Granny flats: Are they worth it? Investors crunch the numbers

Granny flats: Are they worth it?  Investors crunch the numbers

Table and chairs on the terrace of a flat in summer.

Photo: 123rf

A “granny flat” or smaller home could provide an income stream, but is unlikely to increase the value of the property, commentators say.

The government has revealed plans to make it easier to build small, detached, detached houses on a property that already has an existing house.

It seeks comment on options that would allow “granny flats” of up to 60 square meters to be built without planning permission or resources.

Opes Partners economist Ed McKnight said building a small home that size would typically cost between $200,000 and $300,000.

It would then be rented for between $400 and $600 per week, depending on where in the country it was located.

Someone who borrowed $200,000 on a 30-year principal and interest mortgage loan with an interest rate of 7.19 percent would pay $313 a week in repayments.

McKnight said that while a smaller home could provide a gross return of 8 to 12 percent, it probably wouldn’t improve overall property value much.

“If you spend $250,000 to build a smaller home, you might add a little more than $250,000 of value to your property. But you’re not likely to add $350,000, for example. So investors typically do this to create cash flow. For example, an “An older person might decide to build a children’s home in their backyard and rent it out to help finance their retirement.”

He said a house with a smaller dwelling would sometimes take longer to sell.

“Typically, you’ll see that residential and income properties take 10 to 20 percent longer to sell. So if it takes 40 days to sell a home, it might typically take 44 to 48 days to sell. a house and an income property, on average.”

Professor John Tookey of the AUT School of Engineering

AUT Professor John Tookey.
Photo: https://www.aut.ac.nz/

AUT professor John Tookey said $3,000 per square meter would be a basic starting point for a new-build property.

But portable cabins of more than 30 square meters would also be affected by the change. Smaller cabins generally no longer require a building permit.

Larger cabins can be purchased as new kits from about $30,000. But they often don’t have plumbing, so they can’t be used as a stand-alone property.

Property investor and trainer Graeme Fowler said he had built a cottage on his own property, which was small enough not to require consent.

He said these cabins can also be rented or purchased secondhand, sometimes for as little as $8,000.

Property investor and trainer Graeme Fowler said he had built a cottage on his own property, which was small enough not to require consent.

Graeme Fowler’s Cottage.
Photo: SUPPLIED

“If you rented a cabin yourself for, say, $100 a week, you could charge anywhere from $100 to possibly $200, depending on your location, market rents…

“Let’s say you bought a cabin, moved it to your rental property, set it all up for the tenants, and it costs you $10,000. Then you rent this out for $120 a week to tenants who have additional family who want to live on the property, too. In two years you will have already covered the cost of purchasing the cabin, plus you still own it and will receive rent from it.

Rental properties must comply with Healthy Homes rules.

Tookey said he did not expect “free for all” construction from people building secondary or minor homes. The properties would have to be built to code by licensed builders, he said.

Aspects such as the impact of a new home on stormwater runoff would also need to be considered.

The cost savings would be several thousand dollars in the resource consent application, time savings and several thousand in the cost of developing resource consent plans.

“Very often, money spent developing the design for consent purposes is later used to complete building permits.

“That said, to get to the point that all work for grandma’s new apartment is ‘performed or supervised by competent professionals under current occupational licensing requirements to ensure that all construction work meets building code’ means that a Licensed Construction Professional or equivalent would be hired to perform the work.

“This would inevitably require some form of design work to ensure it was built to the appropriate specifications. Therefore, these cost savings may only be partial depending on the process adopted.”

A CoreLogic report found 18 per cent of Sydney properties were suitable for a granny flat. In Melbourne, it was 13.2 per cent and in Brisbane, more than 23 per cent.

“For policymakers and government, granny flats present an immediate and cost-effective opportunity to deliver much-needed housing provision within existing urban planning guidelines,” CoreLogic Australia research director Tim Lawless said.

“For homeowners, the addition of a second detached home provides the opportunity to provide rental housing or additional accommodation for family members while increasing the value of their property and potentially earning additional rental income.”