The Pros and Cons of Building a Granny Flat


Gone are the days when the typical suburban backyard was a stretch of lawn and a hills hoist. With space at a premium, Australians are now looking to their backyards as an opportunity to increase their living space as well as add value to their property.


As a result, the humble granny flat has experienced a resurgence in recent years. But does building a granny flat make sense for your own property? These are the pros and cons you’ll need to consider.


Pro: More flexible living arrangements


Traditionally granny flats have been used for older family members to live in. They’ve also become popular with parents wanting to give their adult children an independent living option while they’re saving up for homes of their own.


Granny flats don’t have to be limited to being a second residence, as you could build one as a separate home office or base for your business.


Pro: Extra rental income


Whether you’re contemplating building a granny flat on the property you live in, or as an addition to your investment property, a granny flat could help you make extra money either by renting it out to ongoing tenants or via a platform like Airbnb.


If you do plan to rent it out, it’s worth thinking about your own privacy or that of your investment property tenants before you build. Even putting in an additional path that leads to the granny flat from the street could provide you and your granny flat renters with that extra bit of privacy and access.


Just be sure to check your state’s legislations on renting out granny flats for rental income as this might not be permissible where you live.


Pro: Improved property value


A custom built granny flat could cost you around $130,000, but if you’re able to execute it well it could easily help improve the capital value of your home or investment property over the long term.


If you’re thinking about building one, build it well, because a bad job could have the opposite effect on your property’s value. That’s why it’s worth considering the existing style of your property when planning your granny flat build.


Con: Capital gains tax


One factor potential granny flat owners don’t often consider, especially those building on their own residential property, is capital gains tax. If you were to rent out a granny flat on your principal place of residence for an income, then you may have to pay capital gains tax if you sell the property down the track.


The same could potentially apply to a granny flat used as a home office in which you claim things like electricity bills on your tax. That’s why it’s worth talking to an accountant before you build and certainly before you start renting it out.


Con: The approval process


Like any substantial renovation, you’re going to need to go through an approval process before you can build your granny flat. While laws vary from state to state, if your property is classified as ‘complying development’ then the process will be relatively straightforward, and you’ll just need to go through a certifier.


However, for properties that don’t fall under that umbrella you may need to go through a more extensive process. This will involve submitting a full development application which will take significantly more time, so make sure you keep that in mind in your planning process.


Guest blog by Steve Jovcevski | Property expert and home loan negotiator at financial comparison website


About Steve Jovcevski

Steve has extensive knowledge of mortgages and property trends. He is full of practical tips to help Aussie property owners improve their own homes and get the best value on their mortgages.