduce the Cost Base of the property which means the investor will have to pay more in Capital Gains Tax (CGT) if and when they sell the property.

Since the CGT payable is reduced by 50% if you have owned a property for more than 12 months, you’re probably better off claiming depreciation and paying less income tax now rather than not claiming the depreciation and hoping for less CGT in the future. If anyone can tell me for certain I would greatly appreciate it.

Regarding negative gearing… in order to benefit from negative gearing an investor needs to:

  1. Be willing and able to borrow money in order to claim the mortgage interest as a tax deduction
  2. Be happy to make a loss on their property investment in order to use that loss to reduce their taxable income from other sources (and thereby reduce their income tax payable)
  3. Have a tax burden that they want to reduce (otherwise they have nothing to claim the loss against).

For many (if not most) property investors in Australia, all of the above will apply and negative gearing may well be worth considering. However for my wife and I things are a bit different. We are not willing to borrow money from a bank and we certainly don’t want to make a loss on our property investments just to reduce our income tax (which is not that high).

I would very much like to hear from any readers who are experts in the property investment field as to exactly how depreciation and negative gearing can affect the net rental returns for both houses and granny flats. I’m pretty sure that the answer will be that granny flats still offer a much better ROI than single-family houses or apartments because the fundamental advantage of a granny flat remains the same… i.e. the land is already paid for.

p.s. I’d also be interested to know how CGT is calculated on a granny flat if someone owns their own home, builds a granny flat on the same property, rents it out, then eventually sells the property.

All further feedback is most welcome.

Thanks, Andy

 

April 12, 2019: The Economics of Granny Flats

People have various reasons for wanting to build a granny flat. Some families need to care for an aging relative. Others need a separate and private space for a teenager or young adult. Still others might be planning for a time after their kids have flown the nest and thinking about down-sizing. Today I’d like to focus on the economics of building a granny flat as a financial investment because the fact is, in places like the Southern Highlands of NSW (Greeny Flat country) where land is expensive and rents are high, a granny flat can offer exceptional security and Return on Investment (ROI).

A new granny flat under construction in the Southern Highlands.

A new granny flat under construction in the Southern Highlands.

Regular readers will know that Cintia and I have spent quite a bit of time over the last year up at Russell Island in Queensland building a house on some very cheap land that we found only 35km from Brisbane CBD (new or occasional readers are welcome to view all our previous Newsletters describing that project [among many other things] by clicking here or on the Newsletter tab at the top of the page). We would have liked to buy or build something in the Southern Highlands but simply couldn’t afford the price of land. So we bought on Russell Island and completed the 3 bedroom/2 bath house a little over a month ago. At this point we have invested a total of approximately $185,000 and a lot of time into the project. If we had bought a similar, new house in a similar location we would likely have paid about $275,000 (including stamp duty and closing costs) and if we were to rent it out we would likely get about $270 p.w ($14,040 p.a). This would give us a gross rental return of 5.1%.

However, we wouldn’t receive the gross return… we would have to pay rates ($2,800 p.a), landlords insurance ($1,200 p.a), property management fees (approx. $1,500 p.a.) and maintenance costs (estimated at $1,000 p.a). That would reduce our income to about $7540 p.a. and our net ROI to about 2.7%. That’s still not bad in our current low-interest environment. We could get a similar return from a RAMS Online Saver account however the house on Russell Island has the potential for capital gain (as well as the risk of capital loss) whereas a bank deposit does not.

In the Southern Highlands of NSW, we would be lucky to find an older investment property for $500,000 and to rent it for $450 p.w. That would give a gross rental return of 4.6% and a net ROI of about 3.2%. That’s still not bad if you’ve got half a million bucks to invest and it too offers the potential for capital gain over the long term.

But let’s have a look at how a granny flat would perform in the Highlands. For this exercise we’ll assume that you could build a 60sqm, two-bedroom granny flat for $160,000 and rent it out for $350 p.w. (reasonable estimates for this region). That would give a gross rental return of 11%.

