Does building a granny flat make good investment?

Granny flats are becoming increasingly popular across the suburbs as the price of land continue to rise.

They have a myriad of uses including as a home office, a house for your elderly parents to live in, an area for your hobbies, or an additional living space that can be rented out.

Granny flats are much smaller than the primary home and can be built quite quickly and cheaply, depending on their design and structure. The average cost to build a granny flat is $100,000 to $150,000 and it may increase the value of the property.

It can also generate significant income.

If you want to rent out your granny flat to generate income, it’s important to do your homework first. Each state in Australia has different regulations on renting out granny flats. NSW, Western Australia, the Northern Territory, Tasmania and the ACT allow their residents to rent out a granny flat but in Victoria, Queensland and South Australia this practice is not allowable and you are only allowed to accommodate your dependents.

However, the general trend in Australia is for zoning laws to become more hospitable for granny flats.

The rules for building a granny flat tend to have a few things in common across the country:

Your property should be zoned for residential use,
Your property should be at least 450 sqm in size,
The granny flat should be no more than 60–80 metres or it will require council approval,
It should be the only granny flat on the property and,
Granny flats must have a separate and unobstructed pedestrian access.

Of course, even if the numbers add up there are some important non-financial factors that will determine if you want to build a granny flat. Many people don't want a stranger living in their backyard and for this reason a lot of granny flats end up as storage sheds when a house is sold to new owners. However, if you are willing to put up with the inconvenience, a granny flat can be a great way to earn some extra money and potentially pay off your mortgage sooner.