Granny Flats are quickly becoming a simple investment option that increases the value of your home, provides more flexible living arrangements and can produce regularly passive income from your family home. More people are working from home than ever before, and more young renters looking for small places near high-growth business areas. It is little wonder, then, that so many people are buying and constructing granny flats all over Australia. In Sydney alone, over 100 flats are constructed every week.
Governments are happy with this trend. That is why, around the country, they are cutting paperwork to make it easier for homeowners to install granny-flats, thereby increasing housing and promoting family living arrangements. A spare 60spm on a property that is 450qm or larger may get you a certificate to build in NSW. Other state and territory governments have similar criteria to meet and different laws for what flats may be used for, but all are committed to encouraging their construction. Contact your state government to learn what you can and cannot do when considering granny flats.
Comfortable and affordable
When it has never been easier to get building approval for new structures on existing residential properties, it is no surprise that personal investors choose to capitalise on their own home than buy another. And when you can spend more time with your family and have independence at the same time, granny flats make the perfect compromise for the young and old alike. Adding value to your home and family means that granny flats are becoming very popular indeed.
Why have a granny flat?
There are many reasons to consider the construction of a granny flat or other separate residence on your property. The name itself comes from the idea of offering a retreat for the elderly so that they may pass on the family home to their children but still maintain a close contact with them. In the same vein, they make a wonderful stepping stone as children reach adulthood but wish to take advantage of living rent free while they engage in tertiary studies or save for their own home. Granny flats can also make wonderful guest houses and creative studios.
The addition of a separate space is often a wonderful way to save money as a small business. Not only do you have an affordable space for work, it can be designed for client consultations in mind, making it perfect for many one-person businesses like accountants, therapists and software consultants. By having a separate building, it is also easier for said businesses to claim the correct amount in tax deductions.
Of course, the primary reason for the construction of granny flats today is as an investment that returns income through rent and increase property value.
Who can build a granny Flat?
Anyone who owns a suitable property can apply for permission to build a granny flat. That means both property investors and owner-occupiers who wish to remain residents of the primary property. To gain permission, one must apply through your local council and fit criteria as set out by your state government. These criteria are slightly different for each state, but generally include having enough room on your property for the new construction and for that construction to be smaller than a specific portion of the primary residence.
Permits are required before any construction begins, but councils and state governments offer great advice and guidance when it comes to filling out applications, and have created a system that makes building a granny flat an easier process than other development applications. Contact your local council before making any decisions about constructing your granny flat.
How much does building a granny flat cost?
The purchase or construction of a granny flat can range from ten thousand to three hundred thousand dollars, dependent on size, quality of build and facilities.
A pre-made “kit” can be purchased online for only a few thousand dollars. These are generally studio flats, with or without small ensuites. Buying from a trusted company ensures they are made of study, long-lasting materials, but more money will be required for connecting plumbing and electricity. A small flat is often the perfect option for a low-cost teenage retreat, creative studio or home office.
The savvy handyman can often design and build their own livable granny flat for as low as twenty-thousand dollars, saving money in labour that can be spent on higher quality materials. However, this requires skill and an investment of labour that many cannot provide, as well as eventually end up with a flat does not meet council regulations. The “do-it-yourself” flat can either save you or cost you a lot of money.
Building Contractors today are experienced in constructing granny flats of as high a quality of any full-sized house. A two-bedroom granny flat as good as any apartment unit can be constructed with minimal fuss for the buyer. This option offers the best added value to the property, however the initial costs are usually much higher. A two-bedroom granny flat costs on average two hundred thousand dollars.
How might I rent out my granny flat?
While some granny flats are built for family or business, most people see them as an investment opportunity and a way to provide a regular passive income. Today, there are many avenues one can take when renting out their granny flat.
Short Term Rental
Short Term Rental companies like AirBnB and Stayz have contributed over a billion dollars to the Australian economy and are the preferred choice of travellers around the world, who find the local interactions and personal rooms to be far preferrable to cookie-cutter hotel rooms. Especially popular in the major cities, renting your room as a short term rental can bring in over a thousand dollars a week, even in quieter areas of the country.
Of course, STRs also come with work involved. From maintaining the quality of the flat, including laundry and cleaning, to dealing with the paperwork, some people do not find the trouble worth it. On off seasons, they may not have people interested. Sometimes, they even get noisy guests. It is a lot of money, but you work for it.
Australia is currently in the middle of a seller’s market when it comes to housing. With owning your own home being an unrealistic option for many young workers, the priority instead becomes finding somewhere new, quiet, but conveniently located. This means the outer suburbs of major cities have seen the biggest growth in granny flats, where family homes come with big properties, and a granny flat is an affordable option for a young professional. Rental prices are expected to boom in 2020 and long-term renting guarantees a stable passive income. By working with a property manager, you may receive less money but do so with little work or risk. Property managers have experience finding the right tenant for your circumstances, making a stranger on your property feel more like an extended family.
Of course, today’s landlord can also opt for private rental agreements, advertising on the same portals as real estate agents and taking advantage of the guides and forms the government provide to ensure legally binding contracts and bond agreements that protect both landlord and tenant. The private landlord needs to know their responsibilities when it comes to the privacy of their tenant as well as their rights. Government organisations like NSW’s department of Fair Trading offer template rental agreements and help with arranging Bond as well as advice on dispute resolution.
How do I sell my granny flat?
A granny flat cannot be sold separate from the primary residence and to do so would require an application for subdivision of the land. This comes with a range of benefits and problems with regards to legal obligations and taxation.
When you sell your property, if you have been using your granny flat as an investment, you may incur taxation under Capital Gains (CGT) or through the Goods and Services Tax (GST). This taxation is determined by what proportion of your property is made up by the flat, and discounts are possible based on how long it has been rented for. It is important to speak to a lawyer to find out what you may end up owing.
Does having a granny flat increase the value of my property?
Having a granny flat does not guaranteed that you are increasing the value of your property. Factors such as the size of the flat, the current quality of the structure and how it affects the value of the remaining yard and entertaining area all can affect the overall value of the property.
However, some experts estimate that a high-quality granny flat adds somewhere between ten and thirty percent value to already existing homes, especially in areas of of population growth, where the demand for rental properties are higher and investors can make a larger return on their investment. While it is not wise to assume an increase in value, making careful decisions at the time of constructing your flat may turn into future financial benefits.
A Case Study:
Cameron has a beautiful family home in Narre Warren, Victoria, valued at eight hundred thousand dollars. Being a personal accountant, a home office away from his young children was a wonderful idea, and he was excited to learn that he could have a granny flat constructed and claim depreciation as a tax deduction over the coming years. Knowing that there might be future uses for the space, he included an ensuite.
However, his business suddenly grew too large and he needed separate offices as he took on employees. So he rented out the granny flat to a local student, Chrissy, for a reasonable price. Chrissy was excited, of course. This being her first place away from home, she enjoyed the safety of knowing her neighbours and having a place to herself that was within her price range.
Breaking it down, this was the experience of Cameron during his first year of renting it out:
House Value: $800,000
A studio granny flat and ensuite: -$50,000
Maintenance and paperwork Costs: -$2000
Property Depreciation Deduction: $3400
Rent earned ($150/week): $7800
Additional Property Value (15%): $125000
Immediate return on investment: $9200
Overall net gain: $134,200