Are granny flats a good investment?
As the rent prices continue to climb, Aussie renters are starting to look for more affordable alternatives, with the most popular being granny flats. According to the latest Domain report This spring’s housing buzz: Top keywords, homes, & hotspots, one of the most popular searches, particularly in Sydney and Melbourne, is for granny flats.
As demand grows, some may consider building one on their property for potential passive income. It could be a great opportunity for investors looking for a cheaper investment property option.
However, building a granny flat isn’t as easy as hiring a builder and then renting it out. There are some rules you’ll need to follow and factors to think about. Here are a few things you need to know when investing in a granny flat:
What is a granny flat?
A granny flat is a self-contained housing unit located within your land’s boundaries that can operate as a separate dwelling. This type of property is smaller than a standard freestanding home, requires less maintenance, and is relatively cheaper to build.
Secondary dwellings are more commonly referred to as a ‘granny’ flat, as it is often used to house an older parent. The unit can be completely detached from your home or attached via a garage or side door. The idea is that it can be lived in completely independently.
What are the types of granny flats?
Just like houses, granny flats can come in different styles. There are a few ways to build a granny flat, which are:
Built on site
This is when a contractor or builder builds the granny flat on your property. The process is similar to traditional house builds, but with a shortened timeline and typically fewer expenses.
Garage conversion
As the name suggests, this involves transforming your garage into a secondary living space. This could be ideal for those who may not have enough land for a separate building.
Prefabricated and modular units
These refer to units that have already been built and need to be installed on your property. These are turnkey builds that can be installed in a few hours.
Always check your council’s local habitability or rental regulations to ensure the granny flat you build or install on your property meets the requirements.
Pros and cons of investing in a granny flat
Whether you are buying a home with a granny flat or building one, you need to understand the advantages and potential disadvantages. Consider the pros and cons below:
Pros of a granny flat
One of the main benefits of having a granny flat is that it’s a cheaper way to acquire an investment property. You can also save money by renting it out directly without needing a property manager.
Investing in a granny flat can also be more convenient as a landlord. Since it’s on your property, you will always be nearby if there are any maintenance issues or the like.
Lastly, having a granny flat on your property can increase its resale value. Granny flats are like houses and units in the fact that they can go up in value over time.
Cons of a granny flat
There are several rules and laws around building a granny flat that you need to consider. Though the rules may vary depending on which state or territory you’re building in, generally, you’ll need to have a few things sorted:
- Your property should be zoned for residential use.
- Your property should be at least 450 square metres.
- The granny flat should follow the size requirement set by the state or territory.
- You should only build one granny flat on your property.
- The granny flat must have separate, unobstructed pedestrian access.
Another potential con is that you will need council approval to build your granny flat.
You may also be required to pay capital gains tax (CGT) if you rent out your granny flat to tenants and decide to sell. Even though it may sit on your primary residence's property, it is technically an investment property.
Tips for investing in a granny flat
If you’ve decided on investing in a granny flat, here are a few tips that can make the whole process easier:
Do your research
Before setting anything in stone, do your research and run the numbers to see how much a granny flat could cost compared to how much you could potentially make. You should also research builders, council approval processes, and so on.
Get multiple quotes
Don’t settle for the first builder you find. Shop around for a few quotes; this doesn’t mean going with the cheapest. Look at reviews, ask for samples of work, and find the best fit for you.
Be ready to finance it
Start your property investment off strong by getting a good home loan. Ideally, you want an investment home loan that offers competitive rates and useful features that can help you save money in the long run.
To learn more about financing options for your granny flat build, get in touch with the friendly lending specialists at loans.com.au. If you’re ready to start building, apply for an investment home loan online today!
Find out in under 2 minutes if you qualify for one of our low rate home loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
