Does less up front cost mean less rent?

If you have the room, and your property meets the criteria set out by the NSW Government, building a granny flat on your property is an excellent way to generate an extra income. And depending on your circumstances, you also have a decision to make: Should you build a cabin or granny flat?

At this point, it’s worth mentioning that the fast-tracked approval process for granny flats comes with a few strings attached. Generally, any addition or alteration to a property requires the homeowner to lodge a Development Application (DA) with their local council, which can take up to 3 months to be approved.

Under the new rules, however, if a granny flat design meets a number of requirements set out by the Department of Planning and Environment, it can be approved in 10 days under the Complying Development (CDC) process. It’s worth keeping his in mind when you go looking at granny flat and cabin builders, because designs that don’t meet the CDC standards will have to go through the regular DA process.

Consider how your dwelling will be used

You may want to use the dwelling as an office or studio now, but will you always want to use it for that in the future? If the proposed granny flat will be constructed on the property that you use as your primary residence (rather than, say, an investment property), will you feel comfortable with permanent tenants on your property all the time, or would you prefer to rent on a short-term basis?

You should also consider whether there’s a big market for granny flats as permanent rentals in your area. If you live in Sydney or Newcastle, there probably is. But if you live in a regional town, there may not be enough demand for long-term units or freestanding homes, never mind granny flats. If your property is located in a tourist spot, however, such as Cessnock or other parts of the Hunter Valley, there’s more of market for B&Bs and short stay rentals.

How your dwelling will be used will determine what you should build

Granny flats, which typically range in size from about 30m² to as much as 60m², cost between $80,000 and $120,000, compared with a cabin which can cost as little as $50,000 for a 20m² dwelling. Granny flats are more livable though, so they’re better suited as long-term rental properties than a cabin. A cabin would suit a home office, studio or guesthouse. As a guesthouse, you can earn an income by setting it up as a B&B or other holiday rental.

The difference in construction costs is pretty much commensurate with the dwelling’s end use. In other words, you get what you pay for. A cabin may be cheaper, but the rental return will be too. Or, if its intended use is as a holiday rental, it will be infrequent. Before you commit to any particular dwelling, you should thoroughly research the rental market in your local area. Determine the market for long-term rentals — especially the market for granny flats — and the market for holiday rentals in your area.

Are you looking to invest in a granny flat or see how viable it is, continue reading our blog or register for our free Granny Flat Investment Spreadsheet and Workbook