Across Australia, the granny flat is currently experiencing somewhat of a construction boom. And it’s not hard to see why. Rising property prices, coupled with an ageing population, have resulted in an increased demand for multi-generational and multi-dwelling living.

These popular and relatively affordable buildings offer considerable lifestyle benefits for homeowners. At an average cost of $100,000 (i), they can be used as a home office, a teenage retreat or even as a separate living area for relatives or “boomerang” adult children returning home. For many parents, the addition of a granny flat can greatly assist their children to save for a home deposit whilst giving them a certain level of independence, privacy and freedom.

No longer just for granny

Yet the humble granny flat is no longer just for Grandma (or those pesky twenty somethings that won’t ever leave home). Homeowners are also increasingly eyeing off their backyards as a potential source of rental income.

The rising demand for granny flats has been largely fuelled by State legislative changes designed to encourage a greater supply of affordable housing. In NSW, WA, NT and TAS, homeowners are now permitted to generate income through the rental of secondary dwellings. And homeowners have been cashing in.

Around 3,650 granny flats were approved in NSW in 2014-15, an increase of 20 per cent on the year before, with similar increases experienced in WA. (ii)

How it can work for you

So how could a granny flat work best for you? Creating small, but comfortable accommodation for rent-paying tenants on your own land could provide a modest, yet valuable income stream. Alternatively, you may wish to consider moving into the granny flat yourself and renting out the main dwelling for a higher return. Short-term rental websites such as Airbnb could also transform the space into a temporary revenue stream if you don’t want to commit to longer-­term rentals.

There are some tax benefits to consider as well, with the ability to claim back depreciation as an expense. In addition, if you need finance to build the granny flat, the interest on the loan for the construction costs will be deductible – even before a single dollar of rent is earned. However it’s important to seek specialist financial advice, as personal circumstances can differ and you may face capital gains tax or other unforeseen costs.

Rules and requirements for secondary dwellings vary between States and even local governments, so it’s important to do your homework. For example, there can be restrictions on the building’s size, and the residence may be required to offer off-street parking. Before you engage a builder or architect, be sure to also consider your family’s needs now and into the future, and ensure that the residence will be flexible enough to meet these needs over time.

Whether you intend to build a granny flat as a source of income or just as a little bit of extra space for the family make a time to have a chat to us so you can be sure to understand all your options.

i Williams, S. 2014, ‘How much value does a granny flat add to a property?’, Domain.com.au, 28 October, <http://www.domain.com.au/news/how-much-value­does-a-g ranny-flat-add-to-a-property-20141 028-11 czgx/>.

ii Croaker, T. 2016, ‘2015, when granny flats became flexible multi-function spaces’, Domain.com.au, 3 January, <http://www.domain.com.au/news/the­evolution-of-the-granny-flat-20151225-glv306/>