You’ve heard it all before, and you’ll likely hear it for years to come; granny flats are in. That’s right: latest reports show that over 10,000 granny flats were built in Australia in 2018, and numbers have continued to climb with around 6,000 of them built in NSW alone.
In a country of bullish house prices and aging populations, a granny flat can offer more than one benefit to homeowners. These cost-effective add-ons make for reliable and steady dual incomes, and they’re often cheaper than buying into a retirement complex, not to mention the general real estate market.
Laws & regulations from state to state
Just because your friend has built a granny flat in their backyard, doesn’t mean you’re legally allowed to do the same. Each state & territory work to their own set of rules when it comes to a secondary dwelling on your property. Some states restrict dwelling sizes, and others impose restrictions on minimum land size. You might also find your state requires your granny flat to be placed a certain distance away from your side & back boundary fences and the other existing dwelling on your property.
NSW, WA, NT, ACT & TAS: There are reasons why there are far more granny flats built in these states, particularly in NSW alone, than any other Australian state. For one, laws and regulations that permit homeowners to build a second dwelling in their yard, are comparatively low. The Housing Industry Association (HIA) believes these laws were put in place, to lessen the burden nest-leavers face, of ever-increasing real estate prices. However, studies have shown a total of 23% of all granny flats in these states produce incomes, according to Gateway.
VIC, QLD and SA: It’s not altogether impossible for a homeowner in these states to build a granny flat on their property, but local governments do impose heavy restrictions on who lives in them. Only immediate family members or a “dependent person” such as a teenage child or elderly parent can occupy the granny flat. In some cases, homeowners have been ordered to remove or demolish their granny flat when the occupant has left home or passed away.
Before making any arrangements, it’s best to seek planning advice from you local council so you can rest assured you’re working within your state’s guidelines.
How a granny flat can earn you money
According to CoreLogic’s 2019 Granny Flat Report, property investors view granny flats as a handy add-on to increase your rental yields by 27%.
Let’s say you’ve spent $95,000 constructing a granny flat on your investment property, located in a sought-after area which is expected to earn you around $450 a week in rental income. The national median rent for Australia at the end of 2019 was $435 per week. Now compare that to an investment property purchase of $400,000 that earns you around the same amount of rent per week.
Building a second dwelling on an investment property, also gives you a very real chance of achieving a positive cashflow property, potentially eliminating the need for you to cover any shortfalls between the mortgage & the rent you receive. Upon the sale of your property, you’ll enjoy a higher resale value, which will in turn, maximise your equity in the property. There’s additional tax depreciation benefits too.
For homeowners, the same CoreLogic Granny Flat 2019 report states that granny flats can boost the value of your home by 30%. If you live in an eligible state and you’re facing skyrocketing living costs, or you’re starting to feel the brunt of unbearably high mortgage repayments and outgoings, a dual income property can provide you with some much-needed relief.
On the other hand, your kids might have flown the coop, and there’s little need for the size of the current house you’re in. In which case, you might opt to move into the granny flat and rent your main house out for a higher return. Short term leasing sites like Stayz and Airbnb give you the option of testing the waters without diving headfirst in unknown territory.
Granny flats offer significant tax benefits too. You can claim depreciation as an expense, and if you need to borrow money for the build, the interest on what you borrow will be tax deductible. It’s essential you clarify this with a tax expert as you may have to pay other costs like capital gains tax.
Though the granny flat concept was born from the desire to accommodate elderly parents close by, they’re an attractive option for homeowners and investors as a source of dual income in today’s market. Make the best use of your backyard, turning assets into opportunities, where you’ll start to see the fruits of your labour come to life.