Unable to enter the property investment market due to affordability? Building a granny flat on your existing property could offer an affordable investment alternative to buying a separate property.
It could also create a separate space and privacy for your growing teenagers or allow your elderly parents to be close by.

Granny flats come in many shapes and sizes and can generally be described as self-contained separate accommodation, either attached to or within the area of your existing property. Generally, they have their own bedroom, lounge room, kitchen and bathroom, often similar to a studio apartment. Many of them are in part pre-fabricated and can be easily erected in your back yard. However, as with any construction of a dwelling, you will need to check your local council regulations¹ and seek advice for building approvals and compliance.

Building costs

The size and features of the granny flat will depend on your goals and budget, however as a general guide a two bedroom granny flat could cost around $200,000, while a one bedroom flat is about $120,000².

Boost your property value and rental income

Home owners who build granny flats often boost their property’s value – potentially by up to 30% – and add around 27% to rental income³ according to CoreLogic’s property information and analytics.

Financial considerations

Building a granny flat could certainly be appealing, but does it make financial sense for your personal circumstances should you have the available room for construction? Let’s explore this.

• From a rental income perspective, the location of your current property and the nature of the granny flat will impact the demand for the property and ultimately determine the rental that you may receive. As with all income this will be taxable, however you will be able to claim any associated costs with the granny flat including interest from financing and depreciation.
• As with all income generating properties, a capital gains tax liability will apply. However, from 1 July 2021, capital gains tax will not apply to granny flat arrangements where there is a formal written agreement with older relatives or those with disabilities. This will be a benefit for you if you are looking to extend to support family or others who fall into these categories.

First things first

Building a granny flat sounds like a great idea, but before you embark on the addition of a granny flat you will need to assess each of these considerations including available space, building approvals, building costs, the potential return on these building costs (rental), the resulting tax considerations and your ability to finance the granny flat.

It is advisable to seek expertise advice in relation to each of these issues. To start, book an appointment with the office and we can assist you in establishing an allowable budget having regard to your personal financial position.