Should I build a Granny Flat to rent?

By September 4, 2016 No Comments
Exterior - North Turrmara, Sydney - low res

So you’ve heard through the grapevine what John and Jane Smith are renting their Granny Flat for, and the dollar signs are going off in your head wondering if you should (or could) do the same. For a lot of people Granny Flats return a fantastic rental yield – higher than almost any other bricks and mortar investment in the market. However, the question stills remain – is building a granny flat to rent out to the right thing for you to do on your property? Hopefully, a few key points below might help steer you in the right direction.

  • Consider your space – Essentially what you are considering doing is sharing your property with someone else, which is a big lifestyle change for a lot of people. What was once your back or front yard is now going to have a miniature house on it with someone living there. The obvious things to consider are noise and privacy – so make sure your designer carefully considers these with the plans.
  • Consider Air BnB – This a growing trend and a great option. If you don’t want a permanent resident then having a Granny Flat you can sporadically rent is fantastic, you can pick and choose when you want someone in there, and can use it for family and friends if you choose. Also, this gives you the flexibility to increase the rental return in high demand times, such as special events or Christmas.
  • Will it affect the resale of my house? – This really depends on where you are, areas with low rental demand and really high end housing don’t warrant the demand for Granny Flats like other areas, so building one here is probably going to decrease rather than increase the resale value. These are rare suburbs though, so for almost 90% of areas, a positively geared Granny Flat is going to increase the resale value.
  • Can I do it legally? –  In most states yes, however some states (like Qld for example) have council by council by laws, rather than state wide legislation. If you are unsure about whether or not you can build a Granny Flat and rent it out to non-family, give us a call and we can talk you through the options.
  • How much am I actually going to make a week? –  Like the resale question, this is going to depend on a number of factors, like how much you actually pay for your granny flat and the rental demand in your area. Generally, granny flats are almost always positively geared. Around Brisbane, Sydney, or Melbourne, a typical granny flat can cost anywhere from $100,000 – to $175,000, with rental returns as high as $725. So roughly speaking, if you were to spend $150,000 on a granny flat, this would equate to less than $200 a week on a 30 year mortgage – so have a look online and get a feel for what a two bedroom granny flat would rent for in your suburb and do the math for yourself.
  • Are there any ongoing costs or fees? – Not really, most councils allow one principal dwelling and one secondary dwelling on your property without any changes to rates. As Granny Flats generally feed off the services of the main house, this doesn’t require any connection to the main assets like sewer or electricity.
  • How should I design for maximum rental return? –  The general rule of thumb is 2 bedrooms, one bathroom, and an open plan living. However, more recently – we are seeing more and more demand for one really good sized bedroom and a smaller study or utility room. Again, horses for courses, but keep in mind these are small homes, so it is usually either singles or couples going in there, which tends more to this format, and probably allows you to charge a bit more rent.

So, you’ve considered all of the above, and your still dead keen to throwing up a Granny Flat, so check out our About page for more info on the process and next steps. Any Granny Flat specialist should be happy to give you a basic feasibility assessment just with an address and over the phone.

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