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Can a Granny Flat Boost Your Investment Property Income? What the New Laws Mean to You and Why

No matter what side of the State Election you were on, if you are own investment property in Perth, or anywhere in WA, you may have reason to celebrate. Soon, the liberals will keep their promise and change the granny flat laws, allowing granny flats to be rented out without going through the complicated process of subdivision.

These changes will help long term investors a lot, and it will also allow those whose properties are too small to subdivide to increase their rental income. Many property owners on both sides of the political fence agree that this law represents a lot of opportunity for those who are savvy enough to take it.

A WA company that re-branded itself five years ago and now specialises in building new granny flats estimates that they now build ten times as many granny flats as they did a mere five years ago. This indicates that granny flats are a growing trend.

The reason that granny flats are becoming so popular is that many people are having a hard time finding affordable housing. Granny flats represent an affordable housing solution to many who lack the funds to buy or rent a bigger house.

In addition, many couples who reach retirement age are allowing their kids to move back into the main house with their own families, and opting for the granny flat as their own domicile. Downsizing is often a perfect solution for couples who just want to enjoy their golden years.

In addition, many elderly couples and singles are utilising granny flats as a substitute for retirement homes or assisted living facilities. According to the 2011 census, 26% of Australians aged 85 and older live in nursing homes, assisted living, or other aged care facilities. In 1999, that number was 39%.

Australians are living longer, feeling better, and want a better standard of life. Granny flats represent a perfect solution for the elderly person or couple who want to retain their independence and dignity, but be close to help when they need it.

From the perspective of an investor, the changes are going to allow a lot of property owners to increase the long term value of their properties while creating more income from them on a monthly basis. Those who plan on holding onto their properties for a period of many years are heartily encouraged to consider building a granny flat on their properties.

The only people we don’t think can profit from building a granny flat on their properties are those who want to flip the properties in the short term. The main problem is that it will take a little while for the properties to appreciate in value enough to compensate for the initial investment in the granny flat. Therefore, we would recommend that short-term investors stick to the subdivision strategy.

Let’s run some numbers. A 1 X 1 of reasonable size, on an investment property where parking is provided, should bring in at least $250 per week in rent, at least in the Perth area. Meanwhile, the building cost would run between $100k and $120k. The increase in income would more than pay for the construction costs in the long term, and the property could eventually fetch a higher market price.

We like this idea.

Jarrad Mahon is the director of Investors Edge, a real estate sales and property management company in Perth specialising in investment properties. He can be reached at 0403 659 753, or you can visit: https://www.investorsedge.com.au/

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Purely Finance Pty Ltd - Australian Credit License 384337

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