Renting vs. Owning a Granny Flat

How Does a Granny Flat Differ from an Investment Property?

Granny flats are secondary residential units attached to larger primary residences. It is common practice to construct "Granny Flats" for elderly relatives so they can have their own space yet still be close to their families.

Granny Flats are used for various purposes, including as standalone rentals, Airbnbs, home offices, and even permanent residences for extended family members.

Suburb dwellers, in particular, are adding a Granny Flat to their property to increase its market value. People who would otherwise have to choose between living in the city or purchasing or renting a huge house now have a more affordable option. 

Tenants who do not require the extra space of a larger house are often interested in renting a Granny Flat, which can be as large as 60m2.

The usefulness of Granny Flats is indisputable. Since the Granny Flat is an attached structure to the main house, you have a front-row seat to its performance as an investment. Due to its smaller size, the home requires less upkeep than a standard investment property.

Tax Considerations for Owning a Granny Flat vs. an Investment Property

Taxes will affect your bottom line whether you own a Granny Flat or an investment property. You must report rental income from a positively geared Granny Flat, while you may be able to deduct expenses related to maintaining the property. Depreciation on Granny Flats is the same as other properties, at a bare minimum of 2.5% per year, so that you can write off maintenance costs in your tax return.

Adding a Granny Flat to your property might boost its value by providing a new source of income if you decide to sell, but this additional income will likely be subject to capital gains taxation. As a result, more potential buyers, tenants, and investors will be interested in purchasing your home. To maximise your cash flow and return on investment (ROI), you should talk to your accountant about how rental income fits into your financial picture.

Comparison of Financing Options for Granny Flats and Investment Properties

Property investors are more likely to be able to afford a Granny Flat than a full investment property. The initial outlay for a Granny Flat is lower than that of a conventional investment property. Granny flats typically cost between $145,000 and $200,000 to construct, but larger investment properties may cost three times that or more due to recent increases in land prices.

The equity in your primary residence can be used as collateral to finance the purchase of a Granny Flat, which will improve the market value of your home. This could be a good thing if your current mortgage rate is low and fixed. Talk to a mortgage broker about how much you can borrow and whether consolidating debt makes sense. This will increase your mortgage payment in the short term, but in the long run, the Granny Flat will help pay for itself.

Comparing Granny Flats and Investment Properties from a Legal Standpoint

Building a Granny Flat requires the same permissions and inspections as any other type of structure. Affordability of rental housing, however, is a priority for the State's Environmental Planning Policy. The Housing SEPP allows the construction of Granny Flats on any residential properties larger than 450 square metres and with at least 12 metres of frontage on a public roadway. As long as the current property meets site requirements, the owner need not submit an application to the local council for permission to construct a Granny Flat.

Hiring a private auditor to assess your property's suitability and provide a Complying Development Certificate is the best option to determine if your existing property meets the policy standards. Suppose you submit a Development Application to your local council. In that case, they may approve the construction of a Granny Flat on your land even if it does not meet all the regulations.

Rental Income from a Granny Flat Versus a Traditional Investment Property

Granny flats are among the best investments because of their low initial cost and high rate of return. Investing in something as simple as your backyard can boost your income, enhance the value of your home, and help you pay down your mortgage. In addition to the modest initial investment required, the average return on investment (ROI) for constructing a Granny Flat on your land is 20%. 

Which Is Better: Buying an Investment Property or Converting Part of Your Home into a Granny Flat? 

Homeowners who have built up equity in their house frequently ask themselves this. Many families are opting to construct granny flats in their backyards to generate rental income without breaking the bank. Even today, some astute investors are increasing their return on investment by constructing granny flats in the backyards of their investment properties.

Our daily interactions with granny flat owners, builders, and lenders have uncovered the benefits and drawbacks of constructing a granny flat in your garden instead of purchasing a brand-new investment property.

