Granny Flats Investment Strategy: Costs, Yields & Regulations in 2024 

Granny flats have become an increasingly popular property investment strategy in Australia, especially with changes in local council rules that allow them to be rented out on separate leases. These auxiliary dwellings have the potential to generate strong rental yields and enhance your overall property portfolio. But before diving in, it’s essential to understand the costs, regulations, and potential returns associated with building a granny flat. 

In this blog, we’ll explore the critical factors to consider when looking at granny flats as a property investment strategy, including their costs, red tape, and rental yields. 

What is a Granny Flat? 

A granny flat, also known as an auxiliary dwelling, is a small, self-contained living space that is built on the same property as a primary residence. Traditionally, these flats were used for ageing parents or family members, but they have evolved into an effective investment tool. 

How Much Does It Cost to Build a Granny Flat? 

The cost of building a granny flat varies depending on whether you choose a pre-fabricated structure or one that is built on-site. Here’s a breakdown of the typical costs: 

1. Pre-fabricated granny flats: These are cheaper and range from $80,000 to $150,000. However, you still need to factor in the cost of connecting utilities like plumbing and electricity. 

2. Built-on-site granny flats: These tend to be more expensive, ranging between $150,000 and $250,000. This option provides more flexibility in design and usually offers a higher-quality build. 

For investors looking to maximize rental yield, it’s recommended to budget around $200,000 for a built-on-site, two-bedroom, one-bathroom granny flat. This price typically includes an open-plan kitchen and living space with a small deck, perfect for renters seeking affordable housing. 

Rental Yield and Returns 

One of the key benefits of granny flats is the high rental yield they offer. On average, you can expect a 10% to 12% gross rental yield. For instance, if you invest $200,000 into building a granny flat, it could rent out for $400 per week, generating around $20,800 annually. 

In some cases, especially in well-located areas with good access and privacy, granny flats can fetch as much as $500 per week, leading to even higher yields. However, cheaper prefabricated flats may rent for lower amounts, around $300 to $350 per week, which still represents a solid return on investment. 

Rules and Regulations for Building Granny Flats 

Each local council has its own set of rules when it comes to building granny flats. Here are some general guidelines: 

• The granny flat must typically be located 10 meters from the main residence. 

• Most councils limit the size of granny flats to around 70 square meters of gross floor area. 

• Granny flats are considered an accepted development, which means you don’t usually need to go through an extensive approval process as long as you meet all the council’s requirements. 

However, always ensure that your builder handles the necessary certifications and approvals. It’s advisable to consult a local town planner or the council if you have any concerns about the development process. 

How Long Does It Take to Build a Granny Flat? 

Building a granny flat usually takes about 16 weeks (4 months). However, it’s wise to budget for a 6-month timeline to accommodate any potential delays that may arise during the construction process. Remember, building any property, whether big or small, can come with unexpected challenges, so give yourself some breathing room. 

Will a Granny Flat Add Value to Your Property? 

While granny flats can significantly boost your rental income, they may not necessarily add dollar-for-dollar value to your property. For instance, if you buy a home for $600,000 and add a $200,000 granny flat, your property may only be worth around $800,000—roughly the cost price. 

The reason is that granny flats generally appeal more to investors than to owner-occupiers, who make up the bulk of the property market. Therefore, the property’s value increase may not be as significant as the added rental income. 

Depreciation Benefits of Granny Flats 

One of the often-overlooked advantages of building a granny flat is the depreciation benefits. You can claim depreciation on the granny flat for tax purposes, with the best benefits typically coming in the first five years. Consult a quantity surveyor to ensure you’re maximizing your tax deductions and benefiting from all eligible depreciation claims. 

Final Thoughts: Should You Invest in a Granny Flat? 

Granny flats can be a powerful tool for increasing rental yields and cash flow, especially if you’re looking to supercharge your property portfolio. However, they may not significantly increase the property’s market value. As with any investment, it’s essential to weigh the pros and cons carefully and consider your long-term strategy. 

Property Dollar can help you track your property portfolio, monitor repayments, and assess your growing equity, making it easier to manage investments like granny flats. Use these tools to make informed decisions and take control of your financial future. 

Remember, this is not financial advice, and you should always consult a licensed financial advisor before making any significant financial decisions. 

Disclaimer: The information provided in this blog is general in nature and not intended to be personalized financial advice. Please consult a financial advisor before making any decisions regarding your finances.