9 Factors to Consider When Buying an Investment House with Granny Flat

Investors love homes with Granny Flats. It is an investment option that gives them more bang for their buck.

A home with a Granny Flat is a property investment that will increase returns. It is a bigger nest egg for the future, possibly giving you the financial freedom to retire early or spend the extra income on another home.

But, as well as the benefits, there are some risks in buying a house with a Granny Flat. Here are our top tips to consider before purchasing an investment property with a second dwelling.

Things to Think About Before Buying an Investment Property with a Granny Flat

1. What will the extra living space be used for?

A Granny Flat doesn’t just have to be somewhere for family members to live. It can be used as a home office, an artist’s studio or a playroom. If you plan to rent out the main dwelling and Granny Flat together, you need to be sure there’s a market for homes with extra living spaces.

2. Does the second dwelling have all of the relevant approvals?

Conduct thorough inspections of both buildings. Ensure the Granny Flat is a legal building with council approval. When you’re having a pre-purchase building inspection done you will also need to identify any potential repairs in the second dwelling and factor this into your budget.

For more information on building a Granny Flat legally, see our article on site requirements for a Granny Flat.

3. Can it be modified or expanded to increase the value or rent immediately?

Because it’s an investment, it’s wise to have an understanding of the current value of the second dwelling and where more value could be added. Is there room for development?

4. Can I rent the Granny Flat out separately?

If so, what is considered shared and separate on the property, because renters will want to know. For example, who will have use of the garden and garage? Is there a separate, private entrance? How will Granny Flat residents get their mail or parcels? Will the residents of the main dwelling and second dwelling share the wheelie bin, electricity and water, or will you have to invest more money to have these issues sorted?

For more information on renting out a Granny Flat, see our article on renting out a Granny Flat in NSW.

5. How much extra income will it provide beyond just a single dwelling?

Some tenants won’t like the idea of living in someone else’s backyard and some won’t like having strangers living in their backyard, so you may need to consider the possibility of one or both properties being vacant for a period of time. 

6. Consult with a tax professional.

Be sure to understand the tax implications of owning an investment home with a Granny Flat before you decide to buy. Capital gains tax, depreciation and the extra rental income are all things to be considered.

7. Can I afford the upkeep on two rental properties?

As with any investment, you need to have your finances in order before making the leap. Think about if your circumstances change. What if you lose your job? Can you still afford the mortgage? Will you be able to afford maintenance on both properties? You want to be sure your investment will provide positive cash flow. Don’t forget, if the rent is managed by a real estate agent, this will be an additional cost.

8. Is a home with a Granny Flat the right sort of investment property?

Perhaps a single-dwelling or a duplex is a better investment option for you. Each type of property will have its pros and cons. Also, make sure you research the location to determine the rental demand. Is it a growth area with plenty of amenities in the surrounding area?

9. Does the Granny Flat increase the property value?

You will be paying more for an investment property with a Granny Flat, so consider how much value it actually adds. You might be better off investing in a single dwelling where you can add a Granny Flat. Granny Flat Solutions offers a unique pre-purchase site evaluation service to help you determine if you can add a Granny Flat to the right property.

Where to Go for More Information on Granny Flat Investments 

While an investment property with a Granny Flat won’t suit everyone’s investment goals, these dual-income properties can supercharge cash flow and increase rental yield. However, if you don’t do your research, it may cost you long-term capital growth.

If you’re interested in making an income from the backyard of an existing investment home, adding a Granny Flat can add instant equity. For more information on building a Granny Flat, contact Sydney’s award-winning Granny Flat builders, Granny Flat Solutions by calling 1300 259 677 or see our guide on getting started building a Granny Flat.