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Granny flat investment


How a granny flat investment could add value to your property

The humble granny flat has been given new life as a low-cost, high-return investment in your own backyard. Here’s what you need to know about building and renting out a granny flat.

1. What is a granny flat? And does a granny flat add value?

A granny flat is a small, self-contained home on your property that’s separate to the main house. Some people build granny flats above a garage or in their backyard, and most come with their own bedroom, bathroom, kitchen, lounge room and laundry.

But don’t let the name ‘granny flat’ deter you, they’re not just for the elderly. Younger investors are now building granny flats to boost their property’s value through short-term rentals and extended lease agreements.

2. Are granny flats a good investment?

Here’s a few reasons why granny flats are a popular option for investors:

  • The rental income could provide cash flow. Many different people rent granny flats, from students and young singles looking for affordable housing to retirees wanting to downsize.

  • Building a granny flat is usually cheaper than buying a standalone investment property. It’s also unlikely to interrupt your everyday routine, like home extensions and renos.

  • Adding a granny flat to your house could increase your resale value. It gives the new owner the option to earn rental income, and the benefit of an extra bedroom.

Pro tip: That extra bedroom is great for guests and will earn you some serious IOU’s.

3. How is a granny flat investment taxed?

Tax is payable on the rental income you earn from your granny flat, just like any other investment property. The Capital Gains Tax liability also applies. On the flip side, granny flat tax exemptions might be available.

If you’re wondering, can you negatively gear a granny flat? The answer could be yes! If the cost of your granny flat is more than your income, you could claim the loan interest and ongoing expenses (like maintenance and insurance) as tax deductions. But if your granny flat is positively geared (as in, the rental income is more than your expenses) you can only claim the ongoing expenses. You might also be able to claim value depreciation as well – but always remember to seek professional advice.

Pro tip: Wanting to know what the granny flat regulations are in your state? Click here for
NSWVictoriaQueenslandSouth AustraliaWestern Australia and Tasmania.

4. How much does it cost to build a granny flat?

Like any investment property, granny flat costs depend on your needs and what you want to build. Many experts agree granny flats prices are, on average, around $100,000 for a one-bedder.

Pro tip: Making your granny flat blend in with your house could create consistency and increase its value.

5. Does a granny flat need planning permission? And can I have a granny flat on my property without council approval?

A granny flat will need council approval, planning permissions and possibly inspections from an engineer and pest control expert.

Also, dealing with tenants could impact your time, money and energy, which is something to consider before building a granny flat investment on your property. But with the right planning and enough extra room, building a granny flat might be a smart (and dare we say modern) investment option for you.

The information contained in this article is of a general nature only. It doesn’t take account of any person’s objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your circumstances and seek independent legal, financial, and taxation advice.