Granny flats represent a flexible addition to a property and provide an easy way for welcoming an elderly relative to your home, provide a growing teen with extra privacy or a place for visitors to stay. At Pumped On Property, we see granny flats as great opportunities for investors and homeowners to increase the rental value of their property.
Current trends show that in Sydney alone, 100 granny flats are being constructed each week – this represents a 300% growth in 5 years. Homeowners are seeing an opportunity to rake in up to $420 each week in rental income. But this depends on the location. Constructing a granny flat in high cost, high demand areas such as Sydney will generate higher income than the one located in the countryside where rental rates are significantly low.
The granny flat concept involves constructing a cheap house extension that can be rented out to earn money or used to accommodate elderly persons to save money. Research shows that 1 in every 5 Australians live in multi-generational homes – and this number is rising. In Canada, the number of multi-generational homes has increased by 40% and in the US, an estimated 20% of the entire population live in homes with multiple generations. Here’s why granny flats are a great investment in 2010:
- It’s an additional income stream
A granny flat allows you to get some extra income by renting the property. In big cities, such a flat can earn you upwards of $350 per week. A granny flat also provides you a return on investment of up to 11%, which is among the highest in the market today. Whether you have the flat on a rented property or in your own home, this extra income can go a long way in helping you relieve financial burdens and fast track your journey towards financial freedom.
2. It’s a strategy for spreading income risk
Most people rely on a single income source to finance their life activities. Often, this source of income is a job – which requires their active engagement. Once constructed, a granny flat can provide you with a second source of income, enabling you to spread your income risk. If you have a single investment property, renting a granny flat will enable you to earn passive income – which means you will not go for weeks without getting rental income. If your property remains vacant, you will not have any income flowing in but when you have a granny flat, it is highly unlikely that your properties will remain vacant at the same time.
3. It facilitates mortgage repayment
Interest rates on money borrowed from banks are on the rise, and banks have come up with strict lending policies This has left many people who have home loans in a difficult financial position. Having an additional income stream can help ease repayment of home loans. The price of granny flats may just be a fraction of your entire property cost but picking a modern design will make it appeal to renters. As long as you have tenants who are reliable renting your granny flats, the investment will provide a stable source of income for your family. This will reduce the financial pressure that comes from repaying a mortgage significantly, even as your investment grows in value.
4. It increases your property’s valuation
Having a granny flat on your property boosts the value of your property. In a family setup, the granny flat may be seen as additional rooms for teenagers or an elderly person. But from an investor perspective, the flat is an opportunity to generate additional income. As such, an investor will be willing to put more money to purchase the property. Consider talking to a real estate agent and find out how much a granny flat would add to the value of your property. It is worth noting that even though constructing a granny flat can increase your property’s valuation, it is highly unlikely that the value that it will add would not exceed the cost of constructing.
5. It attracts extra claims on a depreciation schedule
When you have a granny flat that you have rented out, you have access to additional claimable on your depreciation schedule. You will have a benefit on land tax as a result of the extra tax depreciation on the structure. When the granny flat is a newly constructed structure, you will be able to claim a significant amount of paper losses and this will help you offset the tax that you owe every year.
6. It keeps families close
Constructing a granny flat on your backyard can provide accommodation space for teenage children and other family members like mother-in-law and grannies. As your children grow family members’ age and grandchildren come, you will need extra space to host them. Having a granny flat in place provides space to extend your family and hence keep your family together while still maintaining independence.