Whether you’ve got some spare cash to invest, a bit of extra time on your hands, want to get in on the air b’n’b trend, or have just always liked the idea of saying “yeh I’ve got a granny flat out the back”, there’s more than a few good reasons to build. One of these reasons is simple: it’s a good investment if you do it right.

Far from the old makeshift shack out in the back corner of they yard, the humble little granny flat abode has come quite a way. Now the options seem to be as limitless as your imagination.

It’s easier than ever to build a granny flat. Since new regulations in 2009 to make assessing easier, the NSW government has had an increase of almost 20% in approvals. To be approved in NSW typically a granny flat must be

  • Established in conjunction with the principal dwelling
  • On the same lot of land as the principal dwelling
  • May be within, attached to, or separate from the principal dwelling
  • No larger footprint than 60m2

So there’s a good chance your development proposal will be approved, but is it a good idea in terms of investment?

Let’s look at what it might be able to do for you.

A current day, sophisticated term for the granny flat could be deemed a studio. On the Central Coast, “studios” are rented from anywhere between $200- $400  (and more depending on how elaborate your designs are, or your location).

Let’s say the fixed price of your 2 bedroom granny flat is $120,000.  Conservatively estimating, this could earn you an extra $300 per week on rent (though likely more depending on location, and quality of production). On a 20 year loan with a standard variable rate of 5.95%  your weekly repayments would be around $200 a week. As a gross yield on investment that’s 13% gross return. Not bad in terms of gross yield!

Ok, so you can pay off your loan and have a little extra for some maintenance around the house, and drinks on the weekend, but what about actual increase in value on the property?

Turns out according to Ron Gedeon, principal of RPG Valuers, granny flats can often add a premium of up to 20 to 30 percent of what it cost. However, this is only if it’s legal. Getting the Council compliance paperwork is essential if you wish to add value to the property, otherwise you’ve just made a shack for your future teenage son.

Perhaps you don’t want a constant tenant, but you want to have a dedicated space as a guest-house for the relatives to stay over at Christmas, or who knows, maybe your granny needs to stay once or twice throughout the year! If that’s the case, with the increasing popularity of Air BnB and other rental sites like it, you can offer your extra space for rent for as little or as long as you like. Though unlikely to be filled as constantly as a regular tenant – particularly in the winter months on the Central Coast – the price you can fetch per night, especially if you’ve got a great fitout, is quite lucrative. It’s not uncommon to get anywhere from $75 – $100 per night depending on location and time of year. Averaging a couple of nights per week and you’re paying of that loan with ease as well as having it free for grandma at Easter.

While there are no guarantees in return on investment (or much in life, for that matter), granny flats are becoming more and more popular to build and to live in. If it’s something that’s always interested you and you want to put a bit of heart and soul into expanding your home, a granny flat can be a very rewarding investment in more than just a monetary way.