Do granny flats add value to your home or investment?
Wayne MorganPosted on 23 Feb 2018
When you wish to make renovations or additions to a home, one of the biggest impediments can be red tape. Applying for permits and getting permissions from councils can be time-consuming and costly. However, with a granny flat, the process can be incredibly simple.
For example, the NSW Planning Department notes that councils and local government can now approve a granny flat within 20 days of an application and in Western Australia, the state government recently streamlined the process so planning approvals for granny flats are not needed at all! So if you are interested in doing this it’s worth looking into your local council regulations.
But How Much Value Does it Add?
The amount of value that a granny flat will add to your home varies depending on the property, and the type of granny flat you have installed, but in a recent Sydney Morning Herald article, RPG Valuers principal Ron Gedeon suggested that it could add 20 percent to 30 percent of what it cost to the bottom line of your home straight away.
However, it is important to be careful and make sure you are using the space appropriately - you do not want a granny flat that dominates your land or removes every single piece of green space you have. Consider whether an internal or external construction is going to work best for your property and work from there. You could also turn your garage or unused space under the house into one.
Income Increase - Incredible!
One of the big benefits of owning a granny flat is the rental income you can generate. While the flat can be a handy room for the in-laws or children to stay in when the time comes, you can make a tidy profit by renting out your granny flat, greatly augmenting your rental yields.
As an example, if you have constructed a $100,000 granny flat on a property in a popular area, you might be able to make upwards of $400 per week in rent. This sits only marginally below the median rent across Australian capitals for the September quarter, which was $430 according to CoreLogic-RP Data.
Clearly, there is a huge value to be found in a granny flat. Talk to your local experts about how one could boost your property - and your bank balance!
Chan and Naylor’s Jenna Ford offers her tips on granny flats
It is important to use value adding property investing strategies to build capital value and increase cash flow in your portfolio. Granny flats may be considered as value-adding strategies and if done correctly, they can accelerate your wealth creation.
But, firstly, check your local and state planning legislation to ensure that granny flats are allowed in your location.
Adding value through a granny flat is quite an easy process and it can rapidly increase your capital value and rental income if you do it properly. The rental income may help you in maintaining your servicing capacity with lenders and in proceeding to your next property acquisition. It makes sense to earn two incomes from one property.
If adding a granny flat to your property is not feasible, you may want to purchase a new one. Contact a good buyers ’agent to source the land size and features which meet the local council’s planning requirements. Remember that these properties are much sought after and can be hard to find.
Work with a broker or finance strategist for a finance approval before you acquire a property capable of accommodating a granny flat. It is ideal to start the loan approval process first before locating a property because the competition is stiff for granny flats. You may not be able to move quickly to secure the property if your finance has not yet been approved and there’s another buyer ready to purchase it.
If you do not intend to pay in cash, make sure that your lender will allow construction finance for a granny flat later on. You should also ensure that you have enough borrowing capacity to borrow for the granny flat. You can have your broker or finance strategist to compute your additional borrowing capacity before you apply for the initial loan.
Granny flats differ in quality and size so you have to choose the right builder. Poorly located or constructed granny flats may not attract a good tenant or rental return. Be ready to spend a little extra to get a good quality investment.
Granny flats on stilts or piers, though cheaper, may not be counted into property valuation because of their transportable feature. Granny flat builders usually build on a concrete slab but if your property has some slopes, piering may be required.