Should I Build A Granny Flat? 9 Risks And Benefits You Must Be Aware Of
It is now easier than ever to build a granny flat. The i government passed new laws in 2009 that made building a granny flat easier for investors than ever before. However, before you jump ahead and build your own you should be aware of the risks and benefits of having a granny flat attached to your property.
The Benefits Of Building A Granny Flat
1. Extra rental income – This is the major benefit of owning a granny flat. Gone are the days where you simply used them to house your teenager or ping pong table. Granny flats can be a solid source of income fetching up to $350/week in capital cities. Whether it is an investment property where you rent out the granny flat for a second income, or your home where you rent it out, the extra income can help you pay down your mortgage faster and can get your towards financial freedom faster.
2. Spreading your income risk – The majority of Australians rely on one income to fund their lives…their job. Renting out a granny flat provides you with a second source of income. If you own just one investment property then renting out your granny flat ensures you don’t go weeks without any rental income. If you just have one property and it is vacant then you have no money coming in each week, however with a granny flat it is unlikely both properties will be vacant at the same time.
3. Increasing the value of your property – A granny flat can increase the value of your property. For a family they may see it as an extra room for one of their teenagers, for an investor they will see the extra income it can derive and they would be willing to spend more money to acquire the property. Speak to a local real estate agent to find out exactly how much value it would add to your property.
4. More tax depreciation available to you – Having a granny flat that you are renting out gives you extra claimables on your depreciation schedule. If you build it brand new then you will be able to claim a good amount of paper losses which will help to offset the tax you have to pay each year.
The Risks When You Build A Granny Flat
1. It could cost more than you expect – Whether you are building your granny flat from scratch or renovating an existing building or granny flat it may cost more than you initially expected. There are always hidden costs that can occur when building a property. Speak to your builder about what these could potentially be and how you could avoid them, or at least prepare for them. There are some builders who will do a survey first and then offer you a fixed price that is very unlikely to change.
2. Increased property management costs – Now that you have an extra dwelling you are renting out you will have increased property management costs. Firstly you will have extra property management fees but having a granny flat can also create ‘common areas’ and mean you have to pay for the gardening to be done as neither property has full access and thus does not carry full responsibility. You can often solve this by giving the house dedicated space, as well as the granny flat.
3. More potential headaches – With double the property there is potentially double the headaches. Everything from maintenance to tenant issues, the more properties you have the more potential headaches that could arise. Having a competent product manager will help minimise headaches as much as possible.
4. It may not rent leaving you with increased expenses – If it doesn’t rent then you will likely have increased expenses. Increased mortgage from your building fees associated with the granny flat, increased maintenance etc. However, in a good area granny flats tend to rent fast as they are great affordable accommodation.
5. You need to ensure you have the correct council approval – It is easier than ever to get the council approval to build a granny flat, but just make sure you cross all you i’s and dot all your t’s. Certain things like the size of your block and how close it is built to a fence matters.
Building A Granny Flat Can Be A Great Investment
As you can see there are some risks associated with building a granny flat but many of these can be mitigated or managed. Granny flats can provide you a great return on investment and can help you to increase the value of your property and pay off your mortgage faster.
I even read about a little old lady who was financially free off just 2 properties. One was a house she split into two (gaining two incomes) and in the other property she rented out the house and lived in the granny flat. She had paid off the mortgages over time and was earning a nice income that far exceeded what she would have been paid on the pension.
The best next step is to speak to a builder or a company that makes pre-fit granny flats about whether you can build one on your property and how much it will cost you. It is also worth speaking to a local real estate agent about your plans, they may be able to advise what your granny flat would be able to rent for.