There are many wonderful possibilities open to you if you have unused space on your home and are stumped as to how to put it to the best use. You might consider constructing something for the children to play with or landscaping this yard space. Building a granny flat, on the other hand, is a project that consistently shows to be quite popular when it comes to adding value to a home.
When you want to make improvements or additions to a property, one of the most significant challenges you may face is dealing with the bureaucracy involved. Red tape is one of the most common causes of delays. The process of making applications for licences and obtaining authorisation from local municipalities can be time-consuming and expensive. On the other hand, the procedure can be rather straightforward in the case of a granny flat.
It is currently much simpler than it ever was before to construct a granny flat. In 2009, the government enacted new legislation that made it simpler than ever before for investors to construct a granny flat. Having a granny flat attached to your property comes with a number of potential downsides and upsides, all of which you should be aware of before going ahead and building your own.
What Is A Granny Flat? And Does A Granny Flat Add Value?
A home on your property that is completely self-sufficient and stands apart from the primary residence is known as a granny flat. The majority of granny flats are equipped with a bedroom, bathroom, kitchen, living room, and laundry area, and some homeowners even build them on top of their garages or in their backyards.
However, you shouldn't let the name "granny flat" put you off. They are not only for people of a certain age. Granny flats are currently becoming increasingly popular among younger investors as a means of increasing the value of their properties through the use of both 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 will vary based on the characteristics of your land and the kind of granny flat that you choose to construct on it. According to the findings of the 2019 Granny Flat Report conducted by CoreLogic and Archistart, it has the potential to contribute around 27 percent to rental revenue while simultaneously increasing the value of the home by 30 percent.
Nevertheless, it is absolutely necessary to use caution and check that you are not misusing the available space in any way. You do not want a granny flat that takes up the majority of your land or eradicates every last bit of the green area you currently possess. Think about whether an internal or an external building will work better on your land, and then proceed from there. Alternately, you may convert an underutilised portion of your garage or the space under the home into one. Looking for dual occupancy? No need to look any further! You are in good hands with MJS Construction Group.
A granny flat can increase rental yields by 27%
One of the most significant advantages of having a granny flat is the potential to earn additional income through rental of the space. You may make a tidy profit by renting out your granny flat, which will greatly increase the amount of rental income you receive. This is in addition to the fact that it can serve as a convenient room for your in-laws or children to stay in when necessary.
For instance, if you have built a granny flat on your property in a desirable region for the cost of one hundred thousand dollars, you might be able to charge as much as four hundred dollars per week for rent (or more in places like the Northern Beaches of Sydney). According to CoreLogic-RP Data, this is only a smidgen lower than the median rent across all of Australia's capital cities for the September 2019 quarter, which was $435. This number stands only a smidgen below the median rent.
The addition of a granny flat can add a significant amount of value to a property. After confirming with the local council that you are allowed to rent it out, speak with local experts about the various ways in which one could potentially increase the value of your house and your financial situation.
Tips To Get The Most Value Out Of Your Granny Flat
It is necessary to make use of tactics that add value when investing in real estate in order to achieve capital growth and boost the cash flow of your portfolio. Adding a granny flat to your property is one way to increase the value of your home and, if done properly, can also help you build wealth more quickly.
Adding value to your property by constructing a granny flat is a relatively simple operation, and it has the potential to significantly boost both your capital value and your rental income. The income from the rental property may assist you in maintaining your servicing capacity with lenders and moving forwards with the acquisition of your subsequent property. It makes perfect sense to generate two incomes from a single piece of real estate.
Buying a new granny flat is an option to consider if constructing one on your existing property is either not possible or prohibited. Make contact with the appropriate buyers' agent in order to locate the land parcel with the dimensions and characteristics that are acceptable to the neighbourhood council. Keep in mind that they are very desirable real estate options, which can make finding them challenging.
A broker can help with construction finance for your granny flat.
Before purchasing a home that could house a granny flat, it is a good idea to get the financing approved by consulting with a broker or a financial strategist. Because there is a lot of competition for granny flats, the first thing you should do is begin the process of getting your loan approved before you start looking for a house. If your financing has not yet been granted and there is another buyer ready to purchase the property, it is possible that you will not be able to move quickly enough to secure the property.
Make sure that your lender is willing to provide construction financing for a granny flat in the event that you do not intend to pay for the addition out of pocket. You should also check that you have sufficient capacity for financing in order to finance the purchase of the granny flat. Prior to submitting your application for the initial loan, you have the option of having your broker or financial strategist determine your further borrowing capacity.
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
- Adding a granny flat in your garden or at the back of your investment property can provide you with additional rental income. This can be a good source of income for you.
- Depreciation- If you rent out a granny flat, you can claim an additional amount on your property's depreciation schedule.
- Increasing the value of your property — constructing a granny flat on your property may result in a rise in the value of your property; however, you may discover that this increase is not as significant as the expense of creating the granny flat.
- Spreading out the risk of loss in revenue — if you only have one investment property and it becomes vacant, you will not receive any income. On the other hand, if there is a granny flat on the property, it is unusual that both units will be unoccupied at the same time.
- Meet the requirements of your household – The construction of a mother-in-law suite, often known as a granny flat, at the rear of your property could provide acceptable housing for your teenage children, your grandmother, or even your mother-in-law.
The Risks When Building A Granny Flat
It could cost more than you expect
When you develop a granny flat, you incur the risk of experiencing cost overruns, just like you would with any other kind of home improvement or building project.
Not all councils allow granny flats. The Risks when building a Granny Flat.
Even if it's a lot simpler to acquire the consent of the local council these days to construct a granny flat, you still need to make sure that everything is in order.
