Author: Jackson Taylor
With record rental prices across Australia, plus immigration increasing, renters are finding it increasingly difficult to secure affordable rental accommodation. If you have backyard space to spare, now may be the time to consider an extra source of income by investing in a granny flat.
A survey conducted by Houzz revealed that 70% of homeowners said they are adding or have added a granny flat on their property. With these promising figures, it’s no surprise that you might be considering investing in building a granny flat.
So, what is a granny flat and is it worth the investment for you and your property?
What is a Granny Flat?
Secondary dwellings or granny flats are defined as secondary residences on existing properties. It offers a solution for homeowners seeking to increase the value of their property and contribute to housing availability options in their neighbourhood. It is a terrific housing choice for growing families or for homeowners to rent out and earn extra money to assist with increased living expenses and mortgage payments.
While the cost of building a granny flat can vary greatly depending on size, location, and materials, many people wonder whether it is worth the investment.
Let us dive into the benefits of investing in a granny flat:
1. Increased Property Value
A separate living space on your property can make it more attractive to potential buyers. Granny flats add square footage to your property. In many cases, a well-designed and well-built granny flat can increase the overall value of your property by up to 20%.
2. Rental Income
One of the best benefits of investing in a granny flat is the potential for rental income. Rental income increases over time and can help offset your mortgage payments. In some cases, the rental income from a granny flat can cover the construction costs in just a few years.
3. Flexibility
Granny flats provide a lot of flexibility, allowing you to use the space for many purposes. You can use it as a home office, a studio, a guest house, or even a separate living space for family members. The flexibility of a granny flat makes it a valuable investment that can adapt to your changing needs.
4. Cost-Effective
Investing in a granny flat is often more cost-effective than building an addition to your primary residence. Granny flats are smaller and require fewer materials and labour costs than building an addition. The cost of building a granny flat is also recoverable over time through rental income and increased property value.
5. Tax Incentives
The Australian Tax Office allows property investors to claim their rental property expenses as a tax deduction, as long as they continue to generate an income from that property. This includes granny flats. For depreciation, you can claim on the areas that the granny flat shares with your home; e.g., you could claim on a pool or a patio if the tenant has access to those assets. So, it’s wise to check with an expert when doing your tax.
Things To Consider Before Building a Granny Flat
Although a granny flat can be a good investment, it might not be for you if you are not prepared to take on the duties of a landlord. Here are a few things to consider:
1. Location
The location of your granny flat should be carefully considered. You'll want to ensure the property is in a desirable location, as this will affect the unit's value and rentability. Consider nearby schools and services that may be attractive to potential renters.
2. Upfront Costs
While granny flats can be cost-effective in the long run, they require a significant upfront investment. Building a granny flat can cost tens of thousands of dollars, depending on the size and materials used.
3. Zoning Regulations
A granny flat can be a great addition to your property, but ensure you check out all the rules and regulations before starting your approval process. There are rules regarding size, location, and appearance. You will need to check your Local Environment Plan to ensure it is permitted in your zoning
4. Maintenance and Upkeep
Like any rental property, granny flats require ongoing maintenance and upkeep. Be prepared to handle any potential repairs or renovations.
5. Tenant issues
Renting out a granny flat has the potential for tenant issues. You may have to deal with late payments, property damage, or difficult tenants.
Is a granny flat worth the investment? Your personal needs and financial circumstances will determine the response. However, with the proper planning and research, a granny flat could be a wise investment that pays off in the long run.
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Acknowledgments: dohlaw.com.au, backyard grannys, duotax.com.au, ATO, Donovan Oates Hannaford