While passive income can be achieved in many ways, one of the easiest and most reliable forms of creating passive income is through property, particularly that of a granny flat build behind a main dwelling. The popularity of building granny flats purely as an income property is on the rise in Australia, especially as many councils have made it easier to build and rent out these permanent structures located on the rear of suburban homes.
Before you contemplate building a granny flat, it is always important that you familiarise yourself with the state legislation for your particular area and see whether the law makes it easy to build a secondary dwelling on your property purely for investment purposes.
Of course, there are both pros and cons to building a granny property on the back of your main home and these need to be understood before you proceed. The biggest benefits to building an investment property are the extra rental income or passive income which would be provided by your renter and the boost to the value of the property. There is also the peace of mind that comes with owning a second property that could house a teenager, young adult or even an ageing parent or parents in the future.
While it does sound appealing, you also need to understand that it could cost more than you anticipate. Without careful management, building projects can and do overrun on budget. And while we noted above that the value to your property may increase, it is worth understanding that it may not increase as much as it costs to build the flat in the first place. Overcapitalising is a term you may hear often when it comes to discussing the option to invest in second dwellings or granny flats.
You may also find that if you do choose to rent or sell your property, it could prove to be more difficult in the long run as many people still prefer single dwelling living without a tenant in essentially, what is their backyard. Understanding that you may have longer than anticipated vacancy periods on your rental property is par for the course as rental dollars are never guaranteed.
Once your granny flat is built you can choose to manage the rental income aspect and maintenance yourself, or you can hire a property firm to do it for you. This will depend on mainly where you live in relation to the granny flat or the time you have available to do it yourself. Some investors even choose to build granny flats on properties which are located interstate, far away from their main home. If this is the case, it makes sense that a third party is used to act as a go-between, although note that this does come at a price. Building interstate will require more legwork and more research, especially if you are not familiar with the suburbs in the local area.
Your aim should be always to create a desirable unit in a relatively good area to maintain the stability of renters and regular cash flow. Weigh up the returns on a medium-priced suburb versus a low income or even high-priced location. The return of the rent will differ as will the reliability of the tenants in each scenario.
Remember, if you are granted permission by your local council to build a granny flat, you may be able to pay your debts off quicker and even retire earlier than anticipated. It’s definitely food for thought. So once you know that it can be done, and you are looking to venture into the realm of becoming a property investor, then it’s time to make a plan.