Is Constructing a Granny Flat a Wise Investment Move?

The housing crisis is still out of control. And looking at our sea of politicians responsible for fixing it … I’m not holding out a lot of hope. 

We need a whole lot more houses and we need them fast. 

So I was interested to read about one solution put forward by Tim Lawless, the research director for CoreLogic. 

Their research has identified 655,000 sites across Australia including 242,000 in Sydney alone

where a granny flat could easily be built in a backyard. 

Yes, granny flats. 

Now, on the surface it seems like a pretty good idea. They’re small and basic, and you can pop one up in a few weeks. 

Plus, you could put one up and rent it out, creating a new income stream. 

Then if mum and dad need to be close by, they can move in. 

Or you can move the grumpy teenagers outside (or should I say, ‘encourage their independence’). 

So … would I recommend you race out and build a granny flat?

Surprisingly, no. 

At least, not as an investment. Lifestyle choices are of course another thing. 

Most of the time adding a granny flat doesn’t add value to the property. 

I’m not kidding. 

We ran the numbers on how properties with granny flats stack up compared to similar properties without granny flats. 

Want to know how the numbers came up?

The results showed us that the resale value of houses with granny flats is rarely higher than the ones without. 

In fact, often the resale value is often significantly lower. And the rental increase isn’t as much as you’d think. 

How can this be?

Wouldn’t adding a dwelling, more rooms and an income to a house would make it more valuable?

No. And there’s a reason why. 

You see, when you sell your property, the pool of potential buyers is limited to people who want a house with a granny flat. 

And this isn’t most people. 

Most people want a backyard for the kids to run around in. 

Swings, maybe a pool, big drooling puppy dog racing around. 

They don’t need a little house for mum and dad. 

And they sure don’t want to share their backyard with a stranger. 

Suddenly the number of people who want your house with the granny flat out the back is slashed to a fraction of what it should be. 

To add to the pain, the rental income boost isn’t as high as you’d think, considering you have to drop the rent on the original house once you take away part of the backyard … along with their privacy. 

And this is why …

… the best bet for resale value is still the traditional house without the granny flat. 

So, as a lifestyle choice they’re great. 

But as an investment … forget about it. 

It’s more likely to hurt you than help you. 

And when we run the numbers for clients who ask us this question, it’s always been better for them to invest the money into another high growth, positively geared property than a granny flat.