Check aspects such as the minimum size of the required block, the required access, and the maximum distance that it can be built from a fence.
In general, those councils that allow granny flats are not in high capital growth areas.
It's likely that you'll only be able to apply this tactic in more remote and economically disadvantaged areas; these are the kinds of places that, on average, produce slower rates of appreciation.
The cost of constructing the granny flat doesn’t always add sufficient value to the property.
Most of the time, you'll spend between $100,000 and $120,000 on the granny flat, but the value of your property will only increase by $75,000 to $80,000, according to the banks.
To put it another way, you are using excessive capitalisation.
You’ll reduce your resale and rental market potential.
This is due to the fact that the final product has a limited market and very little demand from owner-occupants as well as tenants.
The majority of owner-occupants do not want a granny flat in their backyard since they would rather have all of their living space under the same roof as their primary residence.
Investors are more likely to be interested in your property. You'll experience more extended vacancy periods.
And the majority of renters do not want another renter in their backyard, nor do they want the noise and inconvenience that comes from an adjacent property. Check out our selection of dual occupancy builder to see whether one of them is right for you.
You’ll experience more extended vacancy periods.
You will have a smaller pool of potential tenants to choose from for both of the properties, which means you will have fewer options when making your selection, more extended periods of vacancy, and it is likely that you will have to deal with two sets of lower socio-economic tenants rather than a single family with an average socio-economic status.
Buying Or Building A Granny Flat
It is getting more difficult to find an affordable, low-maintenance rental property in a desirable location as housing affordability challenges continue to hammer people hard in Australia's key cities. Keeping this in mind, a granny flat might be an excellent way to make the most of the space you currently own and increase the amount of money you make.
It is common practise to refer to granny flats as "secondary homes," which indicates that they are constructed on the same piece of land as the primary residence. Self-contained residences are another name for granny flats; this refers to the fact that they have their own entrance, as well as their own bathroom, kitchen, bedroom, and living area.
There are a few different approaches to taking when it comes to incorporating a granny flat onto your property, such as erecting a freestanding structure in your backyard or constructing a supplementary house as an extension above the garage. It is imperative that you keep in mind that the granny flat will require its own entrance in order to conform to the regulations regardless of where you decide to add it.
What Rules And Regulations Need To Be Considered?
Concerns over the availability and cost of housing have pushed governments in a number of Australia's states and territories to pass legislation that makes it simpler to construct granny flats. In addition to the state of New South Wales (NSW), the governments of Western Australia, the Northern Territory, Tasmania, and the Australian Capital Territory (ACT) all permit their citizens to rent out granny flats in order to make additional income. Regrettably, the states of Queensland, Victoria, and South Australia do not permit this kind of activity at the present time.
It is crucial to ensure that your intended extension will be in complete compliance with all of the applicable legislation before beginning construction on your own modular granny flat or purchasing one that has already been constructed. You should get in touch with the local council in your area to find out what rules and regulations are in effect there. However, as a general guideline, your granny flat will need to have:
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
You are able to submit an application for planning approval to your local council once you have determined that your project will fulfil all of the requirements.
How Much Does It Cost To Add A Granny Flat?
The expense of incorporating a granny flat into your existing house might range widely depending on the design of the granny flat that you go with. But as a general rule, you should plan on spending no less than one hundred thousand dollars (or thereabouts) to get the new house operational.
If you are thinking about constructing a home, you have a huge number of alternatives to choose from in terms of the layout and kind of abode you want to create. Your decision might be determined by your budget, the designs that are available, and the extras that you want to add in the granny flat. Some options include prefabricated and modular homes, as well as dwellings that are erected from the ground up.
If you want to add a granny flat to your property as part of a renovation or an expansion, then the prices could go up to more than 120,000 dollars. You will also need to include the price of engineering and maybe the services of an architect in your budget, in addition to money to cover any current or future risks, such as asbestos. Are you thinking about giving your home a makeover? No need to look any further! MJS Construction Group is here to assist you with any dual occupancy builder needs you may have in Melbourne.
Tips For Getting The Most Out Of Your Granny Flat Investment
- Carry out some study. Find out if constructing a granny flat on your property will be a profitable investment before you go ahead and build one. Before making a final decision, it is important to take into account the regulations imposed by the local council, the demand for rental homes in your region, and the cost of building a granny flat.
- Get quotations. In order to get a realistic image of how much the construction would set you back, get accurate quotes from several builders and contractors.
Alternatives for getting a loan Talk to a mortgage broker about the many financing alternatives available to you if you need to borrow money in order to fund the purchase of a granny flat. If you have a substantial amount of equity in the home, you should consider raising the amount of your existing loan or refinancing it in order to obtain the funds you require.
- Incorporating a granny apartment into a home used for investment purposes. You can construct a granny flat on an investment property in addition to adding one to your primary residence, which is the technique that is used the most frequently. If this is the case, you will need to think about the expenses involved in keeping two properties, the possible income from renting them out, and the impact that adding a granny flat will have on the demand for the primary residence.
- Be consistent. If you want the granny flat to add value to your property, you need to make sure that it blends in with the rest of your house and does not have an afterthought appearance. It is also vital to make certain that the granny flat does not take up an excessive amount of outdoor space or that it does not dominate the yard.
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.
FAQs About Granny Flats
The average price of building a granny flat in Melbourne ranges between $81,000 and $120,000 depending on the size of the structure.
Granny flats are growing in popularity among those who'd normally struggle to buy homes, such as some newlyweds and single parents. This is because granny flats take less time and less money to build than conventional houses.
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.