The popularity of granny flats has increased significantly in recent years, driven predominately through media coverage. In this post we touch on some tips and steps to evaluating if you should construct a granny flat on your property.
Granny flats are often pitched as a great investment with strong rental returns as well as adding value to the existing dwelling. At the outset I admit I am not a subscriber to this strategy however do acknowledge in some instances, with the right conditions, they can stack up as an investment decision.
When considering a granny flat you need to be cognisant of the fact that it is actually illegal in Queensland, Victoria and South Australia to rent a granny flat to a non-family member. You can however accept rent from a relative. There are ways to circumvent these laws where the original dwelling is not a primary place of residence however I would seek legal advice taking into account your specific circumstances.
In the last year Brisbane City Council was reported as sending out show cause notices to those owners who were renting secondary dwellings on their own tenancy agreement. Whilst there is confusion still in regards to the council’s stance I have read unverified reports, that these have been appealed successfully in court.
What is a granny flat?
Typically a granny flat is a secondary dwelling (limited to one) on a property, with the same owner, located within a residential zone and with a minimum block size of 450 squared meters. It must also be self-contained which means it must have a separate entrance; toilet; bath/shower; cooking facilities and living area. Granny flats can be separate free standing structures or attached to the primary dwelling.
How to investigate if I can build a granny flat?
Similar to working out if you can subdivide your property (see our series ‘Can I subdivide my property’), each council has its own planning scheme. You need to identify which scheme is applicable to you property and if there is an allowance for establishing a secondary dwelling. On top of this there is additional constraints that come into play as to what level of assessment applies and conditions that need to be met when building a secondary dwelling. The largest determinates will be what zoning you fall under, as well as your property lot size and frontage dimensions.
How are services connected?
Unlike subdividing, since you are utilising an existing lot you are reliant on services and associated infrastructure connected to the primary dwelling. Whilst this can be cheaper than establishing entirely new main connections, in some instances having to rely on existing service connects can create substantial challenges and costs.
Do I need approval?
Yes. You need to get development approval from your local council and I recommend you engage the services of a professional town planner to assist you in the process.
Does the investment stack up?
As with any investment if the conditions are right than yes it can. Outside of the investment needing to be legal to rent to non-family members, the biggest issue is demand. Demand not only from a rental perspective in finding tenants willing to live beside the owner or other tenants, but also taking into consideration the long term scenario and having to find a buyer for the property with a secondary dwelling attached.
Capital growth of the secondary dwelling component historically won’t follow the same path as primary dwellings within the area due to the potential purchaser pool being lower – there are specific areas where this may not hold true e.g. close to universities.
As far as overall costs go expect to pay between $100,000 to $130,000 to establish a freestanding granny flat. Your local town planner will be able to provide a better indication.
Other tips I have found informative and useful
- Corner blocks improve privacy, hence rental returns are higher, with the house able to face one street and the granny flat the other;
- Granny flats connected to a primary dwelling (e.g. bottom level of the house) can be converted more easily at time of sale to a single dwelling if at that point it is financially advisable; and
- Patios, verandas, carports, storerooms typical aren’t included in the size restrictions for a granny flat. Taking this into consideration if you are confident that you can subdivide your property in the future (e.g. due to rezoning) building out the existing granny flat may be an option.
As with any investment decision you should seek appropriate legal and financial advice.