The Benefits of Including a Granny Flat in Your Main House

• Due to the high cost of land outside of very distant areas and the high demand for centrally located rental units, the stamp duty you would pay on an investment property would be more than enough to fund the construction of your granny flat in your backyard.
• A new home costs about $500,000 to build if you invest in the land, but a granny flat or studio, with its modest construction costs and competitive building market, may get you on the investment ladder in just four months.
• Refrain from squander time and energy outbidding other homebuyers.
• Consolidating your loan into one monthly payment lets you avoid land tax on your new rental property.
• Add-on structures, especially those uniquely designed, can significantly raise the market value of your primary home.
• Maintenance expenses, such as mowing the yard or painting the walls, will be less if the investment is kept near the home.
• If you can self-manage the property, it might be a very profitable vacation rental business (you can gauge the local demand by looking at vacation rental websites to see how often properties in your region are rented).
• Tenants may become reliable neighbours you can entrust with tasks like mail collection and pet care while you're gone.
• A Building Certifier, rather than a Council, is all needed to approve a granny flat construction project.
• It would mean less upkeep for the farm and more money in the bank.
• A granny flat's smaller size and lower resource requirements make it an ideal candidate for solar panels and a water tank.
• You're providing shelter for individuals without adding to sprawling urbanisation.
• If there is an unexpected need for more living space in the family or help around the house, you have a home ready to be occupied by a relative or friend.

Downsides of Including a Granny Flat in Your Main House

• You will have a roommate if the property is also your primary abode.
• The construction in your garden may interfere with your daily life for the project's duration.
• Having land taken away (which could be seen as a benefit if you lack the time to care for the land properly).
• Removal of trees and failure to allow for screening during construction might lead to a loss of privacy.
• If you rent out the granny flat, you must pay capital gains tax on the portion of the property used to house the rental unit. 

Advantages of Purchasing an Investment Home

• With less sentimental ties, you'll be more inclined to buy and leave the management to the local pros (at a higher cost relative to your income, but with less disruption to your daily routine).
• Because of the high value of land, even after factoring in higher expenses like land tax, council fees, and water rates, the investment should still yield a positive capital gain (of course, this also depends on the suburb).
• If you're looking to buy a small investment home or apartment, the property will likely have been cleaned up for resale, making it suitable for a tenant immediately.

Downsides of Purchasing an Investment Home

• Time spent searching for and purchasing an appropriate investment, followed by further fixing up and redeveloping the land, is possible.
• The high expense of stamp duty
• As an investment home rather than your primary residence, you must spend time competing in the real estate market and may pay more in Land tax.
• A lack of research on the target market

What You Can Gain From Having a Granny Flat

There are many advantages to buying a house that already has a Granny flat attached to it. Alternatively, incorporate a Granny apartment into your existing house. Here are some advantages of including a Granny flat in your house plan.

Save Money

A Granny flat can be converted into an office, salon, or other business space, eliminating the need for the owner to pay for costly commercial rent. You can combine your work and personal lives better while spending less on transportation and lunch.

Make Money

Small homes, known as "Granny flats," are available for rent. A weekly fee of $100 would bring in an additional $5,200 yearly. The cost of incorporating a Granny flat into your current house can be recovered relatively quickly, and the resulting income stream can be quite welcome.

Financial Security

The vast majority of people's job is the sole provider of financial support. The added stability provided by rent from a Granny flat is little. If you depend on rental income from multiple investment properties, you'll have some reserve savings in case one suddenly stops producing rent.

Separate From Your Home

Depending on the design, granny flats can be attached or detached from the main house. If you use it as a place to get work done, you may avoid mixing business with pleasure and save time on commutes. If you rent the place, the tenant can live their own life, and you might even forget they are there.

Demand For Cheap Rent

Many young people, whether they are still in school or saving up for a place of their own, require affordable housing. You can find renters if your rental property is near a college or university.

It Adds Value To Your Home

Many renters are opting for Granny flats rather than apartments or whole houses. They can use the backyard, develop friendly relationships with the homeowners, and not worry about utility costs (separate metres can be cumbersome). Investors will likely be interested in purchasing your home in the future so that they may profit from renting out both the main house and the Granny apartment. The house is attractive to buyers either way. And with the added convenience of a Granny flat, the house should appeal to a wider audience.

Adding More Bedrooms

You might need more bedrooms for several reasons, including having more children or caring for an ageing family, but you may want to stay put. It is more cost-effective to construct a one- or two-bedroom Granny flat and then rent it out than to renovate the main house. Granny flats are a great way to give your teenagers the independence they crave while keeping them safely under your supervision.

You Can Travel More Freely

You can live in the Granny flat and rent out the rest of the house if you're retired or want to see the world. The rent money is guaranteed, and your house will be well taken care of while you're away.

No Council Approval

Since your land is technically yours, you can build a granny flat without local government approval. Getting council approval is a lengthy process that should be avoided.

