How construction companies are seeing a return of the humble shack out the back.
Australians are an industrious people. The Hills Hoist, the Winged Keel, the Cochlear implant, time and time again we have changed the world with our inventions. Evolved from a Victorian concept known as a dowager house and once relegated to storing away visiting relatives and old furniture, the humble granny flat is another great Australian Icon, and it’s making a come-back.
The granny flat offers an opportunity to let out an otherwise dormant patch of property and see substantial returns. This could be achieved with the help of a property manager or through platforms such as AirBnB, Gumtree, Facebook houseshare groups, and Flatmates.com.
To hear the perspective of an expert, your friendly neighbourhood Avnu correspondent reached out to Kate Cubitt, from Ian Cubitt’s Classic Home Improvements. She gives an example of what returns could be expected, as well as value-added. Kate recalls a client who’s single residence property was valued at $390,000. Then they built a granny flat, this cost $95,298. The client had their property valued after six months, and it was valued at $650,000. That’s an increase of $260,000. Now, the client charges a total of $700 per week for house and granny flat. Find out your home’s current potential rent value and sale price using Avnu’s Property Report, then get an appraisal from an agent with a hypothetical granny flat in mind.
Just as appealing to homeowners, depending on who they have sharing the familial nest, is the fact that adult children are staying at home longer than ever. According to a report by the Australian Institute for Family Studies, 43 percent of 20 to 24 year olds were still living with their parents in 2016. Compare this to 1981, when 36 percent of 20 to 24 year olds lived at home. Almost half of people in their early-twenties are still living with their parents or guardians. To help combat this, Kate says, kids are turning to the Bank of Mum & Dad – combining finances with their parents.
She reports, “We have also experienced many examples of people who aren’t ‘family’ combining their savings to invest together. For this, a simple legal document can be drawn up to ensure assets are protected in the long run and we suggest and assist clients in finding the right legal help to ensure this is all in place.”
Added to this, life expectancy is increasing, creating a greater need to house our elders while allowing independence. Kate says,
“We all want the absolute best life for our loved ones for as long as possible and if building a beautiful accommodation like a granny flat close to other family members is a solution, people are jumping at it!”
Understandably, properties with separate accommodation options prove preferable for the longer-term.
And for homeowners who are not occupying the main residence – investors, in other words – there is a significant uplift in yields when you let out two tenancies compared to a single residence. Somewhere in the figure of 0.5 percent extra yield, to be specific. Added to that, you are countering potential periods of vacancy by spreading tenancy over multiple leases. Now that’s savvy.
If that doesn’t convince you, there is one more nugget of wisdom imparted by Kate; “Due to the lack of affordable accommodation in both metro and semi-regional areas, adding a second residence to your property and benefitting from the rental income means that many of our client’s properties are seeing their mortgage paid plus an income flowing in from their Granny Flat investment.”
So you’re convinced, a granny flat is the way to go. But is there anything you should remember?
The dos for Granny Flats starts with the foundations – both literally and not so literally. Make sure you hire a builder and not a company that is keen to take your deposit and then send your build-out to sub-contractors. Your money matters and the amount you are spending should be safe in terms of builders’ insurances and warranties as well as craftsmanship.
The don’ts for a Granny Flat are don’t be talked into a contract or agreement quickly – do it right and you will reap the benefits throughout the build process and for years afterwards. And don’t let the name granny flat limit your imagination – granny flats aren’t just for grannies and they are certainly not the old shed at the back of the property any more! For inspiration, see our top five design and styling tips.
Speak to a property manager about increasing your rental yield.
Our property managers see themselves as not just managers of your property, but also as wealth creators for you as an investor. Speak to our team about how you could make a difference to your rental income.