Do Granny Flats Add Value?

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If you have excess space on your property and are not sure how to make the most of it, there are some great options available. You could landscape this yard space or perhaps construct something for the kids. But when you want to add value to your home, there is one task that proves very popular: building a granny flat.

One of the biggest impediments can be red tape when you wish to make renovations or additions to a property. One of the biggest impediments can be red tape. Applying for permits and getting permission from councils can be time-consuming and costly. However, with a granny flat, the process can sometimes be incredibly simple.

It is now easier than ever to build a granny flat. The government passed new laws in 2009 that made building a granny flat easier for investors than ever before. However, before you jump ahead and create your own, you should know the risks and benefits of having a granny flat attached to your property.

What Is A Granny Flat? And Does A Granny Flat Add Value?

A granny flat is a small, self-contained home on your property, separate from the main house. Some people build granny flats above a garage or in their backyard, and most come with their bedroom, bathroom, kitchen, lounge room and laundry.

But don’t let the name ‘granny flat’ deter you. They’re not just for the elderly. Younger investors are now building granny flats to boost their property’s value through short-term rentals and extended lease agreements.

How Granny Flats Can Add Value to Your Home or Investment

A granny flat can boost your home value by 30 %.

The amount of value that a granny flat will add to your home varies depending on your property and the type of granny flat you wish to build. According to the 2019 CoreLogic/Archistart Granny Flat Report, it could boost home values by 30 per cent and add around 27% to rental income.

However, it is essential to be careful and make sure you are using the space appropriately. You do not want a granny flat that dominates your land or removes every single piece of green space you have. Consider whether an internal or external construction is going to work best from your property and work from there. You could also turn your garage or unused space under the house into one. Looking for dual occupancy? Look no further! MJS Construction Group has you covered. 

A granny flat can increase rental yields by 27%

When possible, one of the main benefits of owning a granny flat is the rental income you can generate. While it can be an accessible room for the in-laws or children to stay in when needed, you can make a tidy profit by renting your granny flat out, significantly augmenting your rental yields.

For example, if you have constructed a $100,000 granny flat on a property in a popular area, you might be able to make up to $400 per week in rent (or more in places like the Northern Beaches of Sydney). According to CoreLogic-RP Data, this sits only marginally below the median rent across Australian capitals for the September 2019 quarter, which was $435.

There is enormous value to be found in a granny flat. After checking with your local council that you can rent it out, talk to your local experts about how one could potentially boost your property and your bank balance.

Tips To Get The Most Value Out Of Your Granny Flat

It is essential to use value-adding property investing strategies to generate capital growth and increase your portfolio’s cash flow. Granny flats may be considered value-adding strategies, as if done correctly, they can accelerate your wealth creation.

Adding value through a granny flat is quite an easy process, and it can rapidly increase your capital value and rental income. The rental income may help you maintain your servicing capacity with lenders and proceed to your next property acquisition. It makes sense to earn two incomes from one property.

If adding a granny flat to your property is not feasible or allowed, you may want to purchase a new one. Contact the right buyers’ agent to source the land size and features that meet the local council’s planning requirements. Remember that these properties are much sought after and can be hard to find.

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A broker can help with construction finance for your granny flat.

Work with a broker or finance strategist for finance approval before acquiring a property capable of accommodating a granny flat. First, it is ideal to start the loan approval process before locating a property because the competition is stiff for granny flats. You may not be able to move quickly to secure the property if your finance has not yet been approved and there’s another buyer ready to purchase it.

If you do not intend to pay in cash, make sure that your lender will allow construction finance for a granny flat later on. You should also ensure that you have enough borrowing capacity to borrow for the granny flat. You can have your broker or finance strategist compute your additional borrowing capacity before applying for the initial loan.

Spend a little extra to guarantee a good rental return

Granny flats differ in quality and size, so you have to choose the right builder. Poorly located or constructed granny flats may not attract a good tenant or rental return. Be ready to spend a little extra to get a good quality investment.

Though cheaper, Granny flats on stilts or piers may not be counted into property valuation because of their transportable feature. Granny flat builders usually build on a concrete slab, but if your property has some slopes, piering may be required.

The Benefits of Building a Granny Flat

  • Extra rental income – putting a granny flat in your backyard or at the back of your investment property can be another source of income  
  • Depreciation – renting out a granny flat gives you extra claimable on your depreciation schedule
  • Increasing the value of your property – while building a granny flat may increase the value of your property, you’ll probably find that it won’t increase it as much as the cost of construction
  • Spreading your income risk – if you have one investment property and vacant, you have no money coming in. However, with a granny flat, it is unlikely both properties will be vacant at the same time
  • Suits your family’s needs – Building a granny flat at the back of your home may be suitable accommodation for your teenage children, your granny or even your mother-in-law.

The Risks When Building A Granny Flat

It could cost more than you expect

Just like any renovation or construction project, there are likely to be cost overruns when building your granny flat.