Keep Your Family Close

People stay at home with their parents longer because of rising housing costs and a lack of available jobs for recent college grads. Your offspring can "move out" into their own space without you having to shell out an excessive amount of money each week in rent by having a Granny flat built on your property. They can maintain their sense of autonomy while still being a part of the family for longer.

Conclusion 

Granny Flats have become a popular real estate option due to their low initial expenses and strong return on investment (ROI). They are secondary residential units attached to larger primary residences, often constructed for elderly relatives to have their own space while still being close to their families. These flats can be used for various purposes, including standalone rentals, Airbnbs, home offices, and even permanent residences for extended family members. Suburb dwellers are adding a Granny Flat to their property to increase its market value, offering a more affordable option for those who would otherwise have to choose between living in the city or purchasing or renting a huge house.

Tenants who do not require the extra space of a larger house are often interested in renting a Granny Flat, which can be as large as 60m2. The usefulness of Granny Flats is indisputable, as they are an attached structure to the main house, providing a front-row seat to its performance as an investment and requiring less upkeep than a standard investment property.

Taxes will affect your bottom line whether you own a Granny Flat or an investment property. You must report rental income from a positively geared Granny Flat, while you may be able to deduct expenses related to maintaining the property. Depreciation on Granny Flats is the same as other properties, at a minimum of 2.5% per year, so you can write off maintenance costs in your tax return.

Property investors are more likely to be able to afford a Granny Flat than a full investment property due to the lower initial outlay. The equity in your primary residence can be used as collateral to finance the purchase of a Granny Flat, improving the market value of your home.

Building a Granny Flat requires the same permissions and inspections as any other type of structure. Affordability of rental housing is a priority for the State's Environmental Planning Policy, which allows the construction of Granny Flats on residential properties larger than 450 square meters and with at least 12 meters of frontage on a public roadway. Hiring a private auditor to assess your property's suitability and provide a Complying Development Certificate is the best option to determine if your existing property meets the policy standards.

Granny flats are a popular investment option due to their low initial cost and high return on investment (ROI). They can boost income, increase the value of your home, and help pay down your mortgage. The average return on investment (ROI) for constructing a granny flat on your land is 20%.

Consider converting part of your home into a granny flat instead of purchasing a new investment property. The benefits of constructing a granny flat include lower construction costs, avoiding land tax, and potentially increasing the market value of your primary home. Additionally, maintaining the property near the home can be less expensive, and tenants can become reliable neighbours.

A Building Certifier is required for a granny flat construction project, which means less upkeep for the farm and more money in the bank. A granny flat's smaller size and lower resource requirements make it an ideal candidate for solar panels and a water tank. It also provides shelter without adding to sprawling urbanization and can be occupied by a relative or friend if needed.

However, there are downsides to including a granny flat in your main house. You may have a roommate, the construction may interfere with daily life, and the land may be taken away. Additionally, the removal of trees and failure to allow for screening during construction may lead to a loss of privacy. If renting out the granny flat, you must pay capital gains tax on the portion of the property used to house the rental unit.

On the other hand, purchasing an investment home offers advantages such as less sentimental ties, higher capital gain, and potential for immediate tenant occupancy. However, there are downsides to both options, such as time spent searching for and purchasing an appropriate investment, further fixing up and redeveloping the land, high stamp duty costs, competition in the real estate market, and a lack of research on the target market.

A Granny flat is a small home that can be converted into an office, salon, or other business space, saving money and providing financial security. It can be attached or detached from the main house, allowing tenants to live their own lives and save time on commutes. Many young people require affordable housing, and renting out both the main house and the Granny flat can attract investors.

Granny flats add value to homes by providing more bedrooms, allowing renters to use the backyard, develop friendly relationships with homeowners, and avoid utility costs. Investors may be interested in purchasing your home in the future to profit from renting out both the main house and the Granny apartment.

Additionally, granny flats can be used for more independence, such as having more children or caring for an aging family. Building a one- or two-bedroom Granny flat and renting it out is more cost-effective than renovating the main house. This allows teenagers to have more independence while keeping them safe under your supervision.

Travel more freely by living in the Granny flat and renting out the rest of the house if you're retired or want to see the world. Rent money is guaranteed, and your house will be well taken care of while you're away.

Building a granny flat without local government approval is possible, but getting council approval is a lengthy process that should be avoided. Granny flats can also help keep families close, as people stay at home with their parents longer due to rising housing costs and a lack of available jobs for recent college graduates. By having a Granny flat built on your property, your offspring can maintain their sense of autonomy while still being a part of the family for longer.

