Issue link: https://viewer.e-digitaleditions.com/i/103334
propertytalks Flat chat Michael Conolly, McGrath Estate Agents' head of network property management, speaks with Mark Taylor about the pros and cons of investing in a granny flat. In a high-priced but stagnant market with low rental yields, investors and home owners are looking for innovative strategies to improve their investment return and cash flow. One strategy is to build a granny flat in the backyard to generate additional income. I asked Michael Conolly the following key questions to help those who are investigating this strategy. Where can this strategy be implemented? In areas where planning laws make it relatively easy to get approval to build, and where granny flats can be rented out for income instead of simply housing a dependant. In Australia this is limited to New South Wales, Tasmania, the Northern Territory and Fremantle, Perth. What is the general principle? You invest in a one-bedroom granny flat at the back of your home or investment property. You can expect high yield on the flat – more than 10 per cent return – which improves your overall investment return. What are the pros of this strategy? First, a granny flat is a positively geared investment in most cases. Second, tenants like granny flats, particularly the modern ones, because they offer more than an apartment. The pluses for tenants include: • access to a yard for the same or less rent as an apartment • they're usually pet-friendly • utilities can be included in the rent because of issues regarding separate metering. What are the cons? If you're considering adding a granny flat to an investment house, you have to realise the rent you're currently receiving for the house will have to be reduced to offset the negative for the tenants of having a granny flat in their backyard. You can also expect potentially longer vacancy periods, particularly for the main house. Any tips for those considering this strategy? Research is everything in real estate investment, so consider the issues carefully. If you go ahead, think about how you could create a sense of separation through landscaping; for example, planting trees through the middle of the yard to create some privacy for both homes. In terms of whether or not it's a good investment strategy, it all comes down to the area and the numbers. Speak with a local property manager and ask them how much rent the granny flats in your suburb are commanding and how a granny flat affects the vacancy rate and rent on the main house. Ask them for worsecase examples so you can budget carefully. For more expert advice on property visit www.facebook.com/expertpropertyadvice. Mark Taylor, our regular property columnist, is the founder and managing director of the Keys To Success Club, a must-have resource for anyone who is serious about property. Visit: www.keystosuccessclub.com/property 99