An extra flat or studio can be useful for guests and an emotional refuge in times of teenagers. But does building one make financial sense, asks Sue Williams.
Who has not, at some time or other, longed for a granny flat or studio at the bottom of the garden? Especially whenever the in-laws announce a visit, a teenager’s music makes the home foundations vibrate or you’re simply not seeing eye to eye with a loved one.
But does the prospect of a ready refuge make sound financial sense?
“It can do – but only as long as it’s legal!” says Ron Gedeon, principal of RPG Valuers. “If it has all the compliance paperwork, then it can add value. Often it’ll add a premium of 20 to 30 per cent of what it cost.”
Most of that value will be in the convenience of having a self-contained studio to put visitors, members of the family, a home office, the au pair, carers for an elderly home-owner or paying tenants to earn some extra income. Depending on the location, a decent granny flat can be rented out for between $200 and $600 a week.
“That can be quite an attractive return on the investment,” says buyers’ agent Jacque Parker of House Search Australia. “In some areas, their popularity has really taken off, and they can add value to a property as people like the idea of a second income.”
The NSW government’s Department of Planning and Environment introduced new regulations in 2009 to make assessing granny flats easier, and quicker, within 10 days (see panel). That’s had a significant effect with an almost 20 per cent increase in approvals – from 2411 in 2011/12 to 2867 in 2012/13.
The figure this year is likely to be higher still. In the past two years alone, builders Master Granny Flats have found their orders have more than doubled. The cost varies from an average $100,000 to build a freestanding unit, depending on finishes, to $110,000 – $115,000 to construct either two-storey flats or units on top of garages, which can involve more engineering work, particularly if existing blocks contain asbestos.
“People are becoming a lot more confident now about adding them on to their properties, particularly when they see them popping up in the neighbourhood,” says company director Robert Daoud.
Selling agents Raine & Horne have found properties can sell for a significant premium with a granny flat attached. A four-bedroom house on Dorothy Street, Cromer, for instance, sold in September for $1.25 million, when the median price for the area was $995,000. Similarly, a five-bedroom house on Darley Street, Sans Souci, sold in August for $2.2 million, against the median of $1.08 million.
“As long as it’s in keeping with the existing property, doesn’t look as if it’s been whacked on and doesn’t encroach too much on a garden, it can add value,” says Raine & Horne chief executive Angus Raine. “That’s particularly in an area with a lot of students who might want to rent it, or where a number of generations live under the one roof, or people work from home. When it comes time to sell, it can stand out from the competition.”
But if the main house is under par, then better to spend spare cash on that, rather than on a granny flat, says Gedeon. “If it needs a new kitchen or bathroom, you’re far better off putting the money in that.”
Also, a granny flat can actually devalue a property. “That’s if it reduces the outdoor space too much or overlooks the main house,” says Dennis Kalofonos of Sydney Property Finders.
“We had one buyer five years ago who bought a house with a granny flat – then tore it down to build a pool.”
HOW TO HAVE YOUR OWN GRANNY FLAT
There are four main ways to build a permitted granny flat.
1. Secondary Dwelling Internal Conversion: You can convert an unused bedroom (apart from in the basement) in your home into a granny flat, under the ten-day approval process from the State Government. The only external change should be the new entrance to the flat. Heritage homes are exempt.
2. Secondary Dwelling Over Garage: You can build an extension to the garage, as a new ground-level or second-storey addition to an existing garage. For the ten-day approval, it must comply with height, site coverage, floor area and boundary setback standards.
3. Secondary Dwelling Rear Yard Addition: This is a stand-alone building in the back or side yard of your property. It must also meet certain standards to gain the ten-day approval.
4. A Development Application to Your Local Council: Regulations vary between different councils, and these will be considered on a case-by-case basis.
• For more information, contact the NSW Department of Planning information centre, Phone 1300 305 695; your local council; a planning consultant; building designer; or architect.
• A free seminar on granny flat investments, with a panel of experts, is to be held by agents Starr Partners on Tuesday November 25 at 6.30pm at The Holroyd Centre, 17 Miller Street, Merrylands. Phone 9760 6648 to reserve a seat.
CASE STUDY: A HANDY ADDITION
When Denham Scott bought a three-bedroom home with a detached granny flat on the property 16 years ago, he wondered, at first, what he’d do with the self-contained unit built over the garage.
In the beginning, he and his wife used it as a TV room. Then, when their son grew a little older, he moved out of the main house into the flat to have some room of his own. Nowadays, his son has just moved back in with his wife, following his mum’s death, to keep an eye on his dad.
“It’s been pretty handy over the years,” says Scott, 83-years-old, a retired mechanical engineer. “It’s got a kitchenette and an ensuite, with the laundry underneath, so it’s completely self-contained.
“I guess we could have rented it out and made some extra money off it too, but we never did.”
Now Scott is selling the solid brick house in a quiet cul-de-sac at Charm Place, Peakhurst, together with its granny flat, through agent Adrian Dodd of Honer Dodd Realty (Phone 0412 493 446) for offers above $900,000.
Dodd believes the addition of the flat really adds value to the property. “For a lot of buyers, that’s a good investment as they can make an extra $200 a week by renting it out,” he says. “Other buyers might decide to use it for their kids or in-laws when they come to stay. It’s always going to be very handy.”
Scott, meanwhile, knows he’ll really miss the beautiful renovated home and flat, with the immaculate garden to the front. “But it’s now time to move on,” he says.