Bringing new products to market: A smooth new granny flat option

In my former life (before I was a property developer) I worked in the cosmetics industry.  One of my claims to fame was that I invented a whole new product category.  A category is a group of products that have similar characteristics. For example, when you go into the grocery store, everything is categorised in aisles; so the cereal aisle will be made up of categories such as mueslis, oat products, biscuits (e.g. wheat bix), etc.

My “invention” was depilatory cream for men.

Yep, you heard right.  Back then in the early 1990s I was a young product manager looking after a women’s wax and depilatory range.  For those who may not know, a depilatory cream dissolves the hair just below the skin’s surface so you get a smoother result than shaving and it’s not as painful as waxing (ripping the hair out by the roots sometimes causing ingrown hairs).

After some in-depth research, I found that men were starting to focus on hair removal.  Not just on their faces but also on their chests and legs.  Some men would remove hair for sporting reasons –  i.e. triathletes or swimmers, apparently making them faster – but others had started doing it for aesthetic reasons, as apparently a bare chest accentuated their muscles (not that I noticed).

How did I research this?  Back in the old days, I would occasionally venture into the city and go to nightclubs with my now husband. I would see guys, mostly gay or body builders (or both) dancing around with no shirts on and with not much body hair.  As I was managing a brand of hair removal products I decided to conduct a little research (hoping I could tax deduct the exorbitant door fee!) and ask the guys how they removed their hair.  Funnily enough, they were more than happy to tell me they were shaving or waxing and not happy with the results.  I won’t go into any more detail here as this is actually a column on property developing, but suffice it to say the light bulb went on and I saw an opportunity in the market. I soon launched the first extra-strength depilatory cream for men and called Andre.  If anyone has ever used this product, I’d love to hear from you!

So what has men’s hair removal have to do with property development?

Nothing, really.  The point I’m trying to make is that this week I came up with a new development product to fit into our established property development category.  The new product slips in right between our existing granny flat and dual-occupancy development strategies.  It’s filling a gap and I think a need in the market.

I can’t really say we’ve invented it as perhaps others are already doing it, but we’ve taken a proven strategy – building a granny flat on existing property – to a higher level.

I’m calling it the “new, new granny” opposed to the “old, new granny”.

With the “old, new granny” strategy we are finding properties with an existing (old) house that is suitable to renovate and then building a new two-bedroom granny flat on the land. This strategy has been very popular, and the main benefits are:

• It’s cost effective; about $360,000 in total costs (in the Hunter region of NSW).
• High gross yield of 8-9%.
• We add value to the house through renovation.
• Usually the property is located in established suburbs with good sales and rental history. The suburbs we choose have and charm and character.
• It’s quick, typical timeframe about three months to complete.

This strategy appeals to people on a certain budget wanting cashflow.

In our “new, new granny” strategy, we build a new house and a new granny flat at the same time.

This strategy will be very popular as the main benefits are:

• We can design the type of house we want to build.
• Maximise rental return by adding rooms, increasing the size of house or other features in demand.
• Higher depreciation benefits are achieved.
• Design to fit the granny flat rather than have to work with position of existing house.
• Appeal to higher-income tenants looking to rent new property and achieve higher rent.
• Building warranty included for both new dwellings.
• Total cost around $520,000
• Possible higher capital growth prospects

The difference is a lower yield for the “new, new” strategy of about 7.5%, but depreciation is higher so most likely a cashflow-positive result for the investor (depending on their taxable income).  This strategy suits someone wanting more depreciation and possibly higher capital growth potential, as we’ll be building these in upmarket land estates.

It was fun running the figures and seeing just where this new development strategy would fit into the Property Bloom range of developments we offer.  We now have a firm build estimate, some great land lots lined up and are ready to launch our new product. I knew my marketing background would come in handy one day!

Jo Chivers is director of Property Bloom, which manages property development.