Gross Rental Return of 11%

Seems too good to be true doesn’t it? And it gets better because, with a granny flat built on the same property as a primary residence, you don’t have to pay extra rates, so the ongoing costs are less than they are for a single dwelling. Also, for many people, they wouldn’t need to pay a property manager to manage the rental because it is right there in their back yard. This means the annual costs could just include insurance (approx $1000 p.a.) and some maintenance (estimated at $1000 p.a.). In that case the net ROI comes out at 10%.

Net ROI of 10%

So why is the ROI on a granny flat SO much better than for a house? It’s because the land is already paid for and because the ongoing costs are significantly lower. So, in places like the Southern Highlands where land prices and rents are high, a granny flat can offer a remarkably good ROI for an investment that is very secure. A new, well-built and insured granny flat in your own backyard is about as secure as an investment can get. And with a potential 10% ROI it’s no wonder that there is a boom in granny flat construction going on around the greater Sydney region.

Another Energy-positive, Low-maintenance Granny Flat Going Up

The photo at the beginning of this newsletter is of another new granny flat currently under construction near the Greeny Flat. This is one that I designed for a friend of mine. It has the same footprint as the Greeny Flat but slightly higher walls and ceilings in order to provide a large loft storage area. It has a similar passive solar design with large, north-facing windows and the correct eave overhand to shade the north-facing windows in summer while allowing the low winter sun to fully enter and warm the dwelling.

A new granny flat that I designed for a friend in the Southern Highlands currently under construction.

The new granny flat under construction. This view is from the North-west showing some of the Passive Solar Design features.

The roof and wall cladding is Colorbond steel in a ‘CustomOrb’ profile. In this case the client chose to use ‘Shale Grey’ for the roof and window frames (I’m a big believer in using light colours for roofs and windows because it helps to reduce heat gain in summer and thermal stresses in the building components) and ‘Woodland Grey’ for the walls. In the heat of Queensland you wouldn’t want to use a fairly dark wall colour but in the cool of the Highlands it should function well and I think it looks great.

This granny flat also includes a large verandah on the south side and a carport on the west. Apart from offering a sheltered place to park the car and to enter the granny flat under cover, the carport on the west side will also provide excellent shade for the west wall which could have been a big heat source in the summer with the high walls and dark cladding.

The carport on the west and the big verandah on the south will provide lots of summer shade and shelter from the rain.

The carport on the west and the big verandah on the south will provide lots of summer shade and shelter from the rain. This view is from the South-west.

 Add to that good insulation, air-sealing, thermal mass, double-glazing and a solar power system and I am very confident that this granny flat will be well-and-truly energy positive like the Greeny Flat. It’s also designed and built to be fire resistant as there is a BAL29 rating for part of this property. All told I this is shaping up to be a very successful owner-built project and a good example of how building a granny flat can be a sound financial decision. I’ll report back after it’s finished.

Thanks for reading.

Feb 20, 2019: Russell Island Home Tour

Hello again. This will be a very brief Newsletter this week just to let you know that we have posted a little video home tour of our Russell Island project on YouTube at the following link.

We had our final inspection last week and, as far as we know, it’s all passed and good to go bar a bit of paperwork. Let’s hope so anyway because we moved in today!

Feb 8, 2019: Russell Island Nearly Finished

Our Russell Island project is coming along nicely. In fact we’ve scheduled our final inspection for Wednesday next week. The plumber came yesterday so now we have running water and a functioning toilet. No hot water yet because the electrician still has to power up the hot water system.

Meanwhile we’ve finished the kitchen…

Our kitchen completed

Our kitchen completed

… and today I completed the insulation in the roof space.

Attic insulation

Attic insulation and ducting for the bathroom fan.

Before the plasterers put the gyprock on the ceilings I threw the insulation up into the roof space so that I wouldn’t have to drag it all up through the manhole. Since this morning was cool and cloudy it seemed like a good opportunity to complete the installation. While I was up there I also attached a bit of flex-duct to each of the bathroom exhaust fans and directed the outlet towards the vents in the gable ends.

