A granny flat is a good way to maximise your NSW investment

If you are looking to become a property investor things are looking good for you right now. And, if you happen to be the grandmother of an investor in NSW, you could count your lucky stars. 

Interest rates are steady after dropping over the past few months, rental returns are climbing and it’s a great buyers market.  But wait, there’s more... there is a way you can increase your return dramatically. 

With the Affordable Rental Housing – State Environmental Planning Policy (SEPP) or granny flat initiative introduced by the NSW government in 2009, you can add a granny flat to your investment property and rent it separately, resulting in an increased yield and good depreciation benefits. You can also add a granny flat to your own home if you have a large enough block size. 

This strategy allows investors to dip their toe in property developing starting with a smaller project like the granny flat to build their property portfolio. 

The Sydney market can be expensive, which is what sent one me further afield to find a more affordable investment area. 

After purchasing a few investment properties in Sydney, I found that they were all negatively geared. I needed to find properties that would assist with cashflow not drain me.  My research took me to the Hunter region of NSW, and it’s there that I found the perfect fundamentals for an investment market. The local economies are booming thanks to the coal mining industries but also very diverse with wine growing, tourism, manufacturing, agriculture, horse breeding and retail all supporting strong employment.  Coupled with massive government spending on infrastructure projects and strong demand for rental properties, I thought I’d struck gold. 

Property Bloom now offers a granny flat service along with our other development strategies. We find properties suitable for a granny flat development, usually three-bedroom houses on large blocks, but not just any houses. They need to meet a long list of our criteria.  We manage all the fine details, including renovating the house and building the flat, creating a positively geared investment. 

Investors will benefit from casflow from the rent on two dwellings and also receive good depreciation benefits on the new flat.  This means people can keep moving forward with their investment strategy.  Unlike buying a single apartment in a capital city for instance, which is likely to be negatively geared, adding a granny flat to a property that already has an existing dwelling can result in a cash-flow positive situation. 

In the past granny flats were only permitted in certain residential zones, but this SEPP has opened up a whole new real estate door. The aim of the granny flat is to boost the supply of affordable rentals by providing housing for the elderly so families can support each other, as well as the younger generation who are living at home and are not in a position to move out just yet. 

Government projections show us that single-person households are likely to be the fastest-growing sector over the next 20 years, so demand is definitely there. 

Small secondary dwellings are an attractive option for singles and couples who don't need a lot of room and are the most likely people to be under rental stress. Young people are also staying at home longer, and granny flats can provide extra space for them and be a lifesaver for baby boomers who were hoping to empty their nests sometime soon. 

In the Hunter, we are finding properties for around $240,000 and with the addition of a two-bedroom granny flat, which we can build for around $95,000; it’s a really affordable investment for a total cost of around $350,000. These projects are creating a 9% to 10% gross rental yield, and like the northern beaches, the rental markets are extremely tight in the Hunter. This type of development suits someone starting out in developing or an investor looking to create a positively geared investment.

To take advantage of the NSW government’s Affordable Rental Housing - State Environmental Planning Policy (SEPP) the regulations include:

• Granny flat must be no more than 60 square metres in size
• Land must be more than 450 square metres
• Can only be one house and one granny flat on the land
• The land cannot be subdivided
• You will need to comply with the LEP of your council (contact council re building
  requirements)
• It must meet the requirements of the Building Code of Australia

For more information on the Affordable Housing SEPP visit the government’s website.

Jo Chivers is director of Property Bloom, which manages property development.