The hidden opportunity of investing in a granny flat

The notion of investing in a granny flat has previously been fairly uncommon. Typically, they are regarded as just an extra addition to an already finished home. Despite this, the opportunity that lies dormant for anyone to take advantage of is very real. Granny flats are an excellent and affordable opportunity to invest in when you know what you’re doing, and can generate quite a bit of income.

With all investments there comes risks, but fortunately with granny flats that risk is minimised greatly. Read on so that you can get a perspective of both sides of the coin when it comes to protecting your money whilst also growing it with this potentially great investment choice.

Advantages of Granny Flats

Affordability

Whether you’re purchasing an already established granny flat or building it from scratch, it is remarkably more affordable than a standard property. The power in this is that if you’re new to investing or just tight on funds, you can wet your feet in the market without as much risk.

Asset

If you are purchasing a granny flat as an addition to your current property as opposed to a separate standalone, it will add value to your residence. The power in this is that if and when you sell your house, you earn the added value on top of its already existing rental income if there are tenants.

Risks Involved

Substandard Tenants

This applies especially if they are in proximity to you. When renting out, there is always the risk of having less than ideal occupiers. Be sure to have a certain criteria for who you want to occupy the granny flat. Bad tenants can far outweigh the financial gain and even create a negative cash flow in certain situations.

Unexpected Charges

Additional funds must be set aside when those unexpected costs arise.You’d be surprised at what can arise during a tenant’s stay or just standard costs that weren’t anticipated, so preparation for these potential situations is a must.

Overcapitalisation

Generally the banks will not increase the value of your property that much compared to the capital you initially invested. This means that you could potentially be spending $100,000 on a granny flat, and the banks will only raise the value by $75,000.

Rules and Regulations

In every state there are different rules and regulations, so this must be something researched by yourself. Despite the division in rules, there are fundamental regulations that apply nationally, so ensure you’re aware of these:

  • Granny flat space  should not exceed 60 square metres (can vary slightly across states).
  • Must have differentiated access from main property.
  • Primary property already has zoning permission.
  • Primary property owner owns the granny flat.
  • One granny flat per property.
  • Property exceeds 450 square metres in space.

As you can see, like every investment, granny flats have their ups and downs. In the current Australian economy with the affordability crisis, they are a great option for investments due to their low initial costs.

Ensure that you conduct research in not only the points addressed in this article, but in relation to the tenants you’re considering or the area you’re buying in. This will always be a viable option for investment, and if you’re a beginner, it is ideal due to its massive price saving compared to standard properties.

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