The humble granny flat is traditionally seen as a way to add more space to your home. Maybe you’ve got a moody teenager who wants more space (while still enjoying the perks of living at home), or maybe your elderly mum or dad is looking for somewhere to live that’s close to the grandkids.
Granny flats can also be used as an investment property to generate rental income for you and your family. They’re relatively cheap to buy or build, easy to maintain and can provide a steady income source. However, buying or building a granny flat as an investment property isn’t without risks, so read on to find out more about the benefits and drawbacks of investing in a granny flat.
Granny flats add value in many ways.
A granny flat is seen as an excellent investment for many homeowners, and it might just be one for you also. As a result of the housing shortage and subsequent rise in the cost of living, Australian governments slowly relax their stance on granny flats, making them easier to build and rent out.
Property value will go up, but it might not be by much.
The more that the general public starts to see a granny flat as a valuable asset, the more it will impact a property’s end sale price.
As it stands, most homes’ value will not go up significantly with the addition of a granny flat.
In other words, the cost a homeowner incurs to build their granny is not usually exceeded by the value-added or perceived value of the property to a potential buyer. In some cases, you may come off worse! The cost to build a granny flat may be greater than the extra value added to the property as a whole.
It is essential to do your planning and maybe even spend that little extra to avoid a situation where the granny flat detracts from your property. A granny flat that takes up the entire garden is probably not a good idea.
If you have a home with a granny flat already there and subsequently find out that it is non-complying, this can be quite an issue. A non-complying granny flat will generally cause new owners more grief rather than value. It cannot be rented out, and it may need to be demolished—an extra expense. Looking for dual occupancy? Look no further! MJS Construction Group has you covered.
There are several lifestyle benefits.
It’s essential to recognise that there can be immense non-financial value in adding a granny flat to your home. A good investment does not always need to be measured in dollars!
Granny flats are precious for the purpose that they were initially designed for – hosting granny! With the increased cost of housing and aged care homes, co-living arrangements with older parents are the solution many households are looking for. Not only do both parties benefit from lower living costs, but they can spend quality time together as they wish. And grandma is the best childcare professional on the market!
There are also lifestyle benefits to be enjoyed for older families who decide to build a granny flat. As they grow older, teenagers need space and a place to get on with their studies in peace and quiet. It can be frustrating working on a university assignment when your brother is in the next room with his music cranked right up. Not to mention those guitar practise evenings.
Additional rental income in many states
A granny flat can bring additional rental income, though this is not the case in every state. Most homeowners living in NSW, ACT, TAS, NT and WA can earn rental income from their granny flats! In Queensland and Victoria, it is slightly more complicated, there may be some local councils that allow it, but it would be approached on a case by case basis.
The rental yield on granny flats can be quite high, especially for those living in central areas. Where rental properties are scarce, and rents are increasing, a granny flat is always a welcome alternative! In rural areas, granny flats are much less attractive for tenants.
Extra space for visitors
A little extra space to host visitors is appreciated by most people these days. When friends or family come from interstate, it is a godsend to be able to put them up in your very own granny flat. It allows you to spend lots of quality time together, without the hassle of having to spend too much time. Giving visitors their own space is undoubtedly an excellent investment for families with frequent visitors and for ex-pats who have friends who travel to visit from overseas.
The Benefits Of Building A Granny Flat
Extra rental income
This is the primary benefit of owning a granny flat. Gone are the days where you used them to house your teenager or ping pong table. Granny flats can be a reliable source of income, fetching up to $350/week in capital cities. Whether it is an investment property where you rent out the granny flat for a second income or your home where you rent it out, the extra income can help you pay down your mortgage faster and get you towards financial freedom more quickly. Check out our range of dual occupancy builder for your dream house.
Spreading your income risk
The majority of Australians rely on one income to fund their lives,…their job. Renting out a granny flat provides you with a second source of income. If you own just one investment property, then renting out your granny flat ensures you don’t go weeks without any rental income. If you have one property and it is vacant, you have no money coming in each week. However, with a granny flat, it is unlikely both properties will be vacant at the same time.
Increasing the value of your property
A granny flat can increase the value of your property. For a family, they may see it as an extra room for one of their teenagers. For an investor they will see the extra income it can derive, and they would be willing to spend more money to acquire the property. Speak to a local real estate agent to find out exactly how much value it would add to your property.