Most bathroom fans in Australia are a simple, large round fan that blows air up into the roof space through a hole in the ceiling. Back in the days when attics were very drafty and uninsulated, this was an acceptable (although not an energy efficient) arrangement because there was little risk of condensation or mould problems. But these days there is insulation in roof spaces that can do two things… it can absorb moisture (and therefore potentially harbour mould) and it can make the roof space colder ( by reducing the amount of heat that escapes from the rooms below) which increases the likelihood of condensation in the attic. So in cool to cold climates it is essential to vent bathroom fans and kitchen rangehoods directly to the exterior of the building but up here in Queensland it’s okay just to direct the moist air from the bathroom towards the gable vents where it can escape without doing any harm.

Wish us luck for our final inspection next week, meanwhile here’s a bit of good news…

Higher Energy Efficiency Standards Coming to Australia

Long-time readers will be familiar with my rants about how pathetic our energy performance standards are. So I’m VERY happy to pass on this article from Renew Magazine which details a decision by the Council of Australian Governments to (finally) raise the minimum standard for new homes from 6.5 stars to 7 stars. I know… it’s incredibly exciting… but hey, it’s better than nothing.

Jan 25, 2019: Progress and Other Good Stuff

Hello again, it’s been a productive week here on Russell Island. We’re solidly into the finishing stages of the house and it’s exciting and rewarding seeing it come together. So far we’re very happy with the design and materials we’ve chosen.

I could have done the tiling but we’ve got too many other things to work on so we’ve hired a lovely German couple to do it for us.

Hans tiling the kitchen floor

Hans tiling the kitchen floor

Hans started with the kitchen floor while Ursula was doing the waterproofing in the bathroom and ensuite.

Tiles going down in the ensuite.

Tiles going down in the ensuite.

The lovely blue colour is the waterproofing compound and today Hans started laying the floor tiles in the ensuite. Meanwhile Cintia and I have completed the second bedroom….

Second room completed!

Second room completed! (the walls aren’t pink, they’re white… that must be a reflection off the floor).

….I’ve started gluing the benchtop for the kitchen island….

Gluing laminated bamboo panels together for our kitchen island.

Gluing laminated bamboo panels together for our kitchen island.

….and, we’ve started putting finishing touches on the outside.

Just to prove that Cintia hasn't done ALL the work on this house...

Just to prove that Cintia hasn’t done ALL the work on this house…

We’re hoping that, in a couple more weeks, we might be ready for our final inspection. We don’t have to have every little detail finished but, if we can get our occupancy certificate, we can move into the house while we finish the last bits and pieces.

Meanwhile, some other good stuff caught my eye this week…

How To Cool a House as Sustainably as Possible

With temperatures hitting record highs and heat waves causing havoc across Australia this summer here is a timely article from Renew Magazine. It delves into the details of how to stay comfortable as sustainably as possible in the hot weather. It’s a long article and quite detailed but well worth the read.

Energy Positive Car???

Long-time readers may remember our mention of the ‘Stella Lux’ in a Newsletter back in 2015. In case you missed it, it was a Dutch university entry in the Solar Challenge aimed at creating an energy positive car. Since then, a number of the students involved have formed a company called ‘Lightyear’ with the goal of taking the energy-positive car concept to the streets.

This seven minute YouTube video describes what I hope will be the future of automobiles… cars that produce more energy than they use. The video doesn’t provide much detail (apart from the fact that these cars are likely to be hugely expensive) but, if they can make it work, it’s only a matter of time before it will become cheaper and more accessible for the rest of us.

More Friends Go Electric

In last week’s Newsletter I mentioned my friends, Daniel and Kari, who have recently purchased a Nissan Leaf. This week it’s Cintia’s ceramicist colleagues, Steve Harrison and Janine King who have switched to a brand new Hyundai Ioniq plug-in hybrid. They have also recently invested in an expanded solar power system and a Tesla battery.

Here is a link to their Blog post entitled ‘Driving on Sunshine’. https://tonightmyfingerssmellofgarlic.com/2019/01/21/our-2nd-electric-car/

Steve and Janine live and work in the Southern Highlands of NSW making beautiful pottery, running workshops, building pottery kilns and trying to live and work as sustainably as they can. Along with their PHEV purchase they are also working on making their pottery workshop as carbon neutral as possible. Steve’s latest project is to build a small electric kiln (made almost entirely from spare parts he had lying around) which they can run off their solar and batteries and use a tiny bit of LPG to create a reduction firing (you’ll have to ask Cintia or Steve about that but it’s an important thing for potters).

