Granny flats – The Pros and Cons

Granny flats: Do the cons outweigh the pros?

By S Taylor
Friday, 15 November 2013

To granny flat or not to granny flat, that is the question. And it deserves serious consideration from the many home owners wanting extra living space for in-laws, relatives or teenage children, or perhaps to earn rental income.

But does the addition of a granny flat – at a cost of $55,000 to $200,000 – provide that much-needed space without detracting from property values? Do the cons outweigh the pros?

“They offer more to buyers than sellers,” said one agent who asked not to be named. “We often get requests from buyers looking for extra in-law accommodation, especially for widowed mothers. Also, they are popular with families with interstate parents wanting to come for extended stays.

“We also get requests from parents of physically or mentally disabled teenagers who want to give their children a certain amount of independence, while also being able to keep an eye on them.”

The agent said granny flats – or dependent persons’ units – make a property “more attractive” to potential buyers needing storage areas or home offices. “We don’t get many but when we do they sell quickly,” he said.

In Victoria, there are restrictions on who lives in granny flats, and on renting them out. For example, in suburban Boroondara, granny flats can only be occupied by a person who is dependent on the resident of the main dwelling – normally a family member. Once they leave it has to be removed.

Granny flats cannot be occupied or rented out privately. The council is able to enforce these rules through the enforcement provisions of the Planning and Environment Act.

But the rules on renting vary between the states. Rentals are allowed in NSW and WA.

Starr Partners Pemulwuy, near Parramatta, are marketing 6 Hastings Crescent, Greystanes (pictured above) for $575,000 – $615,000, saying its self contained one-bedroom granny flat gives it the potential to generate a combined rental return of around $700 per week.

Alternatively, the new owners can move in and enjoy as is or have somewhere private for in-laws and visitors to stay.

The granny flat comes with a gas kitchenette, air-conditioning, bathroom and separate private access.

Agent Matthew Carpenter said the relaxed rental rules for granny flats in NSW added to a granny flat’s appeal, such as at Hastings Street. ‘’This is one of the best granny flats we’ve had,’’ he said. ‘’It’s a complete one bedroom structure, while some others are just converted garages.’’

He said granny flats ‘’are good because they add to both rental yields and resale values’’.

Gary Peer Real Estate, of Caulfield, is auctioning 4 Oswald Thomas Avenue, Hampton East (pictured above) on Saturday, November 16 at 11.30am. The expected price range is $680,000 – $750,000.

The four bedroom brick house with two bathrooms has an attached self-contained granny flat with one bedroom, one bathroom, living room and separate entry. It offers flexibility as a guest retreat or home office. The house has an L-shaped lounge and dining room, kitchen extending into a casual meals area and an updated bathroom.

The property with single garage is near schools, Wisehart Reserve, Moorabbin station, Southland shopping centre and the Bay and Church street shopping strips.

Another property with a granny flat is 3 Croker Street, Nakara (pictured above) in the Northern Territory. The four bedroom, two bathroom and three car space property is being auctioned by Real Estate Central in Darwin on November 28 at 6pm. The downstairs granny flat has a kitchenette and separate bedroom.

The house has an open-plan living/dining area, balcony across the width of the house
and U-shaped kitchen with a servery window into the dining room. The upstairs bathroom has a separate toilet and the main bedroom has air conditioning, built-in wardrobes and pleasant outlook.

The spacious home in the family-friendly suburb is ripe for renovation. It is near Casuarina shopping centre, Charles Darwin university and amenities and services.

Reasons for and against granny flats in areas where they may be rented out, include:

For:

Increase your property’s rental – adding a granny flat can add a significant amount of rental income onto an investment property. It means you’ll get two income streams from a single lot.

Turn a negatively geared property into a positively geared property – This extra income can turn a negatively geared property into a positively geared one. It may mean you can stop claiming deductions but at least you’re earning some cash.

Many tenants prefer them to apartments – granny flats allow tenants access to a back-yard, which means they’re often pet friendly and utilities are often included in the rent due to the complications of separate metering.

Always have an income from the property – If one tenant vacates then you’ll always have the other to see you through the vacancy period. It’s not a lot of money but it keeps the cashflow coming in.

Against:

Reduced rent on the main house – Tenants will demand a lower rent on the main house if they are forced to live with other tenants in their backyard.

Longer vacancy periods – Even with a reduced rent there is often a longer wait on finding tenants at a house with a granny flat. Many people simple won’t do it due to concerns about neighbour disputes and loss of privacy.

It may not add value to the house – granny flats can cost a lot to build but they don’t add much to the house, if at all. Land and houses increase in value, but granny flats don’t. They’re not that special any more in some suburbs, especially in Sydney which has had a surge in granny-flat activity. When it comes to resale, granny flats at a property might reduce interest by investors, with owner occupiers looking elsewhere.

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