More tax depreciation available to you
Having a granny flat that you are renting out gives you extra claimable on your depreciation schedule. If you build it brand new, you will be able to claim a good amount of paper losses, which will help offset the tax you have to pay each year.
The Risks When You Build A Granny Flat
It could cost more than you expect
Whether you are building your granny flat from scratch or renovating an existing building or granny flat, it may cost more than you initially expected. There are always hidden costs that can occur when building a property. Speak to your builder about what these could potentially be and how you could avoid them, or at least prepare for them. Some builders will do a survey first and then offer you a fixed price that is very unlikely to change. MJS Construction Group has the best range of dual occupancy builder services to help you create your dream house.
Increased property management costs
Now that you have an extra dwelling you are renting out, you will have increased property management costs. Firstly you will have additional property management fees, but having a granny flat can also create ‘common areas’ and mean you have to pay for the gardening to be done. Neither property has full access and thus does not carry full responsibility. You can often solve this by giving the house dedicated space, as well as the granny flat.
More potential headaches
With double the property, there is potentially double the headaches. Everything from maintenance to tenant issues, the more properties you have, the more potential headaches that could arise. Having a competent product manager will help minimise headaches as much as possible.
It may not rent, leaving you with increased expenses.
If it doesn’t rent, then you will likely have increased expenses. Increased mortgage from your building fees associated with the granny flat, increased maintenance etc. However, in a good area, granny flats tend to rent fast as they are incredibly affordable accommodation.
You need to ensure you have the correct council approval.
It is easier than ever to get the council approval to build a granny flat, but make sure you cross all your i’s and dot all your t’s. Certain things like the size of your block and how close it is built to a fence matters.
MAKING A GRANNY FLAT INVESTMENT WORK FOR YOU
Adding a granny flat to your home as an investment is a smart, low-cost way to boost your income and the value of your property. Follow the steps below to make sure you get it right.
Know the local regulations
Granny flat regulations vary from state to state. In Victoria, for example, you’re not permitted to build a granny flat on your land unless the person who lives in it is dependent on you. When that person moves, you must also remove the granny flat in most cases.
Before you start your build, you should check the regulations with your council or state government to ensure that you can build and that you know what limitations may apply if you do.
Choose the right builder.
The builder you choose will decide whether your granny flat is a success or a failure. Go for someone who:
- Is reliable, punctual and transparent.
- Specialises in granny flats.
- Has relevant insurance.
- Offers a wide range of design options.
- Uses well known reputable suppliers.
- Is a licensed builder.
It’s also worth asking to see one of their previous projects so that you can walk through and see the quality of craftsmanship first hand.
Know the costs
Always get at least three quotes from reputable companies before choosing a provider and starting your build. Ask each company for an all-inclusive quote and make sure you understand clearly the cost of any additional work that may be required (e.g. connecting of services like plumbing and electricity).
Once you’ve got these quotes, make sure you can afford the build without any financial stress and pick your favourite builder.
If you’re going to be using your granny flat as an investment, it needs to be somewhere that tenants will want to live. That means it should have plenty of natural light, a private or semi-private entrance and a functional, attractive design. Adding features like a small deck, premium fittings or split system heating may cost more, but they may also allow you to charge more rent and increase the flat’s value.
Granny flats are booming in popularity right now. If you do your research and choose the right builder, you too could supplement your income and pay off your mortgage faster with the help of a new granny flat.
If you could spend $100,000 on a granny flat, an investment that makes less than $8,000 a year, has limited potential for capital growth and makes your property less sellable; or $100,000 on a deposit for two properties that are below market value, offer promising growth prospects and have neutral cash flows, which would you choose?
Investing in two such properties will give you equity that you can use to increase your net worth position and leverage you’re investing to accumulate more—the greater your portfolio, the greater your chance of retiring early.
Nathan says he would prefer to invest in properties that offer good growth potential, have a neutral cash flow, and purchase under market value. They provide more significant potential for building equity and growing your asset base. Granny flats may make you a bit of cash each week, but they don’t have much else going for them aside from that.
If you’ve got enough space and the right property, a granny flat can be a sound investment. Just be sure to research your options and learn more about the risks involved before deciding whether it’s the right investment opportunity for you.
As Australia’s population grows and urban centres become more crowded, granny flats are becoming more valuable. A block of land that can easily qualify for a granny build is also set to become more valuable. Australians will inevitably have to start being more creative with their living arrangements in the coming years. And the granny flat may be the investment you are looking for.