Here’s another link to their blog where Steve describes the building of the kiln and the philosophy behind it. https://tonightmyfingerssmellofgarlic.com/2019/01/19/solar-pv-fired-pottery-kiln/ It’s great reading and great to know that people like Steve and Janine are doing such wonderful work just down the road from the Greeny Flat.

Jan 18, 2019: New Leaf and Progress Photos

Long-time readers may recall my good friend Daniel Jones and his work with Repower Shoalhaven. Daniel has recently moved to Maui and deserves two lots of congratulations. Firstly for his marriage to the lovely Kari, and secondly for their purchase of a Nissan Leaf to get around the island.

Daniel and Kari with their new Leaf.

Daniel and Kari with their new Leaf.

So far they’re loving the Leaf. Here’s what Daniel had to say about it…

I have some exciting news! Kari and I are now the proud owners of a 2018 Nissan Leaf.
 
We picked it up on Tuesday – it was shipped from Honolulu (we saved $8k by doing this due to lack of any competition on Maui)
 
The cost to us after we get the $7,500 rebate will be about $22,500 USD. Starting Price was $32,600, we got about $2.5k off by haggling and through a utility-based rebate before the $7,500 Fed rebate.
 
The car is amazing! I can’t wait to tell you more as we get more experience with it. It is currently charging at Safeway for free about 1km from our house.
 
It has 150 Miles (240km) of real world range, accelerates to 60km/h faster than a brand new golf GTI and is so quiet and fun to drive!
 
We love it!!!!!!!!!!! We are renting (no solar) so we will mainly rely on charging at public level 2 stations, hopefully during the day to take advantage of the surplus of solar energy we have here!

Maui might be the perfect place to own an electric car. For one thing you could drive right around the island in a Leaf with a full charge. Apart from the government incentives Daniel mentions, the state of Hawaii is making big efforts to switch over from the old diesel power generation to renewable energy. Daniel tells me that the Maui grid was at 37% renewable energy in 2017 so it’s probably close to 50% by now. So that makes their new Leaf a much greener option and with free charging at the local Safeway, a much cheaper option for Daniel and Kari.

Meanwhile, back on our little island we’ve started putting the finishing touches on the house we’re building.

Cintia having fun laying the first section of bamboo flooring.

Cintia having fun laying the first section of bamboo flooring.

Click-lock bamboo flooring is really quick, easy and fun to lay. You just have to be sure to leave a 10mm gap all the way around the edge to allow for expansion and contraction. This gap will be covered by the skirting boards so you won’t see it.

First room completed!

First room completed!

We’ve only finished one room so far but it’s fun to see a small part of the house completed. Next week we have the tilers coming in to work on the bathrooms and kitchen. So yesterday we spent the day hammering hundreds of little nails into the fibre-cement underlayment. It has to be nailed every 150mm in the middle and every 50mm around the edges which adds up to a LOT of nails. (I feel a bit sorry for the neighbours after yesterday).

Tile underlayment in place.

Tile underlayment in place.

While the tilers are doing their things we’ll be focusing on completing the kitchen and, hopefully a few more rooms.

Jan 4, 2019: Doors and Architraves

Quick update after a busy week hanging doors, adding more kitchen cabinets and starting to install the architraves. Cintia’s been painting away while I’ve been doing the carpentry. Things are starting to come together nicely.

Hanging the last two doors for the closet of the second bedroom.

Hanging the last two doors.

We won’t be putting the architraves around the doors or the skirting boards on until we’ve laid the floor. Apart from the tiled areas in the bathrooms and kitchen, we’ll be using a floating bamboo floor throughout the house. Because this clicks together and is not nailed down, it needs room to be able to expand and contract with changes in temperature and humidity. This means we have to leave about a ten millimetre gap all the way around the edge of the flooring. This will be hidden under the skirting boards which will be 18mm thick. So we’ll lay the flooring and then install the rest of the trim.

