Granny flats are becoming more and more popular, especially on Sydney’s Northern Beaches. Not only do they offer an extra source of income, but they can increase property value and be a great alternative to using up that extra backyard space. Here are some things to consider when thinking about building a granny flat:
Extra rental income.
Your granny flat can essentially become a significant additional income earner. With holiday rental websites like Airbnb and Stayz booming, granny flats can provide great spaces for holidayers. This is an opportunity to gain additional income which is more than you would get from a private rental property considering a “per night” average. A granny flat which is not rented out 365 days of the year gives a great space for friends and family to stay (close enough without being on top of each other). Alternatively, a granny flat could provide you with a steady income if you decide to rent it in the private rental market. This can provide a steady income that you can rely on and include in your budget plan. It can also help with spreading your income risk, especially if you have (or are planning to have) a family where you might be relying on one income for a period of time.
Increase property value.
Building a granny flat could significantly add value to your property. If it comes to selling your home, granny flats are of particular interest to investors who can see the potential earning capacity for it’s renters. Granny flats are also of interest for families who might have elderly parents or teenage children who need a bit of space for themselves.
Increase tax depreciation.
While there is a lot to consider with this, savings can be significant when it comes to tax time. Depending on what you use your granny flat for, and how much income you are making from it, you could find yourself with an additional $5000 around tax time during your first year. Head over to the guys at BMTQS who can give you an estimate of the tax depreciation deductions that could become available to you.
An alternative to a home extension.
If you have been thinking about extending or needing a little more space, a granny flat can provide a creative solution to this. A Granny Flat is more flexible than say an extension or addition as it is a stand alone dwelling allowing you more freedom to use it as anything you can think of. It could also be a cost effective and time saving alternative to a dual occupancy.
It could cost you more than you expect.
When it comes to building anything, costs can quickly add up if you are not careful; building a granny flat is no exception. It is important that you have a very clear budget plan before you even meet with your builder so that you know how much you have to spend, and you reduce the risk of overspending. A good builder will be able to draft an accurate budget to suit your needs. Keep an eye out for a builder who provides accurate quotes, i.e. is able to include each and every nail he anticipates using in his quote, compared with the one who glosses over the smaller details. If you want to learn more about creating a realistic budget for your granny flat, flick us a message and we will be sure to be in touch to discuss your needs.
It could increase your property management costs…and after all that work, it might not rent.
While in theory, a granny flat should earn you money in the long run, it is important that you consider all that is included in maintaining a granny flat. To build a granny flat to increase your income, it might be quite a long time until you make up what you spent and actually see any financial returns. If it is not going to be rented out in the private rental market, you need to consider that you will need to furnish the entire flat – from beds to dining room tables to sheets and towels. You should also consider carefully what you are actually going to use the granny flat for, before you build it. If you are indeed hoping to use it as an extra source of income, consider what type of people will be coming to stay. Are they families who want a relaxed beach holiday or are they couples who want an escape to the big smoke. Is the flat going to be used for elderly parents who might need wheelchair access and large bathrooms? The more of these things you consider, the more you are going to get out of your flat and will help you to ensure that you are spending the right money in the right places.
Beware of capital gains tax!
This is another whole blog in itself. But the team over at Rent West have already done it for us! Check out their blog on the possible tax implications of granny flats here.
You might need council approval.
While this will not be the case for all granny flats, this is something that you want to investigate early to save disappointment. Council approval can take time and be a confusing process if you don’t have the right guidance throughout the process. Check out our blog post on development certificates for more information on council approval and the process involved in getting it.
Don’t underestimate the space that you will need.
Although you might have some space and want to add the value to your property, a granny flat needs some space of its own. If you are going to be using the granny flat as a rental property or Airbnb, you need enough distance from your main house for guests to feel like they have privacy and are not too boxed in. You don’t want the granny flat to feel like it is a part of your home or it will ultimately defeat the whole point of having a granny flat!
As always, the decision is yours; BUT we hope that the more information you have, the more able you are the make the best decision for you. Please don’t hesitate to get in touch if you would like to explore further your options of building a granny flat, or would like more information.