BUILDING a granny flat is a good investment - but only in the states that let the owners rent them out for extra cash.
In NSW, Tasmania, the Northern Territory and Western Australia, granny flat owners can use the extra dwelling to earn rent.
But in Victoria, South Australia and Queensland, such arrangements are forbidden. In these states granny flats are deemed to be legal dwellings only for dependants of the owner, with their occupiers usually the householder's adult children or elderly parents.
But agents say that many granny flat owners in these states evade the law and rent them out cash in hand and tax free. "Some people are prepared to take the risk," says Ray White Brisbane agent Trent Bamber. "I tell them that it's against the law but a lot of people who buy a home with (a granny flat) have the intention of renting it out under the table."
Cash in hand arrangements aside, Australian Property Monitors senior economist Andrew Wilson says granny flats add to the value of a property because they are an extra feature that appeals to some buyers.
But Century 21 Australasia chairman Charles Tarbey says this increase in value doesn't cover the cost of building one, which is usually between $70,000 and $120,000.
"It's going to cost you to build it and I don't think it will add all that much value to a property," Tarbey says.
"If you spend $30,000 it won't give you $50,000."
Ray White Brisbane agent Treston Bamber has sold many homes with granny flats and says they suit the lifestyles of some buyers. But making a buck from building one in Queensland is a "50-50 bet".
"If your sole purpose is to buy a property, spend $100,000 on a granny flat and then sell it hoping to make a profit then you will be disappointed," Mr Bamber says.
"It's not a good strategy; there are plenty of other ways to make a capital appreciation."
But the tale is more profitable for the owners of rent-earning granny flats in other parts of the country.
Danielle Fisher bought a property with a granny flat in Sydney's inner west three years ago for about $770,000. Fisher thinks the granny flat - which she says was dilapidated - added to the price she paid for the property. She then spent close to $30,000 renovating it.
Fisher advertised the granny flat for lease and says she received a "huge response" before settling on a young professional as the tenant. Fisher charges rent of about $325 a week for the flat ($16,900 a year) and says it is crucial income to help pay off the mortgage.
She says she could write a book about the less-than-suitable people who applied to be tenants.
"It's a bit like employing someone for a job, looking for a tenant, because you know they're going to be in your company," Fisher says.
"The granny flat is in the bottom of my garden so you want someone who you're going to get along with."
McGrath head of network property management Michael Conolly says that this close living arrangement can work against investors who lease the main home and the granny flat to separate tenants.
Not everyone is comfortable with the arrangement, Conolly says, and it reduces the number of people who are interested in leasing the property.
"You're left with the possibility of having a longer vacancy period, which can then lead to a reduced rent for the main (house)," he says. In the end, he says the increased rental income from two dwellings on one piece of land is worth the risk. "It's a good investment for yield income. You can't argue against it."
Other owners ask as much as $400 a week to rent out their granny flats in Sydney's Drummoyne, aiming for short-term holiday-makers from overseas.
Good read though, thank you.
