The pros and cons of building a granny flat

If Sophia Loren, Goldie Hawn and Susan Sarandon are making grandmothers more glamorous than ever, it only makes sense that ‘granny flats’ are enjoying the same level of glow-up.

Gone are the humble red brick eyesores of yesteryear, and in with stunning, modern, even sustainable studios and WFH offices.

Welcome to the new world of granny flats. This house extension can be anything from a single room with its own entrance to a fully self-contained unit nestled in your garden.

Better still, a granny flat can be your own home office (and escape from partners and kids). As we spend more time than ever at home, the need for extra office space is greater than ever.

But before you start planning to build your granny flat, it’s worth checking the planning laws for your area with your local council. Much more often than not, it’s perfectly legal to pop a granny flat out the back.

Because they’re so flexible, granny flats can represent extra value for lots of buyers. Whether you’re renovating a granny flat you already have, or building it from scratch, here’s what to weigh up.

Pros

Create a versatile space.

Creating a separate area in your home can be useful in so many ways. If you have a bigger family, it might become a teenagers’ retreat, a guest suite or a parents’ escape room. And with more of us working from home, a granny flat is the ideal space to stay productive – and creative; while still keeping work separate from family life.

There are many affordable options for installing a granny flat.

Because granny flats have become so on-trend, there are myriad options available. A pre-fab kit could set you back as little as $30,000, or you could opt for a fully installed, plumbed and powered suite and pay upwards of about $120,000. Sounds like a lot of money, but the resell value could be a lot more. They can be built with ensuites, kitchenettes and even a relaxed, private decking area for dinner parties … because why should the next buyer be the only one who gets the benefits?

You might be able to use the equity in your home to fund your expansion, or look at a home loan top-up or separate loan. Your ME Mobile Banker can help you check out all the options.

You could even become a superhost on Airbnb (or a landlord).

You might also be able to add some extra income by renting it out. Not all states allow for public rentals of granny flats, but if they do, you might find it’s a great little earner with minimal effort.

Where they’re permitted, granny flats can punch above their weight for returns. Let’s do some maths. Assuming weekly rental of $300 per week for a granny flat costing $120,000 to build, you could make your money back in just over seven years.

Of course, the compromise is that you’ll be living in close proximity to your tenant, but that could turn out to be a good thing. You might even make a new close (literally) friend.

Cons

There are tax implications when renting a granny flat.

Some of the potential negatives of renting out your granny flat are easier to fix: extra parking spaces, splitting utility bills and agreeing not to have karaoke nights. But there are tax considerations, and they shouldn’t be taken lightly.

As far as the tax office 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 – that could mean paying extra if you sell for a profit further down the track.

You could be decreasing the value of your home.

Outbuildings and granny flats built decades ago can come with structural and material issues, and deter buyers who want to avoid the extra expense. Make sure yours is in good nick. Think of it as another part of your home and treat it accordingly when it comes time to sell – fresh paint, pretty flowers and no hidden-away treadmills.

Still not sure? Many granny flats have showrooms or displays you can visit before you start sussing out council rules or even building, so you can get a feel for the end result. And remember, you’re never locked into how you use it, it can change and grow as your life does – even until you become an actual granny or grandpa.