The Pros and Cons Of Building A Granny Flat

The NSW Department of Planning and Environment information shows that 4,818 new granny flats were built in New South Wales in 2014. This is nearly double the 2,867 built in 2013 and three times more than the 1,500 which were built in 2010. We’re still awaiting the 2015 figures to be published.

Data from BMT tax indicated that a Granny Flats can give around a 15 per cent yield based on a typical $121,000 average price to construct a Granny flat this is using a mix of rental income and depreciation allowances, which vary according to the maximum apartment sizes set by state and territory authorities.

BMT also stated that the average first-year depreciation deduction for a granny flat is $5288, increasing to more than $23,700 in deductions over five years. This is available even if the owner is occupying the primary residence. Other shared areas of a property such as swimming pools, patios and barbecues, can also entitle the owner to depreciation deductions.

Pros & Cons

If built in the right location a Granny Flat could be a good little nest egg but ensure it doesn’t turn into a nightmare and drain you of cash! Do some research into it and make sure it is the right investment for you.

Pros-

1. Can be a great alternative income stream to your household and even more if built on an existing investment property.
2. Planning regulations are a lot easier than building for a duplex but this is done also on a case by case bases and can differ state by state as well.
3. Depreciation deductions are great which means you can make claims against other shared areas of a property such as swimming pools, patios and barbecues, can also entitle the owner to depreciation deductions. Potentially turning negative gearing into positive.
4. Building a Granny flat can add capital value to the main house. This can vary and does depend on quality, design, access and privacy to mention a few things.
5. Granny Flats appeal to tenants who like backyards, easy access and those with pets.

Cons-

1. Granny flats can’t be sold separately and place under separate ownership which means the cost is added to the price of the property.
2. Depending on rental returns and quality of the construction there is potential to over-capitalise and in some markets it may not reflect on the overall value of the property.
3. Privacy on the main property may be impacted. Owner should give this some thought on how to reduce this issue especially if you are planning on renting out both dwellings.
4. Check out if there are any new apartment blocks in the pipeline of the local area as trying to lease out the Granny Flat may become competitive and low demand will cause rental prices to drop.
5. You get what you pay for, do your homework and asses all planning and construction costs before you start.

Dragon Property & Development are specialists in residential construction & Granny Flat building in Sydney.
Our Construction manager Paul John Jefferies (No. 64798S) is a Sydney based Master Builder with over 20 years building experience. So if you’re in the lookout for an experienced builder call us for a no obligation chat (02) 9939 2550.

Dragon Property & Development are division of The Dragon Group which also provides Labour Hire & Recruitment to the Sydney market.