Content Summary: 

• In recent years, Granny Flats have become a lucrative real estate niche.
• This is because their low initial expenses and strong return on investment (ROI) make them a desirable option in a rising property market.
• Adding a Granny Flat to your existing home can be beneficial monetarily and in terms of increased rental potential.
• Taxes will affect your bottom line whether you own a Granny Flat or an investment property.
• To maximise your cash flow and return on investment (ROI), you should talk to your accountant about how rental income fits into your financial picture.
• The initial outlay for a Granny Flat is lower than that of a conventional investment property.
• The equity in your primary residence can be used as collateral to finance the purchase of a Granny Flat, which will improve the market value of your home.
• Talk to a mortgage broker about how much you can borrow and whether consolidating debt makes sense.
• As long as the current property meets site requirements, the owner need not submit an application to the local council for permission to construct a Granny Flat.
• Granny flats are among the best investments because of their low initial cost and high rate of return.
• Investing in something as simple as your backyard can boost your income, enhance the value of your home, and help you pay down your mortgage.
• In addition to the modest initial investment required, the average return on investment (ROI) for constructing a Granny Flat on your land is 20%.
• Even today, some astute investors are increasing their return on investment by constructing granny flats in the backyards of their investment properties.
• Our daily interactions with granny flat owners, builders, and lenders have uncovered the benefits and drawbacks of constructing a granny flat in your garden instead of purchasing a brand-new investment property.
• The Benefits of Including a Granny Flat in Your Main House Due to the high cost of land outside of very distant areas and the high demand for centrally located rental units, the stamp duty you would pay on an investment property would be more than enough to fund the construction of your granny flat in your backyard.
• A new home costs about $500,000 to build if you invest in the land, but a granny flat or studio, with its modest construction costs and competitive building market, may get you on the investment ladder in just four months.
• Consolidating your loan into one monthly payment lets you avoid land tax on your new rental property.
• A granny flat's smaller size and lower resource requirements make it an ideal candidate for solar panels and a water tank.
• If there is an unexpected need for more living space in the family or help around the house, you have a home ready to be occupied by a relative or friend.
• You will have a roommate if the property is also your primary abode.
• Having land taken away (which could be seen as a benefit if you lack the time to care for the land properly).
• If you rent out the granny flat, you must pay capital gains tax on the portion of the property used to house the rental unit.
• If you're looking to buy a small investment home or apartment, the property will likely have been cleaned up for resale, making it suitable for a tenant immediately.
• The high expense of stamp duty As an investment home rather than your primary residence, you must spend time competing in the real estate market and may pay more in Land tax.
• A lack of research on the target market What You Can Gain From Having a Granny Flat There are many advantages to buying a house that already has a Granny flat attached to it.
• Alternatively, incorporate a Granny apartment into your existing house.
• A Granny flat can be converted into an office, salon, or other business space, eliminating the need for the owner to pay for costly commercial rent.
• Make Money Small homes, known as "Granny flats," are available for rent.
• The cost of incorporating a Granny flat into your current house can be recovered relatively quickly, and the resulting income stream can be quite welcome.
• The added stability provided by rent from a Granny flat is little.
• Depending on the design, granny flats can be attached or detached from the main house.
• If you use it as a place to get work done, you may avoid mixing business with pleasure and save time on commutes.
• Many young people, whether they are still in school or saving up for a place of their own, require affordable housing.
• You can find renters if your rental property is near a college or university.
• Investors will likely be interested in purchasing your home in the future so that they may profit from renting out both the main house and the Granny apartment.
• The house is attractive to buyers either way.
• And with the added convenience of a Granny flat, the house should appeal to a wider audience.
• It is more cost-effective to construct a one- or two-bedroom Granny flat and then rent it out than to renovate the main house.
• Granny flats are a great way to give your teenagers the independence they crave while keeping them safely under your supervision.
• You can live in the Granny flat and rent out the rest of the house if you're retired or want to see the world.
• The rent money is guaranteed, and your house will be well taken care of while you're away.
• Since your land is technically yours, you can build a granny flat without local government approval.
• Your offspring can "move out" into their own space without you having to shell out an excessive amount of money each week in rent by having a Granny flat built on your property.
• They can maintain their sense of autonomy while still being a part of the family for longer.