If you have a 450 square metre-plus block of land on Sydney’s Northern Beaches – or in any Australian capital city – there is a good chance you can build a granny flat without a development application (DA), which will likely return over a million dollars in 30 years.
Conservatively, a high quality two-bedroom granny flat will cost around $150,000 to $200,000 to build and in most capital cities you can expect a rental return of around $600-$800 per week.
With the cost of servicing a $150 to $200k loan being around $200 per week, that leaves you up to $600 per week to put towards paying off your mortgage faster. This equates to $936,000 over 30 years, compounded.
If you wanted to further leverage your investment, that extra cash flow and equity can be used to invest in property in high growth areas, potentially turning your granny flat into $2 to $4 million in 30 years.
Granny flat rules and regulations:
In NSW the State Environmental Planning Policy (Affordable Rental Housing) 2009 allows you to build a granny flat without a development application (DA), as long as you meet certain criteria. An accredited certifier can simply sign it off.
The granny flat can be within, attached to, or separate from your main house (the principal dwelling) and typically needs to be:
- Established in conjunction with another dwelling (the principal dwelling).
- On the same lot of land as the principal dwelling (and not an individual lot in a strata plan or community title scheme)
The policy also requires the granny flat to be on a lot that has an area of at least 450 square metres and satisfies certain development standards.
However the rules, regulations and fees around granny flats do vary between states and even councils, so it’s important to do your research and consult council as they ultimately determine if granny flats are permissible, including in any specific zones which include:
- Zone R1 General Residential
- Zone R2 Low Density Residential
- Zone R3 Medium Density Residential
- Zone R4 High Density Residential
- Zone R5 Large Lot Residential (via development application only)
- Council zoned areas such as bushfire, landslip, flood and coastal zones.
Smart Granny Flat Design:
By using smart design principals, you can build your granny flat so you are not sharing your property or backyard with tenants.
By providing exclusive access and separating fences, all your granny flat will mean is that your neighbours are a little closer than they used to be.
While the maximum internal area of a granny flat without a DA (under the Affordable Rental Housing policy) on Sydney’s Northern Beaches is 60 square metres, you can possibly build a larger one with a DA.
You can also create a large alfresco (outdoor, undercover) dining and entertaining area, which does not count as part of the 60 square metre limit.
By designing an L-shaped granny flat with large bi-fold doors leading onto a 30 square metre alfresco area, you will have a light, bright and open space which will be easier to rent.
Granny Flat Costs:
While a DA is not usually required as long as you meet the criteria, some councils may charge a fee for the granny flat, usually no more than $20,000, but in the scheme of things, this is not significant.
And since it is classified as an investment, you can still claim the building depreciation and interest against tax. While it is positively geared, these claims will reduce your tax liability.
And a last word of advice: there are cheap, low-cost granny flats available, however don’t be lured. Choose quality and reap the rewards for the next 30 years or more.