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The ugly truth behind homeowners’ growing obsession with granny flats

By Emma Smith

Article written by Tim McIntyre first published on
GRANNY flats used to be a place where your mother in law could live, nice and safe and close to the family, but also separately enough to maintain her independence — and yours!

These days, the property landscape has changed and homeowners are looking to put every spare piece of valuable land they have to use, especially close to the city.

Granny flats have now become popular with those looking to create extra income by building them and renting them out. A whole industry in granny flat construction has emerged and companies are providing whole package deals — from appraisal to council approval, right through to construction and rental property management.

Now, you can either add a granny flat to your own home and bring in tenants, or add one to an investment property and collect two lots of rent.

Construction company packages will cost around $100,000, and a two-bedroom granny flat can make more than $200 a week in rent, with gross yields of more than 10 per cent. However, there are also a number of downsides that you may be unaware of.

Before you start staking out your yard, you should make sure a granny flat will suit your situation, because once it’s built, both buildings are on the one title and can’t be sold separately. This means far less potential buyers when you want to sell and the chance that your property’s value will actually decrease over time.

If your street or suburb is full of people with the same idea as you, there is the danger that a glut of granny flats will emerge and resemble an odd-looking shanty town. In that case, the value of the entire postcode will be negatively affected.

Think also of the rental demand. Is there enough of a shortage of rental properties in your suburb to make tenants willing to live in another family’s back yard?

Remember, granny flats often attract transitional tenants — that is, people looking for affordable property on a temporary basis. Granny flats don’t usually attract long term tenants and therefore, you will need to be prepared for high tenant turnover and extended periods where the flat is not earning an income stream.

Of the different options available, a granny flat investment is probably best suited to an owner occupier with enough space on their block to construct a comfortable second building. And it needs to be in an area with high demand for rental properties.

Being close to an educational institution like a university might also be beneficial, as a high number of students in the area will add to the demand for affordable, no-hassle rentals.

If you are an investor, in some suburbs it can actually be cheaper to buy two separate properties than it is to buy one and build a granny flat. Doing this will bring you two rental incomes and much more potential for capital growth in the long term.

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