The four pros and four cons of building a granny-flat

Granny-flats have renewed interest given recent law changes in WA, but are they really a good idea for investors?

Here are the top four reasons for and against granny-flats:

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 vacant period. It’s not a lot of money but it keeps the cashflow going.

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 back yard.

Longer vacancy periods – Even with a reduced rent there is often a longer wait on finding tenants on 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 – maybe in the vicinity of $100,000 but they don’t add that much to the house, if at all. Land and houses increase in value, but granny-flats don’t. And they’re not even that special any more in some suburbs, especially across Sydney that have had a surge in granny-flat activity. When it comes to resales granny-flats might reduce your buying interest to investors, with own occupiers taking their interest elsewhere.

They’re ugly – They’re not very pretty things to look at. There’s no getting round the fact that granny-flats detract from the outlook of the property, which could diminish it’s value.