What is a Granny Flat?
A granny flat, sometimes known as an in-law apartment or accessory dwelling, is a self-contained housing unit built in or on the same block of a single-family property. Granny flats often constitute a separate household or structure within the house itself (i.e. in the basement). Here, we explore the pros and cons of building a granny flat.
Granny flats usually help house an aging family member, relatives, and even guests. In recent times, building a granny flat has become an increasingly popular trend across Australia. This may be due to their flexibility as granny flats can be custom-built or even transportable housing sheds!
As we approach the end of the COVID-19 pandemic, the costs of constructing a new home have shot up by about 30%. And the time it takes has more than doubled. This means building new residences comes with caveats and should be approached in an informed manner. Those who have already weighed up investing in a home in this climate may decide the commitment of a granny flat is more manageable.
For more information on how to build a granny flat see here.
Pros of Building a Granny Flat
Increase property value
Granny flats will generally help in increasing the value of the property. They do so by adding an extra space as well as an additional housing unit. This means your property has two assets instead of one, thus increasing the property value significantly.
Potential rental income
A major advantage of building a granny flat comes from its ability to be rented out. Granny flats typically come as attractive rentals to students, couples, and even AirBnBs. However, unlike renting a part of your home, granny flats provide both the home dwellers and tenants with their own space and privacy. Demand for smaller, more affordable rentals are increasing across all major cities as housing affordability keeps getting worse.
Additional space!
Having additional housing space always comes at an advantage. Granny flats have a range of uses and often involves housing elderly parents, students, and relatives. They provide family members with proximity to each other without infringing on personal space.
In addition, granny flats can also be used as extra storage space!
Cons of Building a Granny Flat
Construction costs
A major downside of building a granny flat comes under the construction costs. Pricing for granny flats ranges around $130,000 to be built. On the occasion where tenants become hard to come by, the costs of building a granny flat may outweigh the profits made. If the recent past has taught us anything, these costs can fluctuate a great deal when global supply chains are in turmoil. So it’s critical to be well educated on when to build.
Moreover, much like an average housing unit, granny flats have a slew of maintenance costs, repairs, and other expenses such as electricity and water.
Tenant issues
Renting out your granny flat exposes you and your family to dealing with tenants. While some tenants can be friendly, it can prove uncomfortable or annoying to share a living block with tenants.
Additionally, if you want to rent out your main property as well it may pose an issue. This could be due to rising disagreements between the tenants or certain tenants being overly protective of their living area. This in turn may lead to longer periods of vacancy between tenants.
Furthermore, certain states in Australia do not allow renting out granny flats. The states that don’t allow this include Queensland, Victoria, and South Australia.
Council approvals
Much like any property renovation, granny flats need relevant approval prior to the building process. While this varies from state to state, generally granny flats do not need council approval to be built. Rather, it can be authorized by obtaining a Complying Development Certificate (CDC).
However, this only applies to granny flats that fall under the classification of ‘complying development.’ If the flat does not, you will be required to submit a full application leading to a lengthier process.
Tax considerations
A significant issue with granny flats comes with its potential tax implications. As the flat is a separate housing unit, it is often subject to capital gains tax.
Furthermore, unlike investment properties, granny flats do not possess a separate title and fall under the same category as your existing property. This means, unlike investment properties, granny flats do not come with tax deductions. And therefore, cannot be sold separately from the existing property.
Additionally, any rent generated from the granny flat makes up the assessable income. This means you need to pay the income tax from your granny flat’s rental profits at your marginal tax rate.
If you do want to build a granny flat, it becomes important to speak to a professional concerning all areas including the potential tax implications.