Not all councils allow granny flats. The Risks when building a Granny Flat.

While it’s easier to get council approval to build a granny flat nowadays, make sure you cross all your i’s and dot all your t’s.

Check things like the size of the block required, access needed and how close it can be built to a fence.

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In general, those councils that allow granny flats are not in high capital growth areas.

Often you’ll have to use this strategy in outer and lower socio-economic areas – locations that you’ll find tend to deliver below-average capital growth.

The cost of constructing the granny flat doesn’t always add sufficient value to the property.

Often you’ll spend $100- $120,000 on the granny flat, but the banks will only increase the value of your property by $70-$80,000.

In other words, you’re overcapitalising.

You’ll reduce your resale and rental market potential.

This is because the end product has a small market with minimal demand from owner-occupiers and tenants.

Most owner-occupiers are not keen to have a granny flat in their backyard, preferring all the accommodation under the main roof.

Your property will mainly appeal to investors. You’ll experience more extended vacancy periods.

And most tenants don’t want another tenant in their back yard or the noise and nuisance of an adjoining property. Check out our range of dual occupancy builder for your dream house.

You’ll experience more extended vacancy periods.

Your pool of tenants will be restricted for both properties, so you’ll have less choice in your selection, experience more extended vacancy periods, and it’s likely you will have to deal with two sets of lower socio-economic tenants instead of one average socio-economic family.

Buying Or Building A Granny Flat

As housing affordability issues continue to hit people hard in Australia’s capital cities, it’s becoming more tricky to find an affordable, low-maintenance rental property in a desirable location. With this in mind, a granny flat could be a great way to use the space you already own to maximise your income.

Granny flats are typically defined as “secondary dwellings”, which means that they’re built on the same land as the main dwelling. Granny flats are also “self-contained dwellings”, meaning they have a separate entrance and bathroom, kitchen, bedroom, laundry and living space.

There are several options for adding a granny flat to your property, such as adding a standalone building in your backyard or building a secondary dwelling as an extension over the garage. Wherever you choose to add the granny flat, it’s important to remember that it will need to have its entrance to meet regulations.

What Rules And Regulations Need To Be Considered?

Housing affordability issues around Australia have prompted several state and territory governments to introduce measures that make it easier to build a granny flat. Along with NSW, the governments of Western Australia, the Northern Territory, Tasmania and the ACT all allow their residents to rent out a granny flat to generate extra income. Unfortunately, this practice is currently not allowed in Queensland, Victoria and South Australia.

Before you buy a modular granny flat or start building your own, it’s essential to make sure your planned addition will be fully compliant with all the relevant laws. Check with your local council to find out what regulations apply in your area, but as a general rule, your granny flat will need to:

  • Be built on a property that is zoned for residential use
  • Be built on a property at least 450 square metres in size
  • Be the only granny flat on the property
  • Be owned by the same person that owns the primary dwelling on the property
  • Have a maximum living space of around 60 square metres (this figure varies and typically does not include verandahs, carports and patios)
  • Have separate and unobstructed pedestrian access

Once you’re sure that your project will meet all the requirements, you can apply for planning approval from your local council.

How Much Does It Cost To Add A Granny Flat?

The cost involved in adding a granny flat to your home varies depending on the type of granny flat you choose. But generally, you’d be looking at a minimum spend of around $100,000 to get the new residence up and running.

If you’re looking to build, there is also a massive range of options for the design and type of dwelling you want. From prefabricated and modular homes to dwellings constructed from scratch, your choice will be influenced by your budget, the designs available, and the features you want to include in the granny flat.

If you’re thinking of adding a granny flat to your property as part of a renovation or extension, then costs could head north of around $120,000. You’ll also need to factor in engineering costs and possibly architect’s fees, as well as money for any existing or potential hazards such as asbestos. Planning for a new look for your house? Look no further!  MJS Construction Group  is here to help in your dual occupancy builder Melbourne.

Tips For Getting The Most Out Of Your Granny Flat Investment

  • Do your research. Before adding a granny flat to your property, find out whether it will be a viable investment. Consider council regulations, the demand for rental properties in your area and the cost of installing a granny flat before you make your final decision.
  • Get quotes. Get accurate quotes from builders and contractors to form a clear picture of exactly how much the build will cost.
  • Loan options. If you need to borrow money to finance your granny flat investment, speak to a mortgage broker about your borrowing options. If you have sufficient equity in the property, you should get the money you need by increasing or refinancing your existing loan.
  • Adding a granny flat to an investment property. While the most common approach is to add a granny flat to your property, you can also build a granny flat on an investment property. If this is the case, you’ll need to consider the cost of maintaining both properties, the potential rental yield, and the effect of adding a granny flat on demand for the main dwelling.
  • Be consistent. If you want the granny flat to add value to your property, make sure it matches your existing home and doesn’t look like an afterthought. It’s also essential to ensure that the granny flat doesn’t dominate the garden or take up too much outdoor space.

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.

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