Are Granny Flats a Good Investment?

When it comes to property, there are good investments, there are bad investments and there are those investments that tend to be quite subjective; this is the granny flat for you. The value derived from a granny flat can be affected by so many small details. An owner in Sydney may get immense value from a granny flat there, but at the same time totally against the idea of building a similar granny on his property in the outer suburbs of Melbourne. Let us tell you why!

A granny flat is a great investment for some, for others not so much – whether or not you see the granny flat as a good investment comes down quite a few different factors. The value of a granny flat isn’t usually reflected in an increase in property value that surpasses the cost of the build. Instead, the value is seen in other areas such as lifestyle benefits, additional rental income, and just having the extra space available to host guests.

Whether or not a granny flat will be a good investment in your specific case, comes down to your reasoning for wanting to build a granny flat in the first place. If you want to build a granny flat to increase the value of your property when you sell in a few years – then the answer is: no, it is not a good investment. On the other hand, if you are looking to earn some long term rental income – then the answer may be yes! That answer also depends on where you live.

Granny flats add value in many ways

A granny flat is seen as a great 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 are slowly relaxing their stance on granny flats; making them easier to build and to rent out.

Property value will go up, but it might not be by much

The more that the general public start to see a granny flat as a valuable asset, the more it will start to impact the end sale price of a property.

As it stands, the value of most homes 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 normally exceeded by the value added or perceived value of the property to a potential buyer. In some cases, you may come off worse! It is entirely possible that the cost to build a granny flat will be greater than the extra value added to the property as a whole.

It is important though to do your planning and maybe even spend that little bit extra, to avoid a situation where the granny flat actually 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 is not able to be rented out, and it may need to be demolished. An extra expense.

There are a number of lifestyle benefits

It’s important 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 very valuable for the purpose that they were originally designed for – hosting granny! With the increased cost of housing and also aged care homes, co-living arrangements with older parents are the solution that many households are looking for. Not only do both parties benefit from lower living costs, but they are able to 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 each and 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 harder, there may be some local councils that allow it but it would be approached on a case by case basis.

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 obviously much less attractive for tenants.

An 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 certainly a great investment for families with frequent visitors and for expats who have friends who travel to visit from overseas.

How much does it cost to build a granny flat?

How much it costs to build your granny flat depends on a few things. The design, quality of the building materials, your land, and any extras that will be required to make it suitable for the granny flat build.

If your lands meets all the complying development criteria outlined by your local government, then great! Your building project just got a whole lot cheaper. In some circumstances, you will be required to make some structural changes before your plans will be eligible for approval. For example, removing trees, adjusting any inclines, changes to sewage or stormwater drainage. In this situation, the planning costs can really start to add up, and this might not be worth it for some homeowners. Not all blocks are land are created equal!

Aside from the planning and land costs, the cost to build your granny flat will also depend on your taste, or even the taste of the person who designed your home. Many homeowners opt for a granny design that complements their existing property. The cost of a granny flat is usually within the range of $50,000 to $150,000. There is a lot of work and money that goes into a fully self contained granny flat so the decision to build should never be taken lightly.

Granny flat tax implications

There can be a few tax implications that come with granny flats, and this can impact its status as a good or bad investment.

Capital gains tax is a tax that is paid on any increase in the value of your property. If your family are using the full residence (including the granny flat), then you are exempt from the tax. However, if your family is living in the main residence, but you will rent out the granny flat, then you are liable to pay capital gains tax on the portion of your house value attributed to the granny flat.

Onto the positive for investors! If you are using your granny flat for business purposes you will also be able to claim any expenses that arise from the running of the property as a tax deduction. Any loan interest payments and depreciation expenses can also be claimed. It is a good idea to discuss these details with your accountant before making any decisions.

Make sure that your granny flat is a good investment for you

At the end of the day, a granny flat is only a good investment if you deem it as such! When deciding whether a granny flat is a good investment for you, it is important to consider all the factors that could impact your decision. Do you intend to sell your property soon? Do you have older family members who may move in? Do you have teenage kids, eager for independence? Would you enjoy having a tenant living in your backyard?

As Australia’s population grows and urban centres become more crowded, granny flats are becoming more and more valuable. In fact, a block of land that can easily qualify for a granny build is also set to become more valuable. It is inevitable that Australians will have to start being more creative with their living arrangements in the coming years. And the granny flat may just be the investment you are looking for.

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