What you should know about investing in a granny flat versus buying a new investment property 

Posted on June 21, 2022

Granny flats are a good property investment and why granny flat rentals are being added to the Aussie backyard!

Should I buy an investment property or add a granny flat to my existing property? 

This is a question we often find home-owners, with equity in their residential home, pondering. One of the main reasons people are building granny flats in their back garden is that it is a cheaper way to gain rental income than buying an investment house or unit. We even find today that some savvy investors are building granny flats in the garden of their investment property for a greater ROI - return on investment.

Working daily with owners of granny flats and chatting to builders and financiers, we have found the below positives and negatives of building a granny flat in your backyard verses a new investment property.

The pros of adding a granny flat to your existing residence

• Land is expensive in NSW unless it is very remote and renters want to live in convenient locations, so the stamp duty you could pay for an investment property alone would be a large chunk of funds to easily start your granny flat build in your own backyard instead
• Building a new home if you invest in land is approximately $500k, whereas a granny flat or studio, thanks to relatively low cost of construction and a competitive building marketplace, can pop you up the investment ladder in approximately four months
• Save yourself the time of strive of competing to buy property
• Adding to your current mortgage means no land tax for the new rental property investment
• Increase the value of your existing property, especially with custom designed secondary dwellings
• The investment is close by so lower cost to maintain if self maintaining lawns, painting upkeep etc
• Great as a high return holiday let business if you are on hand to self manage and in a good holiday location or handy to the CBD (check out your local area on holiday sites and see how often the holiday lets appear booked to see the local demand in your area)
• Tenants may become trusted neighbours that you can rely on to collect mail or even puppy sit your beloved pet when you go away
• There is a great demand for affordable housing in many states of Australia, so incentives to build a granny flat can be found occasionally - currently TAS has a grant ending June 30.
• You have peace of mind in knowing the area you are investing funds in
• Granny flat builds may not even have to go through a Council DA, only a Building Certifier, potentially making it a quicker investment
• Less land to maintain and an income in its place
• The smaller space and lesser demands of a granny flat can be easier to establish sustainably with solar panels and a water tank
• You are helping house people without contributing to high-rise living or overdeveloping land
• You have a dwelling ready for a relative or friend to reside in if there is a sudden need for more family living space or home assistance

The cons of adding a granny flat to your existing home dwelling

• If it is your main residence you will be sharing your property with a tenant
• During the building period, you may feel construction in your garden to be disruptive to your home-life
• Losing some land (although this may be a positive if you do not have time to maintain the land)
• Loss of privacy if you remove trees and do not take screening into account during the build
• Pay capital gains on the part of the property the granny flat is on if you rent out to tenants read more here

The Pros of buying an investment property

• Less emotional attachment so more likely to buy and leave with the local experts to manage (higher cost to income but less intrusive to your current lifestyle)
• Land is valuable so although you had larger costs such as land tax, council fees and water rates your overall capital gain should be profitable (this will all depend too on the suburb invested in)
• The property will most likely be spruced up for resale meaning it is ready to pop a tenant in straight away if buying a small investment home or unit

The cons of buying an investment property

• May take more time to find and buy the right investment, then further time to renovate or redevelop the land
• Stamp duty cost is high
• Having to compete in a real estate market takes time and may risk you paying more for less
• Land tax for your investment property as it will not be your Principal Place of Dwelling
• Not knowing the area you are investing in

So, all in all it looks like the pros of building a granny flat best outweigh the cons!

If you would like help getting a quote to build a granny flat we partner with some great granny flat builders who can give you an off the plan build or build you a custom home to suit your current dwelling just fill in our find a granny flat builder from and with in no time you will have a quote from a reputable granny flat rental builder!

Why not speak with one of our partnering brokers to see if you can consider building a granny flat. Fill in this find a broker form and we will have them contact you today.