Traditionally viewed as the territory of teenagers or grandparents, granny flats can also readily double as highly lucrative investment properties. While a fully self-contained home extension built on the same plot of land as the primary home may seem relatively inexpensive and simple to build and maintain, it’s easy to fall into the trap of thinking this is a risk-free investment. To help you decide if owning a granny flat aligns with your investment goals and ensures you a successful long term investment, we’ve listed the major pros and cons you need to know…
Image: Houzz – Woods & Warner
1. Affordable investment
Building a granny flat is generally significantly cheaper than purchasing a standalone investment property, with some costing as little as $100,000. This can be a great way to start building your investment portfolio without accumulating too much debt.
2. Extra income
Depending on the suburb and the size/features of the flat, your investment can readily turn a tidy profit and give you some extra cash in hand.
3. Adds value
Additional property on the same block of land as the main home can also add significant value. Just ensure all council regulations are fully complied with and consider variables such as location and build cost.
4. Extra tax depreciation
You will have an additional property to claim for your depreciation schedule. If the granny flat is built brand new, then you will be able to claim a good amount of paper losses, which will help offset the tax you pay each year.
5. Handy addition
If your circumstances change and you also need somewhere to house extra family members or friends, then your granny flat can provide the necessary accommodation.
Image: Houzz – Digital Photography Inhouse
1. Council restrictions
Not all councils permit granny flats, or if they do, they enforce significant regulations. Make sure you’re careful in conducting your research and that you account for things such as the block size required and how close the flat can be built to the fence.
2. Councils that allow granny flats generally aren’t in high capital growth areas
Given this type of investment property achieves the greatest success in areas of lower socioeconomic status, this could be a determining factor in your decision.
3. Costs can add up
As with any renovation or construction project, it’s all too easy for the costs to creep up. Overruns are a given, so ensure that the construction is adding significantly to the value of your property and you have the necessary finances to cover any additional expenses.
4. Reduced resale and rental market potential
Since the end product has only a small market you’ll likely encounter minimal demand for owner-occupiers and tenants. While most homeowners aren’t too eager to share their land with a tenant, it’s also true of the opposite. Your property will hold the greatest appeal with investors.
5. Increased vacancy periods
Your granny flat is only going to attract a certain type of tenant. This means you’ll have a far smaller pool to choose from. This inevitably leads to longer vacancy periods and, by extension, no income.
While this investment option has both its pros and cons, the decision ultimately turns on your location, council requirements and whether a granny flat would add significant value to your property.
Need help getting started? iBuyNew will point you in the right direction! Whether you are looking for apartments, townhouses or house and land packages, working closely with an iBuyNew property consultant, who understands the market, will help you find something suitable that’s tailored to your needs and requirements. Get in touch with them on 1300 123 463.