4 reasons why granny flats are trendy again
A lot of Aussies are finding that, granny flats make a lot of sense in current economic situation and the way property prices are heading.
Home owners across Australia have added more than 10,000 granny flats in last year (2018) alone and the lion share of those granny flats were built in NSW. More than 6,000 granny flats were built during that period, putting NSW at the fore front of the trend.
According to research by CoreLogic and Archister, there are almost 600,000 properties in Sydney, Melbourne, and Brisbane that have the extra space and the council approval necessary to build granny flats.
So why are the humble granny flats trendy again? For few very simple reasons really.
A granny flat can lift the value of the property by up to 30%
Uptick of rental income by up to 27%
Greater return on investment (ROI)
Risk minimizing for property investors
The granny flats are useful for variety of reasons such as extra storage area, home office or backyard gym, or big families with adult kids. But most importantly the potential for a granny flat is that, it can be rented out for extra rental income. Let’s have a look, why it is a prudent decision to build a granny flat if you are pondering the option.
1. Value added to the property by up to 30%
The researchers at CoreLogic and Archistar found that, the properties with granny flats are valued up to 30% higher than the similar properties without a granny flat. The reason for this higher valuation is simply the fact that, granny flats add so many options for both the occupied owners and the investors.
For example, a property valued at $500K can easily fetch up to $650K if the property adds a granny flat with separate entrance and sufficient privacy.
2. Up to 27% greater rental income
The research also found that, a granny flat is usually used as a long-term rental or even a short terms rental through sites like Airbnb, it can easily pull in an extra few hundred dollars a week of income, if not more.
Building a 2-bedroom granny flat to an existing rental property, can generate up to a 27% extra in weekly rent, adding an extra 1% to the property’s overall gross (before costs) income.
3. Greater return on investment
Even if your property has the space for a granny flat, there’s always the issue of building cost. There’s a wide variety of price points for these granny flats.
At the lower end of the price spectrum, a granny flat pack of 60 square metre kit, offering two bedrooms, can come with a price tag of about $50,000. This doesn’t include the cost of labour to put it all together or to have services like electricity and plumbing connected.
For a professionally built granny flat, you’re probably looking at closer to $150,000. But the final price can go higher depending on the fit-out and the nature of the block.
However, from an investment point of view it is way cheaper than a subdivided house. Subdivision fee alone could be more than $100,000 depending on the council. Investors can get a higher rental income on their investment by simply adding a granny flat than a subdivided house which costs substantially higher to build.
There are limitations when it comes to adding a granny flat to your property backyard. Whether you can build a ‘secondary dwelling’, the rules vary from state to state – and even between councils. However, a key factor is the size of your land. In NSW for instance, you’ll need a minimum lot size of 450 square metres.
The great news is that, almost 600,000 properties have scope for building a granny flat across the three biggest state capitals – Sydney, Melbourne and Brisbane.
In Sydney alone, CoreLogic and Archistar identified a whopping 233,218 properties suitable for a granny flat – that’s 16% of all properties across the metro region. Sydney’s top five regions with the scope of building a granny flat at the backyard of the properties are,
Central Coast - 24,540 possible properties
Blacktown - 18,617
Hills Shire - 15,765
Northern Beaches - 15,617
Hornsby on the north shore - 14,782 properties all looking good for a granny flat development.
In Melbourne, just over 145,000 properties have what it takes to build a granny flat, and most are located in the city’s east and south east. The top three good for a granny flat suburbs are,
Mount Eliza - 2,584 possible properties
Eltham - 2,489 and
Mount Martha - 2,354
In Brisbane, 204,598 properties across the metro area are suitable for a granny flat. Top granny flat friendly locations are The Gap, with 2,784 suitable properties. That’s followed by the Moreton Bay region, where Albany Creek, Morayfield and Deception Bay each have over 2,000 properties each ideally suited for a granny flat.
4. Risk minimizing for property investors
The granny flats are also a great option for mom and dad property investors. The numbers make sense from a rental market status angle too. With ever increasing house rents a lot of people are finding that a modest, nicely built granny flat is the next best option than to live in an apartment with very limited space.
Lower granny flat rent also ensures that, more potential renters within that rent range than a house with relatively higher rent. Therefore, finding a suitable tenant would be much easier.
In Sydney, a modest granny flat could bring somewhere between $300/week to $500/week. From loan repayment and positive gearing point of view it is a no brainer to add the granny flat to increase the rental income security.
So what are the options for home owners to finance their granny flat development?
Several different options are available here for home owners to finance their granny flat.
One strategy is to tap into home equity either through a loan top up or by refinancing your current home loan.
Alternatively, a separate construction loan could be the answer.
A good idea would be to talk to an experienced broker who can explain the options available in your situation. With an idea of how to finance a granny flat, you’re in a better position to decide if it’s time for you to decide if it makes sense for you to invest in a humble granny flat.