COSTS

What does a Granny Flat Cost to build? The first question on anyone’s mind when contemplating sacrificing your back yard for a miniature house. So it’s important that you understand costs, and the variables associated with building a Granny Flat.

If you can’t be bothered reading on, then we’ll cut to the chase. A decent Granny Flat built on your block – ready for someone to move in to, should cost you somewhere around the $1,500 – $2,000 /sqm. So if this is the first time you have looked at doing this and are just doing some budgeting, then work o $1,750 for any under-roof area (include outdoor patios etc. so a 70 square metre total Granny Flat, is going to cost you around the $120,000 mark.

Now, you’ll probably talk to some people who will say this is expensive, and you’ll probably talk to some people who will say this is cheap, but if you look across the board at Granny Flat Builders, these are the sorts of rates currently on the market. (Side note – a custom built Granny Flat is different to a ‘modular home’, a ‘flat pack home’, or a ‘kit only’ home) We are talking about the cost to have the Granny Flat designed, approved, built, finished – nothing more to do!

This rate is also higher than the market price for new home, which are advertised as low as $800/sqm with some of the larger project builders. So it is important that you understand why. Firstly, there are a number of fixed costs that remain constant regardless of the size of the home, things like plans, engineering certifications, council approval, plumbing and drainage plans, inspections etc. so these costs are similar to a larger home. Secondly, most Granny Flats still have a kitchen and bathroom, and these rooms have a higher cost per square metre than any other room, so the cost of a small kitchen in a Granny Flat would be the same as a Kitchen in a 4 bedroom home, and when this cost is allocated across the total square meterage of the home, it is therefor higher in a smaller home. Thirdly, the majority of building costs is in the external walls, which has things like insulation, cladding, windows and doors, painting etc. so proportionately – a smaller home will have a higher cost for these as opposed to a larger home, which has a larger internal area for which to spread these costs.

Simple studios or spare rooms can be built a lot cheaper of course, if there is no need for plumbing connections or kitchens and bathrooms, then these sorts of rooms can be built for easily under $1,000/sqm, but should be looked at on a vase by case basis.

DEFINITIONS

With a lot of new products and building techniques in the market today, it is easy to get lost in the Jargon and become confused if you are even comparing remotely similar products and services. So we have jotted down a few of these so you be sure you are searching for what you think you are looking for.

What is a modular home?

A modular home is one that is predominately built off-site and transported in modules. All the frames, cladding, windows, doors etc are assembled in a factory or yard and sent on the back of a truck. The key benefit being speed. These homes can be put together quickly as the weather variable is eliminated and the processes can be a lot more streamlined with this sort of setup. The downfall is that you are limited to what can go down a 2.5 wide metre road, and in some cases the transport costs can be horrendous.

What is a Flat Pack home?

Just like you buy at-pack furniture, this is essentially the same thing. Some argue that a at-pack home and kit home are the same thing, yet we would classify a kit home as having pre-fabricated frames and trusses, as opposed to a at-pack that needs frames and trusses assembled by the purchaser. Like kit homes, these deals are sometimes limited to lock-up stage, or internal linings stage.

What is a Kit Home item?

Basically all of the components required for the home to be built be a builder or an owner-builder to the internal linings stage. The difference to a flat-pack home is that kit homes will almost always have pre-fabricated frames (Already made up into panels, with window openings etc. already measured and made) Always ensure you get a detailed scope of inclusions as some kit home companies will only supply to lock up as others will supply everything including kitchens and bathroom fittings.

What is a PC item?

A PC item, or Prime Cost item is the cost of the item itself and does not carry and labour cost attached to it. So an example in a build contract would be an oven. If the build contract allows $700 for an oven, then that allowance is for the oven itself, and should the client source it themselves then this amount is the credit they will receive against the contract. 

What is a Provisional Sum?

A provisional sum is an allowance made in a built contract for both materials and labour combined, and the exact details of the work are yet to be determined or have not been decided on. An example could include something like landscaping, where the client may not decide on what they want until the build is complete and they can see the block with the home built, so the builder may allow a $5,000 landscaping allowance, that the client may increase to $7,500 after more detailed plans and selections.

 

FINANCE

The invisible hand that can make or break most building projects. The majority of consumers looking to build a Granny Flat will need to look at borrowing at least some of the required funds, and as each person has a different set of financial circumstances this really has to be treated on a case by case basis.

Typically though, there are two types of loans:

1) An Equity Loan where the bank basically looks at the plans and the contracts and gives you access to the money to pay the trades or builders directly. These sorts of loans are typically secured by another asset and so the bank is not as strict about seeing every invoice that gets paid because if you botch it up somehow, they will be con dent you have enough equity elsewhere to service the loan. Most Granny Flats are financed as equity loans as banks can use the primary residence as the security. Equity loans come in different shapes and forms and vary by bank.

2) A Construction loan is a loan strictly tied to the construction project itself, so it is not linked to an external security. The banks like to control all the outgoings on these loans as they can’t afford to have any funds go where they shouldn’t. Construction loans are usually viewed a lot harder by the lending institution at the start, which means that a valuation of the completed build may need to be done prior to releasing any funds. Granny Flats can be done this way easily but due to an existing security on the block most are done as equity loans.

There comes a cross 22 in most building projects where the consumer wants to know what sort of funds they will be able to borrow to see what they can build, and the bank wants to know what the consumer wants to build in order to see the value and if it is worth. Our advice on organizing finance is this:

1 Get Pre-Approval – at least get an idea on what you can borrow and what level of debt you can service. If you are going to rent out the Granny Flat once completed, then take into account forecast rental income.

2 Get Plans and Contracts – the stuff the bank will ask for, and don’t even bother trying to set up a loan without this info, they will send you right back out the door and tell you to come back when you’ve got it. Banks don’t need council approved plans in most cases, but will need a fixed price build contract showing inclusions and details.

3 Get Financed – once you have got your contracts and plans sorted, then it should be pretty painless, and depending on the loan structure (see above) then the bank will either give you access to the funds, or set up the drawdowns for when those invoices are ready to be paid.

It is always good practice to speak directly to your mortgage broker or bank contact directly, but all the major banks have pre-approval tool calculators online.