Granny flats have become more popular with investors in recent years as a way of increasing their capital gain and rental income. These dwellings are self-contained on the same block of land and are secondary to the main property.

A granny flat has its own entrance, kitchen, bathroom, bedroom, laundry and so on.

Building a secondary allows you to receive dual rental return off your property for a smaller investment and can be very beneficial if done correctly.

Is My Property Eligible?

Granny flats can be built providing your property meets the following criteria in most states:

• Must be Residential Zone property and cannot be built on strata and community title property, subdivided, unoccupied land or commercial property
• Minimum block size must be 450m2
• One granny flat per residential property
• Can be attached to the primary property or free standing
• Must have a separate unhindered pedestrian access
• Owner for the granny flat and the primary dwelling must be identical
• A maximum of 60m2 living space is allowed for the granny flat (carports, verandas and patios can be attached in addition to the limit)

Is it Viable?

Granny flats perform better the closer you are to the city centre due to the higher density populations.

If you live in a good area, there’s potential for good return.

The first step is to talk to your local council and find out if you are able to place a granny flat on your property. Even if the property meets all the requirements you’ll need to research if it is a good option for you.

A figure of $100,000 is often quoted as a starting point of the cost of building a granny flat.

If you’re able to get a tenant paying rental return above the mortgage rate of the investment, the additional income stream may turn a negatively geared property into a positive one.

However, you need to consider if the current or future tenants living in the primary dwelling are willing to live with someone else in their backyard, or if the rent for the primary dwelling needs to be reduced to compensate as a result.

Research

If your property meets all the requirements for a granny flay you should to check if there’s demand for it in your area.

You won’t see any benefits if you’re not getting enough tenants at a good rental return. Start by checking online to see if there are any properties with granny flats for rent in your area and see how much they’re listing for.

You’ll also want to get a quote from a few builders on how much the construction of the granny flat on your property will cost.

Get a few quotes and see what they look like as the quality will vary.

If the granny flat ends up looking like an unattractive box on your property, it may bring down the value of the primary dwelling and the respective rents for both dwellings.

The secondary dwelling should complement the existing property and not look out of place.

Don’t forget to do a background check on the builder so you know what you’ll be getting. Spend a little extra if needed to get a good quality flat as this will increase your chances of increasing capital gain and a good rental return.

Avoid building on stilts and piers as these types do not add much value to capital gain due to them being seen as transportable dwellings.

Talk to a real estate agent and ask them for a market appraisal on both the rent and the pair of dwellings (using the quote from the builder). This is a good starting point for your decision on whether it’s a viable pursuit.

Finally, be aware your council may charge higher rates for properties with secondary dwellings and you’ll need to take this into account in your calculations.