Unlocking the Potential of Granny Flats: 5 Considerations

Unlocking the potential of granny flats

Are you a fan of The Block Australia? If you’re an avid viewer of the show, you’ve definitely seen how granny flats have been highlighted in this recent season. The spotlight is on these versatile living spaces, which have become increasingly popular as an investment opportunity.

Thinking about including granny flats in your investment plan? You’re in the right place. With growing interest in these secondary dwellings, it’s important to understand the financial side of adding these extensions to your property. In this article, we’ll break down the financial aspects of granny flats and how to secure loans for these projects.

What are granny Flats?

Granny flats, also known as ancillary dwellings or secondary dwellings, are self-contained living units typically located on the same property as the main house.

Granny flats are called so because they were traditionally designed as additional living spaces on a property, primarily intended for elderly family members, such as grandparents, to live in. These self-contained units allowed elderly family members to maintain a degree of independence while still being close to their loved ones and receiving care when needed.

Over time, the term “granny flat” has stuck, even though the use of these units has evolved beyond just accommodating grandparents. Today, granny flats serve various purposes, including housing young adults, creating home offices, or offering guest accommodations. It can also be an investment property that generates rental income.

Why have granny flats become popular recently?

Aside from being spotlighted in The Block Australia, granny flats offer more than just additional living space. They’ve become popular for several reasons:

First, they provide the opportunity for rental income. Whether you choose to rent out the granny flat to long-term tenants or utilise platforms like Airbnb for short-term rentals, this secondary space becomes a source of extra income.

They can also enhance the overall appeal of your property. Potential buyers or renters commonly view granny flats as highly attractive features. This increases desirability and can result in faster property sales.

One of the most compelling advantages is the potential boost in your property’s market value. Based on findings from the 2019 CoreLogic and Archistar report, the addition of a granny flat to your property has the potential to increase its value by as much as 30% and result in a rental income boost of up to 27%. This added value can make a substantial difference in your property’s long-term financial potential.

Lastly, granny flats offer versatility and flexibility. They can be used to accommodate family members, serve as guest houses for friends or renters, or even function as home offices. This adaptability adds to the overall appeal of your property, making it suitable for a broader range of potential buyers or renters.

5 Considerations Before Building a Granny Flat

Building a granny flat is a major decision. Having one in your property can have numerous benefits but it’s also going to require a substantial financial commitment. Before you start this project, it’s essential to pause and consider several factors. Below are considerations that will not only help you make informed choices but also ensure that your granny flat project goes smoothly:

1. Restrictions Vary by State

Building a granny flat is subject to different regulations and restrictions across the various states in Australia. These regulations dictate aspects such as the size, design, and usage of granny flats.

It’s essential to familiarise yourself with the specific rules in your state to ensure compliance. In some states, such as Western Australia and New South Wales, secondary or ancillary dwellings can be rented out privately, while in others such as South Australia and Victoria, only dependents can reside in them. Be sure to research the regulations applicable in your location to avoid any legal complications down the road.

2. Evaluating Your Financing Options

Before starting on your granny flat project, it’s crucial to assess your financing options. Many homeowners consider home loan applications to fund their granny flat construction. At Vision, we specialise in handling granny flat-related loans, accounting for 10% of our loan portfolio.

However, there are key considerations to keep in mind. Begin by determining how much you can borrow. Conduct an equity and capacity check to evaluate your financial position, ensuring that you can comfortably manage the added financial responsibility of your granny flat project.

3. Rental and Income Potential

Granny flats can be a wise investment property, especially when they contribute to your financial well-being. Homeowners should assess the rental income potential of their granny flats. For those integrating granny flats into their investment strategy, consulting with local real estate agents can provide valuable insights. They can offer information about expected rental income in your area. Inner-city suburbs often exhibit strong demand for granny flats, translating into robust rental returns that can support your loan repayment plan.

4. Property Valuation

The value added by a granny flat can vary depending on the location. It’s important to remember that property valuations may not always fully reflect the cost of constructing a $200,000 granny flat. This discrepancy is often influenced by the property’s suburb.

If your granny flat is in an area with infrequent sales of similar properties, property valuers may adopt a conservative approach, potentially valuing the property lower than expected. It’s important to recognise that not all potential buyers or valuers view granny flats as positive additions, and in some cases, a secondary dwelling might even have a negative impact on property value.

5. Cash Flow vs. Capital Growth

Traditionally, granny flats were primarily intended as accommodations for aging parents. However, the landscape has evolved, with many homeowners now focusing on potential cash flow rather than capital growth. Today, property owners often seek to maximise their income potential. Granny flats provide an additional income stream, making them an attractive option for those looking to enhance their financial situation.

When considering your granny flat project, it’s crucial to align your goals with your property’s potential to generate cash flow, which can be a key driver behind this investment.

Your Granny Flat Journey: A Versatile Investment Opportunity

Are you eager to unlock the financial potential of granny flats on your property, or perhaps you’ve been inspired by the transformations on The Block Australia? Whatever the case, Vision is here to help you weigh the pros and cons of building a granny flat either as an investment property or if you just want to expand your home.

At Vision, we’re here to guide you through the intricacies of this exciting venture. We offer tailored advice and financing solutions that cater to your unique needs. Whether your goal is to generate rental income to fortify your investment strategy or simply to transform your home into your dream oasis, we’ve got your back.

Our team of experts is dedicated to supporting you every step of the way, helping you transform your granny flat dreams into a tangible reality. Let’s embark on this journey together!