What ROI will a Granny Flat deliver in 2023?

August 23, 2023

Investing in real estate has long been a favoured strategy for building wealth and securing financial stability. As property markets evolve, new opportunities emerge, and one such lucrative avenue that has gained traction is the concept of secondary dwellings, commonly referred to as "Granny Flats." While the immediate returns might appear modest, a closer look reveals that Granny Flats hold the potential for substantial long-term financial gains, particularly for residents of New South Wales (NSW) and the Australian Capital Territory (ACT). In this article, we'll delve into the financial benefits of investing in Granny Flats, shedding light on why this strategy has garnered attention from astute investors.

The Granny Flat ROI Advantage

A Granny Flat is a self-contained secondary dwelling located on the same property as the main residence. This versatile space can serve as accommodation for elderly family members, teenagers seeking privacy, guests, or tenants, offering a myriad of uses that align with modern living requirements. As the demand for flexible living arrangements grows, Granny Flats have emerged as an innovative solution, providing not only convenience but also the potential for impressive financial gains.

10BrisbaneClients-14

Crunching the Numbers: Long-Term Returns

Let's examine two scenarios that showcase the financial potential of Granny Flat investments over the long term.

Granny Flat ROI Scenario 1:

In this scenario, a 60m2 Granny Flat is constructed at a cost of $220,000 (including GST). With an equity of $20,000 and a loan term of 30 years, an interest rate of 5.35% ,the principal amount borrowed is $200,000. The Granny Flat's rental return is $1,680 per month, and considering the 9-month construction and approval period (where no rental income is generated), the figures are as follows:

  • Gross Income (per annum): $20,160
  • Net Income (per annum): $6,758.07
  • Return on Investment: 3.07%

Over the life of the loan, the projected figures are even more impressive:

  • Gross Income (life of the loan): $589,680
  • Net Income (life of the loan): $167,622.14
  • Return on Investment (life of the loan): 39.72%

Granny Flat ROI Scenario 2:

In this variation, the same 60m2 Granny Flat is built at a cost of $200,000 (including GST), with an equity of $20,000 and a 30-year loan term. The principal borrowed is $180,000, the interest rate is 5.35%, and the rental return is $1,800 per month. With the 9-month construction and approval period accounted for, the results are as follows:

  • Gross Income (per annum): $21,600
  • Net Income (per annum): $9,538.26
  • Return on Investment: 4.34%

Over the life of the loan, the projected figures stand out even more:

  • Gross Income (life of the loan): $631,800
  • Net Income (life of the loan): $249,947.93
  • Return on Investment (life of the loan): 65.46%

Granny Flat Tax Deductibility in Australia

Adding to the allure of Granny Flat investments is the fact that they are tax deductible in Australia, subject to specific conditions. This tax benefit further enhances the return on investment, making the proposition even more attractive. Read our Guide to Making Your Granny Flat Tax Deductible.

Why Pursue Granny Flat ROI?

Diversification: Investing in Granny Flats allows for diversification within your property portfolio, reducing risk and potentially enhancing overall returns.

Cash Flow Potential: The rental income generated from Granny Flats contributes positively to your cash flow, assisting in covering mortgage costs and other expenses.

Long-Term Wealth Creation: While immediate gains might not be staggering, the consistency and longevity of rental income contribute significantly to long-term wealth creation.

Adaptable Living Solutions: Granny Flats address the changing needs of modern living, providing versatile living spaces that can adapt to evolving family dynamics.

In the context of the NSW and ACT property markets, Granny Flat ROI stands as a testament to the potential for long-term financial success. As demonstrated by the scenarios outlined above, the combination of rental income, tax benefits, and the gradual reduction of the loan principal can lead to impressive returns. However, it's essential to approach Granny Flat investments with careful planning, considering factors like construction costs, rental demand, and property management. With the right strategy and prudent decision-making, Granny Flats could be your gateway to a secure and profitable real estate investment venture in NSW and ACT.

If you would like to explore whether a Granny Flat could help your financial situation, Cubitt’s offer a completely free feasibility study and quote based on detailed onsite assessments. They operate across the East coast of NSW from Taree to Moruya, west into the highlands and Blue Mountains and cover all of the ACT. Visit a showroom or call 1300 721 150.

Free On-Site Assessment at Your Property

Interested in finding out how to make a positive investment from a Cubitt's Granny Flat or Home Extension? Get in touch for a no-obligation site inspection today.

If you are looking to purchase a new property and want to do a Granny Flat Suitability Check - please use this form instead.

We require your name, email and phone number to get back to you - and the more you can tell us about your build project, the more effectively our local teams can help.

VIEW MORE OF OUR

Recent Blogs

NSW Farm Stay Accommodations FAQ

The NSW Government has made it easier for farmers to use their land for tourism activities, such as farm experiences, cellar doors and farm stays.

Read More about NSW Farm Stay Accommodations FAQ

Eco-Tourism Accommodations in NSW: A Blueprint for Sustainability

As the NSW Government throws its weight behind ecotourism initiatives, eco-tourism accommodation has a pivotal role to play in fostering sustainable experiences that resonate with today’s conscientious travellers.

Read More about Eco-Tourism Accommodations in NSW: A Blueprint for Sustainability

Building Your Accommodation Business from Scratch in Rural NSW: A Comprehensive Guide

Whether you’re envisioning a cosy bed and breakfast or a cluster of serviced apartments, here’s a step-by-step guide to help you turn your dream of building an accommodation business into a prosperous reality.

Read More about Building Your Accommodation Business from Scratch in Rural NSW: A Comprehensive Guide

What the Inland Code Means for Your Rural NSW Granny Flat Project

Are you considering adding a Granny Flat to your property in rural or regional New South Wales? The Inland Code does not permit complying development for the erection of secondary dwellings, commonly known as granny flats. This means that for the 69 Local Government Areas (LGAs) falling under the Inland Code, obtaining approval for a Granny Flat requires a Development Application (DA).

Read More about What the Inland Code Means for Your Rural NSW Granny Flat Project

Unlocking Affordable Housing: Cubitt’s Calls on Premier Minns to Take a Cue from QLD

Cubitt’s Granny Flats advocates for affordable housing solutions, drawing inspiration from Queensland’s grant incentives for smaller builds.

Read More about Unlocking Affordable Housing: Cubitt’s Calls on Premier Minns to Take a Cue from QLD

ACT Land Zone RZ1 – You Can Now Build a Dual Occupancy up to 120m and Subdivide Your Block

ACT Canberra residential zone 1 (RZ1) blocks measuring 800 square meters or more are now eligible for the construction of two homes. Here is a quick FAQ on some elements of this change to help you start planning your ACT Dual Occupancy

Read More about ACT Land Zone RZ1 – You Can Now Build a Dual Occupancy up to 120m and Subdivide Your Block

About Kate Cubitt

Kate is Managing Director of Cubitt's. She is an experienced company director, avid investor and keen to share the financial insight she's gained being a female leader in the building industry.