Should I consider a granny flat in my investment strategy?

We are often asked if building a granny flat is a good investment strategy for a property. As with all of these things, there is no right answer; it very much depends on your personal circumstances, what your goals and aims are, the type of property and the area the property is in.

Traditionally, people built granny flats on their property to help accommodate older parents (hence the name!) or for a place for moody teenagers to live.

However, looking through the eyes of an investor, as well as creating an income, granny flats can create other benefits, but there are a few other points to consider too.

Capital growth vs cost

Investors do need to do some number crunching and decide whether spending the money to build a granny flat is worth the income and potential capital growth.

For instance, if it’s going to cost $70,000 to build the granny flat, will the property increase by this amount?

As with any building work, you’ll also need to factor in some extra dollars in your budget to account for those unexpected situations.

Ultimately, you’ll need to ask yourself whether the money invested in building a granny flat will result in a higher capital growth for that property, or will you achieve higher capital growth from investing the money in a different property.

Rental return

Do your research. Be sure your property is in an area where there is a demand for this type of accommodation.

If you are not living in the property, you will need to consider whether tenants in the main property will mind having another tenant in their back yard. You may potentially end up having to reduce the rent of the main property to accommodate this.

Furthermore, if you rent out the whole property, you will need to ensure the lease clearly spells out who is responsible for what if the tenants decide to rent out the granny flat to a third party.

Rules and regulations

Like every building project, there are some rules and regulations you must adhere to when building granny flats, and there are some restrictions:

  • The site must be in a residential zone
  • The development results in one principal dwelling and one secondary dwelling on the site
  • Total floor area is a maximum of 60 square metres
  • Cannot exist on strata title, subdivided or community title property

For more information about building granny flats visit: www.planningportal.nsw.gov.au

Other considerations

You will also need to think about your long-term plans. Currently, if you build a granny flat in NSW, you are not allowed to subdivide the property.

Building a granny flat does work for many investors, but be sure to do your research and talk to financial professionals before deciding to include one in your investment strategies.

As one of Newcastle’s longest established real estate offices, we know property. Whether it is from an investment or homeowner’s point of view, we’re always looking at innovative ways to help you get the best from your asset.

Give us a call on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or pop into our Cardiff office for a chat.

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