Pros and cons of investing in a granny flat

By Michael Mata
With no end in sight to Australia’s housing affordability issue, it’s becoming harder to find affordable, low-maintenance rental properties in the capital cities. With this scenario in mind, building a granny flat could be a great means of utilising additional living space on your property, and could help you generate extra income for your family.

On the other hand, buying a modular granny flat or having one built on your property isn’t without risks. Read on to discover the pros and cons of investing in a granny flat.

What exactly is a granny flat?

Granny flats are generally defined as “secondary dwellings,” which means they’re built on the same lot of land as the main dwelling. Granny flats are self-contained dwellings, and have separate entrances, as well as their own bathrooms, kitchens, bedrooms, laundry areas, and living spaces.

Depending on the layout of your property, you could add a standalone building in your backyard or build a secondary dwelling as an extension over your garage. It’s important to remember that your granny flat needs to have its own separate entrance to meet regulations.

What rules and regulations apply?  

Due to the nation’s housing affordability issue, a number of state and territory governments have introduced measures that make it easier to build granny flats. In New South Wales, for example, the Department of Planning and Environment has introduced new regulations to make it easier and quicker to obtain approval for granny flat construction. As a result, the number of approved new granny flats increased from 1,500 in 2010 to more than 4,800 in 2014.

The governments of Western Australia, the Northern Territory, Tasmania, and the ACT also allow their residents to rent out granny flats to generate extra income. However, this practice is currently not allowed in Queensland, Victoria, and South Australia.

Before you buy or build a granny flat, it’s important to ensure your planned addition will be fully compliant with your state or territory’s applicable laws. Check with your local council to find out what regulations apply in your area.

However, as a general rule, your granny flat needs to fulfil the following criteria:
  • It must be built on a property that has been zoned for residential use
  • The property must be at least 450 square metres in size
  • It must be the only granny flat on the property
  • It must be owned by the same person who owns the primary dwelling on the property
  • There must be a maximum living space of around 60 square metres (though this figure varies and usually does not include verandas, carports, and patios)
  • It must have separate and unobstructed pedestrian access
Pros of investing in a granny flat
  • Affordable: Buying or building a granny flat is usually cheaper than buying a standalone investment property. In other words, investing in a granny flat will enable you to launch your investment portfolio without borrowing a large amount of money.
  • Rental income: Depending on the location of your property, and the size/features of your granny flat, your investment could provide several hundred dollars of rental income per week.
  • Adds value: A legally-compliant granny flat will add significant value to your property’s total value.
  • A practical addition: Whether it’s a friend or relative who needs a place to stay, or visiting relatives who need accommodations, a granny flat ensures that you can provide the necessary accommodations 
 Cons of investing in a granny flat
  • You have to deal with tenants: If you rent out your granny flat, you’ll have to deal with tenants. This could potentially lead to some tense and awkward situations.
  • Unforeseen costs: The cost of constructing a granny flat may be more than you initially expected. Hence, you should put aside additional funds to meet any unforeseen expenses.

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