Owning a bed and breakfast accommodation has been an investment and income dream for many Aussies - and Airbnb has turned the Aussie holiday accommodation industry upside down. Especially in popular city and beachside locations – chances are you’ve staying in one. So lets delve deeper into what you need to know to build a Granny Flat as a short term rental.
Explore Complete Guide to Granny Flats as Airbnb's in NSW and Canberra:
Anyone with a property – or even a room to spare, can make a bit of cash on the side from this popular segment of the travel market – and some are even turning it into a business. A Granny Flat of course is the perfect tool to use to start hosting on Airbnb. Here’s a few reasons why:
You don’t have to buy a new property; you can build on your existing one
If you live on the main property in NSW, you fall under the ‘hosted’ STRA rules
It’s a self-contained space with own private access
Granny Flats have myriad other uses if you decide Airbnb is not for you
Granny Flats increase the value of your property, Airbnb or not
1. Are you legally allowed to rent your granny flat as a short term rentals?
In NSW, the State Government implemented a state-wide regulatory framework for short-term rental accommodation (STRA), which includes the likes of Stayz and Airbnb, effective 1 November 2021. The legislation means that you must register yourself and the property with the NSW government and comply with certain fire and safety regulations.
Rules around how many days you can rent out the property come down to whether short-term holiday letters are just renting out a room in their own place, or renting out an entire place - 'hosted' and 'non-hosted' respectively. Hosted STRA in a dwelling can be rented 365 days per year, however non-hosted accommodation such as private can only be rented for 180 days per year in many council areas
The good news is that hosted STRA means that the host lives on the premises during the period of the accommodation provided. For example a granny flat. What this means is that if you live in NSW, whether or not you live in the main dwelling will affect your rental return on the property
Investing in the ACT? Currently, the Australian Capital Territory Government has no particular regulations in short-term rentals. The main point of difference if you own or will buy property in the ACT is the existence of Crown leases rather than freehold land. At the time of writing it is generally accepted that from a Crown lease perspective, there is nothing in Canberra’s legal framework that makes Airbnb illegal.
Always check with your local council for the latest information and regulations that may apply to your property
2. Is there demand in your area for Airbnb or short-term rentals?
It can be hard to predict how much demand a short-term rental will have and how many nights filled or vacancies you’ll have. Of course summer is more popular than winter for holidays, so with vacancies changing between seasons your income is not consistent over the course of the year.
School holidays in any period are likely to have more demand, with families in particular interested in the facilities an Airbnb has to offer, like the ability to cook kids their own food, have their own play space, and often an outdoor area for entertainment.
Check demand by searching short term rental platforms for different dates across the year.
Vacancies will change between seasons as well with summer being far more popular than winter. That also means your income is not consistent over the course of the year.
And don’t forget, when you first rent a property there will likely be more vacancies than an established short-term rental with a track record of good reviews – this could provide you with incentive to go the extra mile for great reviews for the first few guests.
3. What sort of Granny Flat should you build as an Airbnb
You can think about your Airbnb return in a number of ways. One the one hand you could try and get the lowest initial cost x return on investment, or you could go for the highest revenue in your area by offering more of a ‘destination’ experience, meaning you’ll want to make sure your Granny Flat Airbnb stands out – inside and out. Of course the number of rooms and beds you have is going to directly affect the rental income you can get from and Airbnb. Generally Granny Flats come in 1 bed, 2 bed or 3 bed designs.
If you are looking at the first option, we recommend looking at our range of Classic Granny Flat Designs. The Classic Collection showcases Cubitt’s original range of timeless Granny Flat designs. With our Classic Collection you’ll receive everything you could ever want and need in a Granny Flat at an economical price. Our classic designs offer functional and flexible spaces with open plan living and timeless features. It’s the perfect choice for investors or those looking for a more budget- friendly Granny Flat solution. Including site costs, we recommend budgeting at least $220k for a classic Granny Flat – don’t forget that is a turnkey Granny Flat – Cubitt’s can even supply the furniture!
If you are looking to have a standout, ‘destination’ style Granny Flat Airbnb, you might look to Contemporary Granny Flat Designs or our Custom Granny Flat collection. Our Custom Collection provides Cubitt’s customers with complete flexibility and the option to customise floor plans and façades to create the Granny Flat of your dreams. Choose from one of our stylish designs as your base and then adapt the layout to suit your exact needs. Browse the Gallery below and imagine how popular one of these ideas could be as an Airbnb in your area
4. How to calculate the return on your Granny Flat as an Airbnb
Once you have done your research you can start to calculate the return on investment.
Let’s say you get a quote and work out your costs to build will be around $220k. Then you estimate conservatively that you could rent out your Granny Flat for 120 nights of the year, on average for around $300 a night
- Build Cost $220,000
- Est Interest @ 6% $ 13,200
- Outgoings @ 100pw $ 5,200
- Total Costs $238,400
- Rental Income @ $ 36,000
- ROI 15%
Even with higher interest rates you are unlikely to earn interest of more than 3-4% on any cash deposit. Of course, with a changing economy, interest rates and the cost of borrowing is higher, but even if you borrow some of the money to build your Granny Flat Airbnb at a rate of 6-7%, the return show above is still much higher than the cost of borrowing. You can also deduct the cost of borrowing as we explain in the final section of our Complete Guide to Granny Flats as Airbnbs.
The example shown is illustrative only. You should also ways do your own research and speak to a financial professional.
5. What expenses can I claim on my Granny Flat Airbnb investment?
Of course, in Australia, earning additional income means paying additional taxes and accounting for these on your annual tax return. This principle applies for generating another source of income through your property such as hosting an Airbnb. A variety of tax deductions can be used to reduce your tax liability. There is of course a lot of detail you should consult with a tax professional about, but here are some things you should seek to find how they apply to you:
Depreciation is a non-cash investment property tax deduction that can be claimed over time and offset against your income. If you build a Granny Flat to rent out the construction cost could possibly be a tax deduction. Known as a Capital Works deduction, you can claim the costs in portions over several years. Check with your accountant for the latest capital works depreciation rate, but you may be able to claim 2.5% of the construction cost per year from the time that it was built, for 40 years.
You can also claim depreciation for wear and tear on any fixtures and/or fittings in the home at varying rates. This might include things such as carpets, aircon, an oven etc
You could potentially claim the below as full or partial Airbnb tax deductions on your Granny Flat:
- Interest on an applicable loan
- Council rates
- Utilities and insurance costs
- Cleaning costs
- Repairs or maintenance
- Food provisions for guests
- Airbnb service fees
- Listing and property management costs
Make sure you fully understand the implications on your tax if you build a Granny Flat as an Airbnb. For example, in normal circumstances, the main residence you live in is usually exempt from capital gains tax when you sell it. However, if you choose to build a Granny Flat in your backyard, there is a possibility that a portion of the profit you make when you sell your home will be liable for CGT.
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