To help clear up the confusion, Alex from Backyard Grannys sat down with Brooke from Home Malone Finance to talk through the most common questions we hear from customers.
From understanding your funding options to knowing the difference between loans for investors and families, Brooke shares her expert advice in a way that’s clear, reassuring, and easy to follow. Together, they cover everything from using cash, refinancing, and construction loans to how prospective rental income can boost affordability, why using a broker can make all the difference, and what to look for when choosing the right builder.
Whether you’re planning a backyard retreat for family, a high-yield investment property, or simply exploring what’s possible, this conversation is packed with insights to help you take the next step with confidence.
Transcript
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
Hi, it's Alex from Backyard Grannys. Today, we're talking all things granny flat finance with Brooke from Home Malone Finance. Welcome, Brooke.
Speaker 2: Brooke, Home Malone Finance
Thanks, Alex.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
So a lot of our customers ask us, how do you finance a granny flat or what are the options?
Speaker 2: Brooke, Home Malone Finance
So there's three main options that we look to fund a build for a granny flat. So the first one is cash. And I understand that not everyone is in a position where they're going to have the cash to be able to build a granny flat. But this is a scenario where we see this when we might have an elderly parent that has sold their home and they want to be able to build something on their children's property. And that enables the family to live together on the one block of land, be close to each other for care.
The next option is refinancing your loan. So if you've got a property, particularly if you've had it for five years plus, you may have a little bit of equity in your property. So for example, you know, your house might be worth $850,000 and you've got a mortgage on it of, you know, $400,000. There's potentially enough equity in the property to be able to borrow the full amount to finance a bill.
Now there's pros and cons with that. So some banks won't allow you to just pull out the full amount for a whole construction in one go. And you also do need to be able to demonstrate that you can afford the additional money that you're borrowing without taking into account any, you know, prospective rental income for the granny flat. And on the flip side of that, they also don't consider that in the value of the property. And there's a couple of banks that allow you to do that, and some that do it better than others. So we can help with that as well.
And the third option is probably the most common option, we do this a lot. You can get a construction loan to build a granny flat. The benefit of a construction loan is that you are paying for just the funds that you're using throughout the build. As you know, there's probably seven stages to construction and the builder's paid at each stage of that. With a construction loan, that loan's progressively drawn as the build gets closer to completion. For the customer, it's also really great because it allows them to potentially borrow if they don't have the equity or borrowing capacity, just as it is with their current home. For example, we can actually get the house and got it valued as if it were built. A valuer will go out, they'll have a look at the existing property, they'll have a look at your plans and contract from Backyard Grannys, and then give us a value as to what they think that's worth when it's complete.
For investors, there's also a really good perk that if that is an investment property and you're going to be renting out the granny flat once it's complete, we can also take into account prospective rental income. That will also help the client afford or demonstrate affordability for the extra money that they're borrowing.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
One of the things we do come up against, we have some customers that, may not be able to have the money to actually start the process, which is like the design and approval process. For people that don't have the cash upfront to get things started before they get to the contract stage, what are the options available for people, in that situation?
Speaker 2: Brooke, Home Malone Finance
That's a really great point. So there's a few ways if you don't have the cash available. We can potentially look at increasing the existing home loan to cover those upfront costs, so that way it's covered at the start of the build and before you get into that construction period. There's also short term finance options, which they're not ideal and they often do come at a higher rate. However, that can be a quick solution that potentially, if the eligibility is there, you may be able to then refinance that in with your construction loan.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
A big thing for us, we have a lot of property investors, you yourself are a property investor and currently building granny flat with us. Could you give us your take on why granny flats are such a a great investment opportunity?
Speaker 2: Brooke, Home Malone Finance
From experience, I can probably speak on this a lot. I think one of the most obvious reasons is that they have such a good rental yield. In Newcastle, you purchase a property, you're likely getting under 4% rental yield. Whereas a granny flat, you know, you can get somewhere between 10 to 15% on that.
In my scenario, and also the clients that I've helped out, it also helps with a little bit of a balance between, you know, purchasing an investment with really good yield. Because often when you are purchasing something with strong yield, you're compromising a little bit on the capital growth.
This strategy in my position, especially, so it enables us to buy something that is still in an area with high capital growth, but it helps with the overall yield of the property. In my example, I would say with the cost of the build plus all the, you know, anything that's not included in the contract, we're looking at less than $250,000 turnkey. That property would be able to be rented somewhere between $550 and $650 a week for a relatively low investment for that money.
So it just it makes a lot of sense financially for us to do that. And it also means that we can hang onto that property for a lot longer and just see the, you know, the value go up over the years.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
The type of return that you're talking about there is something that we see a lot as well. We obviously see people like on average across sort of the Newcastle and Central Coast area probably getting on average about $550 a week return. I don't know how many customers you have come through or that you've worked with, but those returns are definitely pretty typical for us.
Speaker 2: Brooke, Home Malone Finance
And there's such a demand for rental at the moment as well. I think last time I looked, Newcastle was sitting at 1.2% rental vacancy. There's certainly demand for the yields there. And it's also helping to add more housing to the area, which is, you know, a really big need at the moment.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
When it comes to the finance side of things, obviously we build for families as well. There's a lot of grannies out there that need a that need a house. And it's not just grannies, but that's the name.
For that inter-generational living and that sort of thing, there is a lot of demand.
Is there any difference, between loans for, families and loans for investors?
Speaker 2: Brooke, Home Malone Finance
That's a really good question - the financing is nearly identical. The only difference is that if it is built for a family member, then we won't consider rental income for that property because it's not an investment where it is generating income. Other than that, we can still look at the various finance options we discussed such as your construction loan using the value when the property is complete and then also looking at refinancing and taking cash out to be able to do that as well.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
One question that comes to mind, a lot of people when they go to think finance, they quite often just say, okay, we're gonna go and speak to our bank. Why speak to a broker?
Speaker 2: Brooke, Home Malone Finance
It's a really great question and something I often will have, you know, new clients, that, you know, potentially they've only spoke to their bank or they've only banked with their bank for such a long time. And the beauty of speaking to a broker is we have access to typically 30 plus lenders, and you find every bank has a different policy, particularly with construction and granny flats.
So whilst you might not fit the policy to be able to build a granny flat with your bank, there'll be plenty of banks out there that we can consider that may have a solution. So I think it's not just about finding the right, bank that has a policy, but it also gives us options to see who's competitive. So potentially saving you money through that process as well.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
From your side of things are there any questions maybe that you'd have, I guess, back to us or, like, to someone like myself as a builder and someone that specialised doing this for a long time that, yeah, it might be helpful.
Speaker 2: Brooke, Home Malone Finance
I would always have a look to see, you know, do these companies, have they got displays? That's a really good way to be able to go out, see the quality of their work. You know, how many houses are they building? That's a really good indicator of, you know, a strong established company. Things like Google reviews, looking at their website, are they credible? So they're all really important questions to us.
How many granny flats would you build a year, Alex?
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
Somewhere between 120 to 150 granny flats a year.
Speaker 2: Brooke, Home Malone Finance
That was something that made me interested in building with Backyard Grannys is because I'd actually help clients finance construction using your company as their builders. But also I knew that you've been in Newcastle a long time. You do seem to build a high volume of properties. So I had a little bit of trust in the company before even speaking to you and the team.
Speaker 1: Alex, Founder and Managing Director, Backyard Grannys
Thanks very much, Brooke. Really appreciate your insights today and, coming on to talk about all things granny flat finance.