Investors are getting returns of 10-16 per cent on the cost of adding granny flats to their existing properties – and increased cash flow courtesy of two lots of rent for the same land.
Granny flats have taken off in New South Wales, which has relaxed laws on secondary dwellings to ease housing shortages, and there is speculation that Western Australia might follow suit.
New granny flats start at about $65,000, which means that a weekly rent of $200 equates to a 16 per cent return. Granny flats can be even cheaper if you’re reconfiguring internal walls to allow two homes in one.
However, there is still no clear picture on whether adding a granny flat is reflected in capital appreciation. Under the New South Wales rules, which were changed three years ago, owners of a house on at least 450 square meters of land generally don’t need local government approval – or extra parking – to build a complying granny flat less than 60 square meters.
EBM Insurance Brokers’ Business Relationship Executive, Rebecca Holdsworth, said that she was coming across increasing numbers of clients with granny flats: You can almost double your income.
Rebecca warned that investors often don’t realise that each tenancy needs its own landlord insurance policy even though one building insurance policy could cover both a house and granny flat.
The same concept could potentially be used in other states, but council approval processes are generally more onerous. Many, but not all, councils ban permanent granny flats – although investment property buyers can look for homes which already have a granny flat.
There is increasing speculation that Western Australia might introduce more flexible granny flat rules to ease a housing shortage which has seen even relatively well-off families pushed into caravan parks.
According to figures issued in February 2012, more than 480 granny flats were approved in New South Wales for the 2010-2011 financial year, with hot spots in Fairfield, Penrith, Hornsby and Canterbury.
Granny flat tips:
- Fence the granny flat for privacy, if possible - Each tenancy needs its own, separate landlord insurance - Try to give the home and granny flat car access, either “battle-axe” style or on a corner - Try to match tenants in the granny flat with those of the main house - Encourage tenants to meet – some seniors might like to exchange occasional babysitting for help lawn mowing – for example, and there are safety and security benefits - If you rent out a granny flat while living in the main home, do your homework on the tax implications.