Why not add a Granny flat to your property ?
The humble granny flat is going through a renaissance
thanks in part to exciting new regulations. No longer seen as boring and
strictly for seniors, granny flats are now a stylish and highly functional
housing option suitable for a wide range of people.
Granny flats are also a hot topic for property
investors in WA, who seek to take advantage of the new laws regarding renting.
From August, new laws in WA mean that
a granny flat, or ancillary accommodation, can be rented to anyone, not just
the owner’s relatives as was the case previously. Granny flats can now also be
up to 70sqm in size, up from the previous 60sqm limit.
Suddenly, renting a granny flat could be a viable
option for anyone looking for affordable housing, including renovators seeking
temporary accommodation, students, or those looking to save towards home
ownership.
Given the lack of affordable housing in WA, ageing
population and high costs associated with aged care facilities, it’s hard to
imagine granny flats won’t experience a rise in popularity.
But what’s the opportunity for property investors?
Simply, a granny flat can boost an investor’s rental income by providing a
secondary source of income. In some case, the addition of a granny flat can
increase the yield of a property to over 10 percent.
The opportunity to obtain 2 rental incomes from 1
property without going through the cost of a subdivision is certainly
appealing, especially for those who own property that is only zoned for single
residential.
For those thinking of building a granny flat, there
are already numerous companies offering affordable construction packages. By
spending around 100k you could end up with $300 in extra rent per week, which
would easily cover the interest on the additional money borrowed. I have even heard of luxury granny flats
being rented out for as much as $450 a week.
Some property investors are already jumping on the
opportunity, with the goal of having both positive cash flow and strong capital
growth from the one property. But what will a granny flat do to the value of a
property? It’s also difficult to determine the true value of properties with
granny flats as there is not a lot of sales evidence. However, I suspect that a
granny flat won’t add dollar-for-dollar in terms of what is spent.
Investment buyers will certainly value the extra
rental income that a granny flat provides and may be willing to pay more for
it. However, owner occupiers, who make up the majority of buyers, may not see
the value in a granny flat, preferring instead to have the additional outdoor
space. Remember that a granny flat cannot be sold separately, only as part of
the main property. So, a property with a granny flat may have a limited pool of
buyers.
Will the new regulations result in an oversupply of
properties with granny flats? I think this is unlikely, but careful analysis
still needs to be done before making the decision to build a granny flat or buy
a property already containing one.
If you want immediate capital gain, a granny flat
might not be the best option. Often, a standard renovation or subdivision will
yield better results. That said, granny flats could offer a great opportunity
for those who are planning to hold a property for the long term and derive a strong
rental income in the meantime.
