Doing it for granny

Author: ME

Published at: 6/21/2016 3:29:33 PM


Doing It For Granny



Families are returning to the old days of multi-generational living arrangements, and they’re not just putting granny (or junior) in an extra bedroom.


Welcome to the world of granny flats and Fonzie flats (self-contained units built above a garage, named after Arthur “The Fonz” Fonzarelli, who lived in a studio above the Cunningham’s’ garage in the sitcom Happy Days).


Changes to planning laws in many areas (do check council requirements in your area) make it perfectly legal to pop a granny flat in the garden or add a Fonzie flat above the garage.


It’s a low cost investment that can deliver generous rental yields but it’s a decision that needs to be weighed up carefully.


Like all investments granny flats come with risks and rewards


On the plus side, a granny flat can set you back as little as $10,000 through to $60,000 depending on whether you chose a pre-fab kit or fully installed design. Funding for this could come from a home loan top up or by accessing home equity. Your ME Mobile Banker can explain the options available.


The space can be used as extra storage, a teenage retreat or a home office. Heck, it could even accommodate grandma.


If you’re thinking of renting a granny flat out, check the rules for your area. Not all states allow public rental of granny flats.


Where it is permitted, granny flats can punch above their weight for returns. Assuming weekly rental of, say, $200 per week for a granny flat costing $60,000, the owner could pocket gross (before expenses) yields of 16%. That’s about four times the typical yield on a regular house or apartment.


Beware the drawbacks


On the downside, renting out a granny flat essentially means sharing your home with a stranger. It can also bring the need for additional parking, working out how to share power and water bills and ensuring the neighbours are comfortable with the arrangement. 


However the biggest negative is the impact of using your home to generate income.


As far as the tax man is concerned, earning rent from a granny flat can transform your home from a tax-free asset into one that could attract capital gains tax if you sell up for a profit further down the track.


The key is to weigh up the pluses and minuses, check council requirements and maybe speak with a few local real estate agents to get a feel for demand for granny flats in your area.