Meanwhile we can complete the architraves around the windows which we started today.

Today we started installing architraves around the windows.

Today we started installing architraves around the windows.

Next week we’ll make another trip to the mainland to collect our flooring, tiles, kitchen, plumbing and electrical fittings. Then we’ll have most of what we need to finish the interior.

More photos soon.

Happy New Year. I hope it’s a great one for everyone.

Dec 28, 2018: Russell Island house progress.

Cintia and I are really enjoying being back on Russell Island as we work on completing the house we started back in June (see previous Newsletters here if you don’t know what I’m talking about). We were a bit worried that summer in Moreton Bay might be very hot, humid and infested with mosquitoes and midgies. But we’re finding the climate here to be very pleasant and not too buggy at all.

Yesterday we took the PHEV over to Australia to do some shopping. It costs about $100 for a round trip on the barge so we try to make the most of it.

About as much as you can fit in an Outlander PHEV

About as much as you can fit in an Outlander PHEV

As you can see, we had her pretty well loaded up. In fact, there is a whole Kaboodle kitchen in there plus some extra stuff on the roof-racks. It must have all weighed about three-quarters of a tonne but the trusty PHEV handled it with no trouble at all.

So now we have all our doors, skirting, architraves and kitchen cabinets rounded up and delivered to the island and we’ve got lots of work to do. We’ve finished painting the walls and ceilings with low-VOC paints.

Plenty of work ahead of us.

Plenty of work ahead of us.

Today Cintia started painting the door frames and I started putting together and installing the kitchen cabinets. I’ve put a lot of Ikea kitchens together before but this is my first Kaboodle. So far I’m pretty impressed. The cabinets are more solidly built than Ikea’s and they’re slightly shallower which works well for us because we bought a whole lot of laminated bamboo panels (you can see them stacked in the middle of the room) to use as our benchtops among other things. These are only 600mm wide so they will fit nicely on the Kaboodle cabinets which are 560mm deep (580mm once the doors are on). I can’t wait to see how it all looks with the bamboo counters and bamboo floor that we should be getting delivered next week.

I’ll keep you posted. Meanwhile we hope you enjoy New Year’s Eve and have a prosperous and productive 2019.

Dec 12, 2018: Back on Russell Island

Our PHEV back at our house building project on Russell Island.

Our PHEV back at our house building project on Russell Island.

I made it back to Russell Island about two weeks ago to finish building the house we started in July (see previous Newsletters for previous project updates). On the first trip we managed to get the house almost ready for gyprock. The only thing left to do was to install the insulation which was my first job for this trip.

I like to use Knauf ‘Earthwool’ insulation (sold at Bunnings). It’s a 100% recycled glass product which doesn’t make me itch or cough nearly as much as standard pink or yellow fibreglass batts. In the Southern Highlands (where the Greeny Flat is located) I would use R2.5 batts in the walls and at least R4 batts in the ceiling. But up here the climate is much milder so we’re just using R2 batts in both the walls and ceilings (plus the R1.8 anticon blanket under the roof metal).

Here’s how the insulation looked before the gyprock went up. You’ll notice that each stud cavity is completely filled and there are no gaps, cracks or folds. Compare this to the typical insulation job you might see an any Australian building site which I wrote about in this Newlsetter post back in 2016. Unfortunately insulation is not inspected in Australia so it is up to the builder to self-certify that the installation is done properly. In my experience, it seldom is.

Insulation in place before gyprock is hung.

Insulation in place before gyprock is hung.

On Monday this week the plasterers started hanging the gyprock and today they finished the last coat of plaster. That’s a pretty impressive achievement for just one tradie and one apprentice.

Gyprock hung and plasterers hard at work.

Gyprock hung and plasterers hard at work.

I always enjoy the gyprocking stage of a building project. It suddenly transforms the place from the skeleton of a house to something that resembles the finished product.

Tomorrow I’ll be heading over to the big island to get some materials and pick Cintia up from Brisbane airport. Then we’ll be spending Christmas painting and installing the skirting boards and architraves.

Best wishes for the festive season and thanks for reading.

Andy.